UKG Startup Market Analysis

Executive Summary

This report will break down the $12B in funding and give an overview of startups in the HR Tech space. This paper also details the recent behaviors of three active players in the space, Acadian Ventures, Firework Ventures, and Sequoia Capital.

In 2022, HR technology startups closed nearly $12B in funding (as of November 2022). These dollars were deployed in four key areas: Human Resource Management Systems (HRMS), talent acquisition, talent development, and talent engagement platforms, with $4.18B, $3.96B, $2.57B, and $1.08B invested in each space, respectively. These investment figures suggest investors have spotted value in these four categories.

Numerous themes emerged when analyzing the investments made across these categories. HRMS platforms are more unified than before and offer more features, while talent acquisition focuses on the demands of a growing remote workforce. Automation and growing technology have created new educational opportunities for employees in talent development. Overworked employees want to be engaged, be heard in the workplace, prioritize overall wellness, and integrate balance in their daily lives. The surge in the remote workforce has led to new challenges for talent acquisition — hiring and assessing candidates with culture and engagement in mind will become more popular as platforms work toward better productivity systems. There is a rise of subcategories in talent engagement that better align with organizations as they fight to address unprecedented labor shortages. In addition, top investors are focused on virtual reality, health, wellness, and data and financial security adjacent to HR technology.

Four Themes in HR Tech Funding — HRMS, Acquisition, Development, and Engagement

HRMS (Human Resources Management Systems)

The HRMS category was the most funded in the HR technology space this year, reaching nearly $4.18 B in funding. HRMS platforms integrate subject matter expertise and core HR capabilities. Unified HRMS usually manage payroll and benefits and provides automated team management, time tracking, and insurance management solutions. Depending on the appeal, different startups integrate subject matter expertise that differentiate products.

In 2022, Gusto, Personio, Tilt, Rippling, Lucca, and Darwinbox were some of the most funded HRMS platforms. These five startups alone raised over $1 B from investors like Y Combinator, Techstars, 500 Global, and General Catalyst.

Gusto offers a cloud-based payroll, benefits, and HR management platform to provide and manage employee benefits.

Rippling helps businesses manage and automate all their employee systems in one place and onboard in 90 seconds.

Personio is an HR management and recruitment platform for small and medium-sized organizations.

Tilt focuses on employee retention and is designed to automate workflow management.

Lucca is an internal management platform intended to automate administrative and HR processes in organizations.

Darwinbox is a SaaS-based, easy-to-use platform designed to transform the interaction between the workforce and technology.

These platforms offer the highest utility features and holistic solutions, which correlate with the current market need and may explain the high rate of investment in this category. Additionally, new entrants like Velocity Global, Flex, Ease, and Kakeai are approaching the category and have received funding most recently.

Talent Acquisition

Talent acquisition was the second most funded category in HR technology, reaching $3.96 B. In 2021, funding for the talent acquisition category reached $5.94B — the biggest year yet. The funding slowdown severely affected this category, and deals dropped by almost 39% in 2022. Before the decrease in venture capital funding, funding in this category was quite unsteady YOY over ten years. In 2022, most of the talent acquisition deals happened at the beginning of the year and steadily decreased every quarter. The new working methods likely brought the surge of funding in 2021.

This environment paved the way for new platforms and venture funding opportunities. As of November 2022, Series A and Series B startups received the most deals compared to all other stages — investors like Sequoia Capital, Y Combinator, Google Ventures, and IDG Capital were among the most active Series A investors this year. A few startups worth monitoring are Omnipresent, TestGorilla, Multiplier, and WorkMotion, as they were among the most funded in the Series A and B deal type — ranging from $72.65 M to $138.36 M seed amounts.

Omnipresent is an HR and onboarding platform designed to operate global teams efficiently. The company handles the hiring and onboarding of full-time personnel internationally.

TestGorilla is a pre-employment test application designed to help find suitable candidates. The company’s platform features multiple test types: cognitive ability, programming, software skill, personality, and cultural fit.

Multiplier is a platform designed to hire and manage anyone, anywhere, in a few clicks. The company’s platform helps entities to hire and onboard anyone globally without opening local legal entities. This platform streamlines the payroll and accounting workflow with employee details, expenses, holidays, pay slips, and invoices, enabling businesses to keep track of the global team and salary payments in a single dashboard.

WorkMotion is a cloud-based global workforce management platform intended to assist employers in managing hiring processes. The company’s platform allows employers to recruit employees abroad, manage international employees, consolidate global payroll accounting, and manage freelancers, enabling organizations to hire globally without the need to set up legal entities abroad.

