Transcript
Mark:
Welcome to PeopleTech, the podcast of the HCM Technology Report. I’m Mark Feffer. In its seven years, the startup Joonko developed a hiring platform focused on DEI, employed dozens of people and raised a total of $38 million and now it’s gone. A couple of weeks ago, the board of directors said the company’s results had been manufactured and much of what the founder and CEO had told them had no basis in reality. Today I’m joined by William Tincup, the president and editor at large of RecruitingDaily. We’re going to put Joonko’s collapse into perspective, look at DEI efforts in general and talk about what investors are thinking today, all on this edition of PeopleTech.
William, it’s nice to see you.
Tincup:
It’s nice to see you as well, Mark.
Mark:
So Joonko recruiting platform focused on DEI, raised $38 million and looks pretty much to have closed because the CEO seems to have been not telling the truth to the board. And it all seems to happen also very quickly so what were your observations?
Tincup:
A couple things. I’m shocked that this doesn’t happen more often because money is so plentiful and the place that we work in, let’s say recruiting technology in some cases it’s so hot that I can see where people get caught up. Not quite the dot-com era, like you go to a coffee meeting, someone then says, okay, we’ll put $7 million into your company subtype stuff. But pretty close. I can see where people don’t do their due diligence as much because for the fear of missing out. So I’m shocked. On one level I’m shocked that we don’t hear about this more often. That’s the first thing that I would tell you. The second thing is, there is an irony of this is being the second that we know of, the second where this has happened to a company that focused on DEI. There was that whole Untapped, Canvas, whatever their name is now, where they got into trouble, not about finances as much as the optics of a lot of well-intentioned, of white folks that were trying to fix DEI.
So theirs was a different problem, but the result was kind of same type of cataclysmic kind of event. They didn’t lose funding and didn’t go under per se, but they did take a real hit because their momentum at the time was really, really good. And all of a sudden that happened. And again, that was more of an optics, not a finance thing. With Joonko, I met her, I met the founder that’s talked about, I met her at Unleashed, did a briefing with her, did a podcast with her and just thought the world of her. I thought she was really, really sweet. She had her baby with her, little, a newborn. She had her newborn with her, and in one of those little things that you carry and just like I thought she was just really trying to fix things. So I could see where people could get, like fall in love with a person, fall in love with a solution, and then maybe it wasn’t doing everything it was supposed to.
I was telling you this last week, I read a lot of, with this one in particular, I won’t read the American News as much as the Israeli news to then find out what’s really going on because they’re based in Tel Aviv and so it’s pretty harsh. The things that have been levied against them, all the executives have quit, as I understand it. Most of the employees have quit and they’re turning out the lights. This isn’t a, hey, we had some indiscretions or didn’t do a great job of auditing. That’s what I thought it was at first. When I first read it I thought, okay, so the board wanted her to do better job of internal monitoring and this, that and the other.
I was like, okay, well that’s true of a lot of startups. They get into a certain place, their accounting hasn’t evolved at the same pace of maybe their product or sales and marketing. And the board wants to make sure that they’re doing the best by the shareholders and they want to be physically conservative, responsible, et cetera. And I thought she just wasn’t taking their advice. Okay, well that happens with entrepreneurs. They’re wild cards. That happens. I deal with entrepreneurs every day. Yes, sometimes they take your advice, sometimes they don’t. But this one seems, now that I’ve poked around it a bit more, this seems a little bit deeper than just an entrepreneur not wanting to take advice.
Mark:
Is this part of any kind of trend in the startup world or is this kind of a one-off?
