Up In The Air: HR Tech Deal Activity Reaches New High

HR tech deal activity has reached record levels in 2016, with over 100 deals in each of the last 3 quarters. Year-to-date, there has been $1.96B invested across 350 deals in HR tech companies as of 10/27/16.

Top deals year-to-date are all mega-rounds of $100M+ including: Ceridian, payroll and benefits management software that announced a $150M private equity investment; SnagAJob, an on-demand marketplace for part-time jobs, that announced a $100M Series D investment; and Liepin, a marketplace and recruitment platform for full-time jobs in China that announced a $100M Series D investment.

At the current run-rate, 2016 deal count will surpass last year’s total, but may lag 2015’s dollar investment. Investors poured roughly $2.4B into HR tech companies in 2015 across 383 deals, and while investors haven’t invested at the same dollar pace this year, the increased deal count in 2016 suggests investors are still finding opportunities in the category.

Using CB Insights data, we analyzed investment activity from Q1’12 to 2016 year-to-date in privately funded HR tech companies. We define this category broadly to include workforce management, payroll administration, and benefits administration software (Human Resource Information Services); along with software including employee development and workforce optimization (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.

This report contains detailed information on:

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

Annual financing history

Deal activity in HR tech has grown consistently in the last 5 years and at the current run-rate 2016 will see over 15% more deals than 2015.

Funding has also surged, especially in 2014. HR tech funding grew 129% in 2014, and remained strong in 2015, growing another 70%. But that growth trend has stalled this year. There has been $1.98B in funding in 2016 year-to-date, a run-rate that puts the year on track for a slight decline from 2015’s high.

However, 2015 funding was inflated by 3 later-stage deals that together represented nearly $750M in funding (or 30% of the total funding in 2015) including a massive $500M Series C to troubled unicorn Zenefits,  a $150M growth equity round to OneSource Virtual, and a $100M Series D to  FXiaoKe.

Quarterly financing history

Looking at HR tech on a quarterly basis, trends mirror annual activity. Deals in HR tech took off beginning in 2014, started to decline in mid-2015, and then came storming back throughout 2016, with each of the last three quarters reaching higher deal numbers than any pre-2016 quarter.

Nearly 50% of total funding in 2015 was driven by Q2’15 deals, specifically 2 deals: the massive $500M Series C round to Zenefits and the $150M growth equity round to OneSource Virtual.

Quarterly funding pace slowed in the second half of 2015. In Q4’15, there was only $354M invested across 83 deals.

Deal volume revived in Q1’16 with $755M invested across a record 112 deals and was followed by 2 more quarters of triple-digit deals. Funding declined slightly between Q1’16 and Q2’16, and again between Q2’16 and Q3’16.

Financing trends by stage

Deal share

Although the number of HR deals annually has more than doubled since 2012, the distribution of investment stages has remained relatively static. Historically, roughly two-thirds of deals in the category are in early-stage deals (seed/angel and Series A), with this year seeing early-stage deals account for 69% of share to-date. Seed/angels deals have increased this year, compared to 2015, which is likely in line with the record for deals coinciding with a decline in funding.

Mid-stage deals (Series B and C) have fluctuated between about 10-13% of deals throughout the last five years. Late-stage deals (Series D and Series E+, which includes private equity and growth equity) have ranged between 6-10%.

Our “Other” category, which includes minority investments by corporates and convertible notes, has accounted for a steady 12-14% of deals.

Dollar Share

Dollar share has fluctuated much more significantly over the last five years. Mid-stage deals have taken from 20% to 47% share in dollar value. Much of that 47% spike — which came in 2015 — was due to Zenefits’ $500M Series C deal in Q2’15.

The largest early-stage deals this year went to BizReach, a job marketplace for experienced hires ($34.5M Series A), 100Kuai, a job marketplace for college students ($15M Series A), Reflektive, an HCM software company ($13M Series A), and Handshake, a marketplace for recent college grads ($10M seed round).

The most active VC investors

NEA claimed the top spot as the most active investor in HR tech companies over the last five years. The company’s most recent deal was a $7.5M Series B investment in LearnUp, a skills-based recruitment and training platform. Andreessen Horowitz and 500 Startups were tied just behind as the second most active investors.

The most well-funded companies

The most well-funded HR tech company is Zenefits, having raised a total of $583M. The company was previously valued at $4.77B but the valuation was cut in half to roughly $2B to head off investor concern over the company’s compliance and regulatory issues. In an effort to show investors that the company has moved forward, Zenefits restructured the executive management team, went through a total corporate re-branding, and launched Z2 a new suite of HR services in October 2016.

Other well-funded companies include 2 other unicorns, Gusto and Liepin.  Gusto, a software company for benefits and payroll administration, launched a new suite of workforce management tools in October. Gusto has raised a total $176M in funding and is valued at $1B. Liepin, mentioned above, has raised $170M in total funding and the company’s last round, a $100M Series D investment in Q2’16, took the valuation to $1B. All of the companies on the most well-funded list have raised above $150M.

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