Though funding has slowed this year, remote work has introduced new ideas that still gained momentum with investors, especially as businesses adapt to the latest global workforce. The most prominent investors in talent acquisition were FJ Labs, Techstars, Y Combinator, Gaingels, Lightspeed Venture Partners, and Service Provider Capital, who invested over $685.56 M in top-funded companies like Jobandtalent, Insight Global, Remote, Handshake, and Oyster.

Companies like TestGorilla and The Predictive Index emphasize hiring and assessing candidates with culture and engagement at the forefront of hiring decisions and not solely based on skills. An article posted by IBM disclosed that many of talent problems did not only exist in technical skill ability but in behavioral skills. Talent acquisition is still an evolving, maturing adventure. Personalities and work preferences are not included when deciphering people and making the most intelligent hiring decisions. This is a topic to consider regarding acquisition as it may lead to an opportunity for UKG and the future of work.

Talent Development

Talent development and learning platforms remain the third most funded HR technology this year, closing at $2.57 B. Just like other categories, there was a decrease in funding in 2022 across all learning categories, even outside of this space. In 2018, the learning and education category started to pick up, and by 2021, the category had experienced its highest growth yet. Globally, all EdTech platforms received more than $20 B funding in 2021, a massive increase from $16 B in 2020.4 According to Pitchbook, there was an upward trend in talent development as more organizations addressed skills gap issues before the funding drop in 2022. However, startups like GO1, Multiverse, Guild, Strivr, and Transfer are still focused on creating unique educational platforms.

GO1 is a software platform that allows users to train staff or customers. Users can quickly create their own courses or use one of the existing courses in its growing marketplace.

Multiverse matches ambitious non-graduate talent to professional services and digital roles, then delivers job-relevant applied learning throughout their apprenticeship.

Guild enables employers to offer education as a benefit and tuition reimbursement to their employees via a technology platform that allows HR leaders to track outcomes data — including recruitment, retention, and promotion — to measure the return on educational benefits.

Strivr provides Immersive Learning solutions that leverage a methodology that combines virtual.

These startups received about $668 M from top investors, such as StepStone Group, Five Sigma, Wellington Management, and Sequoia Capital.

A look into the different verticals of learning software shows a trend in funding for virtual reality-based learning this year. In Q3, digital health startups applying augmented and virtual reality technologies reached a new high, logging $239 M compared to $198 M in 2021.5 Virtual reality-based learning was one of the few categories not negatively impacted by the funding slowdown. This category had the same number of deals in 2021 and 2022 — and the deal sizes were much more significant. From 2021 to 2022, funding for virtual reality-based learning had tremendous growth. The overall funding for all educational and learning platforms in 2022 reached $47.04 B. The combination of investor interest in employee development and the high growth rate of virtual reality-based learning makes this an important category to watch.

Talent Engagement

Talent engagement platforms were the fourth most funded category in HR technology, closing at $1.08 B. Platforms primarily focused on employee health and wellness thrived in 2022. Engagement platforms increased funding from 2021, where the year ended at $1.06 B, and experienced increased deals from 125 to 135. This year, 26% of the engagement financing went directly to employee health and wellness. This category is influential in the industry and addresses pertinent issues that people deal with daily. As organizations work to become more holistic, technology platforms are evolving this way. Organizations need to accommodate societal changes and behavior. In the current market, startups must address issues and still offer the utility that businesses need. Startups like Lyra, Moka.Care, Lafool, Mindgram, and Wellin5 received close to $32 M in funding this year on behalf of venture capitalists. Lyra is a digital health platform transforming mental health care through technology and the human touch.

Moka.Care operates a comprehensive platform to help employees find the proper mental care.

Lafool, Mindgram, and Wellin5 offer counseling services to improve mental health.

This may indicate that organizations want to enhance employee experiences by being more well-rounded and focusing on employee listening, communication, performance management, and reward and recognition initiatives. This trend in 2021 may also have to do with the tremendous stress people face in the workforce. A report found that employees at risk for burnout increased from 63% in 2019 to 81% in 2022.

The talent engagement category spans subcategories, such as employee appreciation, leadership development, upskilling, and personalization emphasis. Funding had slowed down in the employee appreciation and awards subcategory compared to 2021, when the funding reached $802 M. However, in 2022, startups focusing on employee appreciation, like WiiSmile, Perks, Miive, and Xoxoday, have received close to $190 M. WiiSmile is an employee rewards company that works alongside experts to promote the engagement of their employees by improving their quality of life and that of their families. Perks is an employee perks platform designed to assist companies in prioritizing a positive work culture by focusing on employee happiness.