Tincup:
It’s a one-off because, well, it’s a one-off for me because this again is a great example for everyone that’s interested in work tech or HR tech or whatever is as kind of a cautionary tale. So if you’re in a rush to fund somebody, you don’t want to be like this. You don’t want to be Joonko. Joonko’s now going to be a Q-tip of our industry. Then say, well listen, you don’t want to be that. You don’t want to be in that rush. Yes, you want to get a term sheet. Yes, you want to fund them. Yes, you believe in a product, but you don’t want to be in so much of a rush that you don’t do your due diligence. That’s audited financials. It’s all kinds of things to make sure that you’re putting that much money into a company. You just got to make sure that…
You expect that there’s some things that an entrepreneur has done throughout the time, the tenure that’s not perfect because that’s not their bid unless they came up through finance, which most of them don’t, they’re not, the financial house isn’t in order. But there’s things that are like, I deal with this lawyer who’s on one of the funds I’m involved with, and all he does is undo what founders do. His whole bid, he lives in the Caribbean and he’s used to, okay, it’s a Canadian company, they’ve got an S-corp in Delaware. We need to make it into a C-Corp because S-corp has this type of tax implications or we need to do this.
He knows how to basically take all the mistakes that they’ve made and then triage those into and into make the books be a certain way so that the next funders can come in and go, “Oh yeah, the books look straight.” So I think they’ll be used as a cautionary tale. I don’t think it’s like we’re going to pop up and go. By the time we get to HR Tech, it’s like, oh, here’s 12 more Joonko’s. I think this was a really a one-off deal, but I think it’ll be used in a positive way of, “Hey, don’t be in a rush.” Don’t be in a rush and make mistakes along the way in terms of due diligence and not a bad thing for practitioners either, for them to understand things like this.
Mark:
The investors said that they did serious due diligence before their, I guess-
Tincup:
Yeah.
Mark:
So it’s like everything you’re saying makes perfect sense. But then here they say, “Well, we did the due diligence.” How could they do the due diligence and not find some of this stuff?
Tincup:
That’s right. So either you did and you’re incompetent or you didn’t. You can’t have it both ways. If you’re going to say, we did the due diligence, then it’s like, well then why didn’t you find these things if you did the due diligence, somebody needs to be fired. Or probably the better, probably what really happened is they trusted the due diligence that was already there and they didn’t do their own. They basically said, yep, we trust that. And what was it, Reagan that said trust but verify. I can’t remember who said that.
Mark:
Yeah, yeah.
Tincup:
So the verify part on that is the most important for funding people is just you got to make sure. You can’t leave it to chance. It’s not your money, that’s the thing. When you’re on the private equity or even the VC side of things, it’s not your money. You’re using other people’s money. So you’re the steward of this other group of people’s money. So skipping due diligence, I mean I think the more due diligence, the more arduous to due diligence the better so that you know what you’re getting yourself into. Good, bad, and ugly. Okay, we have so much technical debt. All right, well if I know it. Okay, I can deal with it. We have these liabilities, we have this line of credit, we have our employee contracts. Our employee agreements aren’t all signed and up to date. Our customers are only paying month to month. I can deal with it if I know it. If I don’t know it, I can’t deal with it.
And so I think that this hopefully will be a reminder to all the investor community and the entrepreneurial community to just make sure they have their houses in order. And as an entrepreneur, you shouldn’t be scared about due diligence. Due diligence is like taking your car to the mechanic. You know what I’m saying? You clean your car, you take care of your, make sure you’ve got oil and tires and air in your tires, all that stuff. But at the end of the day you take it to the mechanic and they’re going to plug it into a computer and tell you what’s going on with your car. Same is true of funding agents. When they fund, they’re going to find things. That’s their job. Find those things and in the case of Joonko, they should have done a better job of finding these things.
Mark:
What did you think of their idea? What stood out to you as being the thing that set them apart?
Tincup:
Well, I didn’t get to set them apart out of the technology. So I used to say me too technology. You can’t say that anymore. But anyhow, it was a like technology that is not unlike probably 20 others in the marketplace. If we were go to G2 right now or TrustRadius or whatever, and look at DEI software, that’d be 80 different software links. How different are they? Nothing stuck. Nothing stuck. What I liked in both conversation, people can go back and listen to the podcast, I’m not going to take it down just because of what happened to them. What I liked was the entrepreneur. Ironic as it may seem, as we look through the lens of today. Her, I was betting on her. If I were making an investment, I have to do due diligence, I’d be investing in her, not the product as it was.
