NEA, Andreessen Horowitz, and Khosla are the most active smart money VCs in HR tech.

The top venture capitalists participated in a record 13 deals to HR tech startups in Q1’16 but pulled back in Q2’16 and Q3’16. At the current run-rate, smart money VC deal participation is projected to dip slightly this year, compared to 2015.

Smart money VCs have participated in deals to several well-known HR tech companies including GustoGlassdoor, and Zenefits all of which are unicorns (i.e. private companies with a $1B+ valuation). That said, the slowdown does not come as a surprise as untapped subcategories within HR tech are becoming tougher to find.

Using CB Insights data, we analyzed smart money participation in privately funded HR tech companies from Q1’12 to 2016 year-to-date. Additionally, we used the CB Insights Business Social Graph to visualize how key investors and target companies are related and show where smart money investors are placing their bets in HR tech.

This report contains detailed information on:

We define this category broadly to include software in workforce management and payroll and benefits administration. We also include employee development, along with recruiting and staffing platforms. We exclude staffing agencies, event and office space management software, and operations companies that provide office cleaning and management.

For more on how we selected our 24 “smart money VCs,” please see the explanation and full smart money list at the bottom of this post.

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Annual financing history

Thus far in 2016, smart money VCs have participated in 31 deals to HR tech companies totaling approximately $444M. At the current run-rate, 2016 deals are projected to fall just short of last year’s totals.

Smart money VCs had a record year in 2015, participating in 38 deals totaling nearly $1.46B in funding to HR tech startups. However, the 2015 dollar total is inflated by the $500M Series C mega-round to benefits and payroll provider Zenefits in Q2’15, which included Khosla Ventures and Founders Fund.

The Zenefits deal is the only $100M+ mega-round investment in the category with smart money VC participation since 2012.

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Quarterly financing history

As mentioned above, Q1’16 was a record year for smart money VC participation in HR tech deals with 13 deals worth approximately $212M in funding. Smart money VCs pulled back participation in deals to HR tech companies to 7 deals in both Q2’16 and Q3’16.

Top deals to HR tech companies that included smart money VCs in 2016 year-to-date include deals to Glassdoor, Checkr, and Justworks.

Glassdoor, an online job and career forum, raised a $40M tranche of a Series E round in Q2’16 backed by Battery Ventures; Checkr, a background screening software provider raised a $40M Series B in Q1’16 in a round that included Accel Partners; and Justworks, a payroll and benefits management software provider, announced a $33M Series B investment in Q1’16 in a round that included Index Ventures and Redpoint Ventures.

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Smart money vs. overall HR tech deals

Overall investments to private HR tech companies came storming back after a dip in Q4’15, with 112 deals in Q1’16. As a category, HR tech has seen 100+ deals in the last three quarters. Both smart money VC participation and overall activity reached a record high in deals in Q1’16.

SM Compare V2

Visualizing smart money HR tech investment

We used CB Insights’ Business Social Graph below to visualize how smart money VC investors and the HR tech companies in their portfolios are interrelated.

Please click to enlarge – image includes investments from 1/1/12 – 11/6/16.

BSG V9

Here are some takeaways from the Business Social Graph:

  • Benefits and payroll in focus: Within HR tech, smart money VCs have been very focused on companies that help optimize benefits and payroll administration. More than half of the smart money cohort have made investments to HR tech companies that provide healthcare administration and payroll. Some of the most well-funded companies in this subcategory are GustoJustworksNamely, and Zenefits.
  • The most active smart money VCs: Of the 23 investors included above, New Enterprise Associates claimed the top spot as the most active smart money VC in HR tech, having invested in over 10 HR tech companies. NEA’s most recent deal was a $7.5M Series B investment in LearnUp, a recruitment and training platform. Following closely behind NEA are Andreessen Horowitz and Khosla Ventures which are tied for second in terms of deals to HR tech startups.

  • Recent deals: Reflektive, a human capital management software company, raised a $13M Series A investment in Q2’16 in a round that included Andreessen Horowitz and Lightspeed Venture Partners. Andreessen Horowitz also participated in the company’s $3.6M seed round. Lightspeed Venture Partners also co-invested with Kleiner Perkins Caufield & Byers (KPCB) and True Ventures in a $10.5M seed deal in Q1’16 to Handshake, a recruitment marketplace for recent grads. Gusto raised a $60M Series B investment in Q1’16 that included General Catalyst Partners. And Namely raised a $30M second tranche of a Series C round in Q1’16 in a round that included Sequoia Capital, our top smart money VC, as well as True Ventures.

Note: To analyze smart money trends, we looked at the activity of 24 top VC firms, selected according to portfolio valuations and investment outcomes. Some of the investors are linked to relevant research briefs. Here’s our full list of 24 smart money investors:

  1. Sequoia Capital
  2. Benchmark Capital
  3. Accel Partners
  4. Greylock Partners
  5. Andreessen Horowitz
  6. Union Square Ventures
  7. First Round Capital
  8. Bessemer Venture Partners
  9. Kleiner Perkins Caufield & Byers
  10. New Enterprise Associates
  11. Founders Fund
  12. Lightspeed Venture Partners
  13. Foundry Group
  14. Index Ventures
  15. Khosla Ventures
  16. Social Capital
  17. Emergence Capital Partners
  18. True Ventures
  19. Floodgate Fund
  20. General Catalyst Partners
  21. CRV
  22. Spark Capital
  23. Battery Ventures
  24. Redpoint Ventures

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