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An Investor’s perspective

Devyani Vaishampayan discusses the top three factors investors consider when looking to invest in HR Tech

The HR TECH Partnership is a very unique funding venture as it focuses exclusively on people digital start- ups and all its investors have corporate experience in the human capital space. It can therefore add tremendous value to any investee company (aimed at big enterprise) through public backing by senior level HR professionals, access to their network and potential mentoring. As its Managing Partner and an ex FTSE 100 CHRO, my perspective as an investor therefore tends to be slightly different than most VC’s.

My first advice to any HR tech start-up is to be realistic about how an average HR professional views technology. The HR TECH Partnership (along with Frazer Jones) did a survey of 15,000 global HR professionals and its results were insightful. On one hand, 95 % claimed that use of technology would enable HR to become more strategic and 77% believed digitisation would strongly shape the future of work. Dig a little deeper however and some of the inherent biases in the community start showing. While social media and cloud- based platforms were more prevalent, less than 25% were adopting leading edge technologies such as AI. Corporate workplace digital innovation is still nascent with 72 % saying they do not do anything (either use a start-up or take part in an innovation activity). Budget, training and lack of management support were claimed as the limiting factors. But the fact that 42 % believed the use of technology undermines the human touch reflects a certain lack of understanding, fear and resistance to its use. It is easy for tech start-ups (who are at the other end of the continuum) to overestimate readiness and adoption by corporate HR functions to their products and solutions.

The top three factors that the HR TECH Partnership considers as particularly important while investing in any start-up are:

  1. Does it solve a particular pain-point?

As experienced senior HR practitioners in large international businesses, my investors and I have a sound understanding of the practical issues that need solving. By contrast most start-up founders have never worked in a corporate HR function. It is important that any product is aimed at solving an actual problem. As an example- employee feedback solutions are getting very common. However, what a lot of line managers need help is in giving ‘difficult feedback’ to an underperforming employee. I have yet to see a good product around this. Adoption rate by corporates is another factor to consider. Sometimes a great technology or product could be too early to generate momentum in sales. Finally, our network within the HR world gives us the advantage of getting reliable feedback around actual application. I started tracking our current investment RecruitmentSmart a year ago when they were still in the pilot phase for a large global firm. As I knew the CHRO well, I was able to get realistic feedback on how RecruitmentSmart were doing (and their claims on performance). Smart start-ups understand that they don’t just get funding from the HR TECH Partnership but a strong endorsement recognised by other HR professionals!

  1. Founder Team

As we invest in solutions for large enterprise, an important consideration for us is the background and experience of the founder team. A lack of experience or exposure to corporates (either as an employee / supplier/contractor etc) will lower the chances of success. Similarly, a strong track record (either educational/ extra- curricular/work history) indicates an achievement orientation that is important for a start-up. The founders of our current investment, ‘RecruitmentSmart’ typify this. Both have an engineering degree from the top school in India (admission rate is around 0.1 %) in addition to having management qualifications. They have both worked for large consultancies (CapGemini and EY) and are second time entrepreneurs. As investors, this reduces our risk of failure.  

  1. Partnerships

As any start-up knows, apart from getting your first paid pilot, the biggest challenge is in scaling up. Selling to large enterprise can be a long painful process. Having a partnership with either a HR technology firm or consultancy can go a long way in creating a pipeline of sales leads. One of the things we found attractive about RecruitmentSmart is that their partnership with SAP and Accenture currently gives them around 10-12 leads per month.

The life of a start-up is not an easy one and I am full of admiration for the folks who go down this difficult route. The HR TECH Partnership tries to achieve a balance between supporting innovative ventures and ensuring investors get a good return!