Increasing Productivity: Corporate-Backed HR Tech Investments Spike

Corporate participation in deals to HR tech startups is at a record high, with 46 deals totaling $781M in funding in 2016 (as of 10/27/16). The number of unique corporate investors, including corporate parents and their venture arms, investing in HR tech startups has more than doubled in 2 years and is at a record high of 56 investors in 2016 year-to-date.

This growth in corporate investors and corporate venture capital (CVC) groups investing in HR tech parallels the growth of the corporate venture ecosystem as a whole, which we tracked in our semiannual CB Insights Corporate Venture Capital Report.

Corporations and their venture arms—including Salesforce Ventures, Google Ventures, and Comcast Ventures—have been participating in major deals to HR tech startups including $100M+ mega-rounds to Zenefits ($500M Series D), Ceridian ($150M private equity), and Liepin ($100M Series C). In 2016 year-to-date, deals backed by corporate and CVC investors made up 40% of total funding to the category, and 16% of total deals to HR tech companies.

Using CB Insights data, we analyzed corporate and CVC investment participation in deals from Q1’12 to 2016 year-to-date in private HR tech companies. We define this category broadly to include workforce management, payroll administration, and benefits administration software (Human Resource Information Services); employee development and workforce optimization software (Human Capital Management); as well as tech-enabled platforms that help manage recruiting and staffing. We exclude staffing agencies, event and office space management software, and operations companies that provide office cleaning and management.

• Annual financing history
• Quarterly financing history
• Financing trends by stage
• The most active corporate and CVC investors
• The most well-funded companies

Annual financing history

Thus far in 2016, corporate and CVC investors have already participated in a record 46 deals to HR tech startups. At the current run-rate, corporate involvement is on track to see deals grow 33% over the previous year. Though deals are projected to grow, funding may fall short of 2015’s high.

Corporate-backed deal activity and funding has grown consistently over the last 4 years. Corporate involvement surged between 2014 and 2015 with deals increasing 68% and funding by 700%. Corporate participation trends, both in terms of deal activity and funding to HR tech companies, are similar to the overall investment trends we’ve observed in HR tech broadly, which has seen increased investments over the last few years.

Quarterly financing history

Drilling into the quarterly data, Q1’16 and Q2’16 were the top quarters for corporate-backed deals to HR tech companies, with 15 deals announced in each quarter. Q1’16 is the second most well-funded quarter for deals involving corporates, with $306M invested, falling short of the record set in Q2’15, when $678M was invested across 14 deals.

Two of the top mega-round deals year-to-date included participation from corporate investors. Ceridian, a payroll and benefits management software business, announced a $150M private equity investment led by Fidelity National Financial, and recent unicorn Liepin, a marketplace and recruitment platform for full-time jobs in China, announced a $100M Series D investment in a round that included China Mobile. Rounding out the top 3 corporate-backed deals in 2016 is FXiaoKe, a China-based software company that provides workforce optimization tools; the company raised a $70M Series E-II in a round that included retail giant Beijing Hualian Group.

Financing trends by stage

Deal share

In 2016 year-to-date, early-stage deals (seed/angel and Series A) accounted for 59% of corporate-backed deal share, while mid-stage deals (Series B and C) made up 28%. Since 20212, more than half of all deals that included a corporate or CVC investor have been early-stage deals (seed/angel and Series A).

2016 is the first year that corporate-backed deals have been spread out among all deal stages with at least 1 deal in each investment stage. Corporate-backed investments were focused entirely on early and mid-stage deals in 2012 and 2014. Investments in late-stage and other deals picked up in 2015 and late-stage deals are up 4 percentage points in 2016 YTD compared to 2015.

Corporate-backed late-stage HR tech deals in 2016 include Ceridian ($150M E+), Liepin ($100M Series D), FXiaoKe ($70M Series E +), and Glassdoor ($40M Series E-II).

Dollar share

Dollar share in 2016 is also spread out with a larger concentration of investment in late-stage deals in 2016 compared to previous years. Late-stage dollar share is up 34 percentage points from 2015, the largest increase since 2013. This increase is driven by the 4 late-stage deals mentioned above.

Corporates participated in 2 of this year’s 3 mega-round investments in HR tech startups and were a part of Zenefits‘ record $500M Series C investment in 2015.

The most active corporate and CVC investors

Salesforce Ventures is the most active corporate investor and has participated in deals to nearly 10 HR tech companies. Salesforce Ventures’ top investments include participating in a $32.8M Series A investment to BizReach, a Japan-based recruitment platform for executive hires, a $9.55M Series B-II investment to SmartRecruiters, a cloud-based recruitment platform, and an $8M Series B to Hoopla Software, an employee optimization software platform.

The next 2 biggest corporate investors in HR tech startups are Google Ventures and CyberAgent Ventures.

Google Ventures’ top investments include participating in a $60M Series B investment to unicorn payroll and benefits administrator Gusto, a $24M Series B investment to Andela, an Africa-based technical talent marketplace, and a $9M Series A to Checkr, a background screening software provider.

CyberAgent Ventures‘ top investments include participation in a $107M Series B investment to CrowdWorks, a Japanese marketplace for recruitment and placement of technical talent, a $1.4M seed-II investment to AnyPerk, a perks and rewards platform, and a $.68M seed investment to LiB, another Japanese recruitment platform.

Half of the most active corporate and corporate VC firms in HR tech are also in the top 10 most active corporate VC firms globally in H1’16.

HR Tech Most Active Corporate and CVC Investors 2012 – 2016 (10/27/2016)

Rank	Investor
1
2
3
4
4
4
4
8
8
8

The most well-funded companies

The most-well funded HR tech company that included a corporate or CVC investor is still Zenefits. Comcast Ventures participated in Zenefits’ $50M in Q2’15. The next two most well-funded companies are FXiaoKe which has raised a total of $233M, and Glassdoor which has raised a total $201.5M in funding.

70% of the most-well funded HR tech companies from our recent funding analysis received investments that included a corporate or CVC investor.

Comcast Ventures and Google Ventures are the only investors from the top corporates list that have invested in companies in the most well-funded list.

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