Mark:
Do you think there’s folks out there who will jump into the space that Joonko’s left or were they really just one of a number of companies doing this?
Tincup:
I think it was, again, a lot of things led up to this. Me too, love is love, Black Lives Matter, George Ford getting killed right in front of us. DEI was the hottest thing. There’s a lot of positions on corporate that were made. There’s a lot of budgets being spent, a lot of software being sold. The difficulty now is there’s not as much energy. I don’t know if you’ve felt the same thing in some of the conversations you’ve had. No one’s going to say that they’re against DEI. That’s saying you’re against handicapped people or the elderly or some shit. I hate children. Most people aren’t going to say that. No one’s going to come out and say, I think DEI is just dumb and why do we spend money on it? I just don’t think it’s going to get the funding. That’s my personal take is that DEI is on the downward slope of getting funding.
And I think you’re going to see people getting defunded, meaning people that had those positions in companies. And I think that the software, so I think that anybody rushing into that market, you better have an alternative strategy on how not to just sell into a DEI officer, maybe sell into a CFO with a technology that shows DEI and how customers respond to it. You’re going to have to show something different other than it’s a good idea. Everyone will agree. Yeah, we should be more diverse because our customers are more diverse. It makes us closer to our customers. Like this okay, this is just common sense. Problem is you and I would just be plodding along going, “Yes, this is common sense.” And then you look at the Supreme Court’s case last week, striking down parts of affirmative action, parts specifically related to universities and admissions.
If we don’t think that that’s coming to a theater near us in work, we’re crazy. That’s already in the state courts, that’s already in the appellate courts, that’s already going to happen. It’s going to happen. They’re going to strike it down at work as well. So now those that want to do the right thing are going to find it even more difficult to make a business case to do the right thing. So I don’t think there’s going to be a rush into Joonko’s vacancy. If I were creating a business right now, I don’t know if I’d target DEI as much as I would target the financial reason for DEI. You know what I’m saying? I wouldn’t parsing whether or not you have X number of LGBT, X number of African American women this age, this, that and the other.
I’d throw all that out the window. If I were building a company, I’d build it based on customer demographics and how can we get more out of customer demographics based on our own demographics. No, that’s a B2C play, not a B2B play. And that would be interesting. It’s like Gainsight for customers, but going deeper into the relationship of their psychographic demographic data and then selling that back to the CFO and saying, “We’re too far away from our customers.” We could get them to spend more with us if we did these things. Hire competent people. Which brings me to a discussion that we should have, but hire competent people so that we’re more closely aligned with our audience.
Mark:
Right.
Tincup:
Back to competence, we will see an increasing dialogue on hire the most competent person. In the coming weeks, months and years as it leads up to affirmative action being reversed for work you’re going to hear, especially out of the conservative corners, you’re going to hear a whole lot about competence. We just need to hire the most competent person. Just need to hire the most competent person. Doesn’t matter. Need to hire the most competent person. You can just kind of hear the talk tracks that’s going to happen. And they’re not wrong, by the way, said that argument. While we might not like it on some level, they’re not wrong. Well, I can’t remember the SNL comic, but he’s got a bit on airline pilots and he’s like, “Your DEI makes sense up until you talk about airline pilots. Do I want my airline pilots to be the most diverse or do I do just want them to land the plane and take the plane off and arrive on time?
And whether or not they’re white and old or whatever, I don’t care.” That argument, we don’t like that argument. That argument with probably 50% of America holds weight and they don’t see it as racist. They see it as why wouldn’t you want a competent surgeon? Why wouldn’t you want a competent attorney? Why wouldn’t you want a competent dentist, et cetera. And they’re not wrong. We do. I used to use this example to really piss people off. I’m like, yeah, everyone’s liberal up until the point where you get jammed up with a felony and your lawyer’s wearing flip-flops, then you’re not fucking liberal.
Mark:
Yeah.
Tincup:
That’s the moment you turn. I don’t want a guy in flip-flops. I want the guy Harvard educated. I want a ruthless SOB to rip this thing in shreds and get me off.
Mark:
So with all of that as background, the court rulings that you were talking about, the politics of it, the societal feelings of it, how are those related to the downward trend of venture funding going into these companies?
Tincup:
I can tell you from what I see is the venture funds themselves too, they’re having a hard time raising money. So it’s gotten tighter on them because they go around to family offices and other large funding agents and they get money from them. They’re having difficulty proving the ROI of their last fund and proving the ROI of the investments that they have right now, their thesis, all VCs have a thesis in which they’re all probate equity firms. They have come with a thesis and they’re having a hard time proving their thesis to be true because of the uncertainty in the market. Not just COVID, but three different versions of COVID. COVID where you fired everyone, COVID where you hired everyone, COVID where you fired everyone. COVID where you’re like, “Oh, we were done. Oh my god, things are going to be great. Oh shit, now they’re not great.”
No one can get their feel for what’s actually going on with this economy. We say we’re in a recession, but we’re not really in a recession when it relates to certain industries. Certain industries are booming. You can’t hire fast enough, you can’t hire enough. And I think the VCs, where they’ve gotten conservative is their money has got conservative. So the money that they represent has gotten and raising money they’ve got conservative. And I would throw in the X factor of chatGPT at OpenAI. So when that became commercialized just a couple months ago, a lot of people that study large language models have known about it a long time and all that other stuff, but when it became mass marketed, I think a lot of the VCs hit pause on a lot of their deals and went, wait a minute, this is disrupted.
This is like the internet. This is disruptive. I really like this telecom play that I’m about to put money into, but wait a minute, how will AI disrupt that telecom play? And I think all of them, probably not a bad idea, by the way, I think all of them hit the brakes. And so they look at, we have to be more conservative. Our money is more conservative. Oh, by the way, there’s this new X factor that could be more of a paradigm shift than the internet, which is hard to believe as we sit here and think. But you know what, I see on Instagram, I see AI models. I see AI models that walk, talk, eat, dance, total AI, totally made up. Why do we need actors? Why do we need actresses? Why do we need TV commercial? Why do we need models? So if you can think about it from that perspective, it can disrupt anything.
If we point it that way and it does a good job and it learns, what can it not disrupt? So I think to answer your question, it’d be twofold. The money got conservative, got scared, which is what happens generally when you have some type of economic instability or whatever. The other thing I think that we have to talk about is chatGPT and AI in general, and how funding agents are looking at that and saying, “Oh shit, how is this changing our entire portfolio? How is this changing everything that we do? How is this changing the way that we invest?” They’re having a real true moment of if the world makes sense, the world was round, mostly blue, made sense to people in the VC world prior to AI, with AI doesn’t make sense. And they’re all trying to figure out how to make sense of this new world.
And in doing so, they’re not in a rush to put money into something unless like Beamery, they have their own large language model that’s talent. You wrote about it as well. TalentGPT, where they’ve been doing it for two years, making their large language model focused on their customers. Speaking, recruiting, candidate, hiring manager, et cetera. Now that’s actually worth funding because they’re ahead of the game. They’re ahead of anybody that they would compete with because they’re two years ahead. So if I were writing checks, I’d write checks for that because they’re already got a heads… You can put them into growth mode, throw 30 million at it, and it’s like they don’t, all they need to do is go market it.
Mark:
William, thank you. Thanks for being here.
Tincup:
Vice versa, brother. Thank you for having me.
Mark:
Today. I’ve been talking with William Tincup, the president and editor at large of RecruitingDaily, and this has been PeopleTech, the podcast of the HCM Technology Report. We’re a publication of RecruitingDaily. We’re also a part of Evergreen Podcasts. To see all of their programs, visit www.evergreenpodcast.com. And to keep up with HR technology, visit the HCM Technology Report every day. We’re the most trusted source of news in the HR tech industry. Find us at www.hcmtechnologyreport.com. I’m Mark Feffer
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