Venture capitalists like Kleiner Perkins, Icehouse Ventures, and Y Combinator have contributed to funding this year dedicated to improving employee health in the talent engagement category and were the most active in 2022. Based on investor activity, companies like Bonrepublic, AwardoCo, Headversity, Holivia, Unmind, and Sunny Day Fund are new startups to watch out for in the talent engagement category.

Investor Spotlights

Acadian Venture Investments

In 2022, Acadian Ventures had the most active funding year to date. Almost all the startups that perked Acadian’s interest this year were dedicated to talent engagement by improving employee experiences and, more specifically — employee wellness. The second most funded category for this investor was talent development, where companies like Techwolf and Fifty developed unique concepts to address skills gap issues amongst employees.

Firework Venture Investments

In 2022, Firework Ventures funding focused on learning in the HR technology category. Over the past 5 years, Firework Ventures’ funding has concentrated chiefly on teaching platforms dedicated to human capital management. Throughout 2022, Firework Ventures displayed that same interest but contributed far less venture capital in general, which aligns with the decrease in venture funding that the markets experienced this year. However, the investor ended the year with its most significant contribution out of every quarter in 2022 — a telehealth platform focused on children’s physical and mental health.

Sequoia Capital

This year, Sequoia invested almost 58% less than the year prior. In 2021, the investor contributed nearly $26 M compared to 2022 at $11 M. Respectively, Sequoia funding in 2022 is still up 35% compared to the 2017–2020 period year after year. According to Sequoia, the current market strongly prefers companies that generate immediate cash and follow default-aligned principles.

Default alive-focused startups increase product development efforts by focusing on fundamental problems and increasing users. Early usership is essential for business growth as it will lead to more feedback and advice for better product differentiation.

Sequoia has twelve active investments in HR technology, predominately focusing on talent acquisition. Sequoia’s funding in HR technology was scarce this year compared to other industries. Most of Sequoia’s active investments cater to the talent acquisition category — HireVue, Rippling, Untapped, Manara, and Wonolo alone have collected over $1 B this year in funding. Startups like Talentora and Blendoor are the most unique platforms Sequoia’s is invested in. Talentora is a mobile app designed to assist creative individuals in turning their passions into potential careers. Blendoor is an inclusive recruiting and analytics software designed to mitigate unconscious bias.

Sequoia mainly invested in later-stage categories this year. Remote, Truework, Clipboard Health, Switchboard, and Kona were among the startups that Sequoia funded, with Switchboard and Kona being early-stage startups. In the later stages, 50% of Sequoia’s funding in the HR technology space catered to talent acquisition. Remote is a platform designed to enforce global hiring, and Clipboard Health is a platform that was built to provide staffing services in the healthcare industry. The other two companies are geared toward addressing particular business problems that align closely with the default alive strategy. Truework is an API platform that automates income verification and integrates many systems to deliver quick turnarounds. The commonality with these later-stage startups is their distinctive nature to address pertinent issues. 50% of Sequoia Capital’s overall investments went to later-stage categories.

In contrast, the other half went to early-stage categories, revealing that Switchboard and Kona are early startups worth paying attention to. Switchboard is a shared workspace platform designed to make teams more productive, organized, and collaborative. The company’s platform provides rooms that organize all the apps and docs in one place, enabling co-workers to manage recurring meetings, projects, and tasks effectively. Kona is a SaaS software that uses text as the sole input to understand human psychology, provide personalized, actionable insights, and help find the right person for a particular role. Sequoia’s perspective on business strategy is indicative of the funding slowdown in 2022 and may explain its need for more confidence in many human resource technologies in the early-stage category.

There is a correlation between rising data security concerns and Sequoia’s contribution to this industry vertical. It may be necessary for UKG to pay attention to Sequoia’s recent investments, as these verticals may coexist in the HR technology space in the future. In the last six months, a look at Pitchbook shows Sequoia’s early-stage funding went mostly to data management and financial security startups enabled by blockchain technology. Island, Chainguard, Privado, Stairwell, and XYZ are a few companies dedicated to this effort. Island is an enterprise browser that allows work to flow freely while remaining fundamentally secure. Chainguard is a security software catered to securing software lifecycles. Privado is privacy management software designed to assist companies in complying with data privacy laws. Stairwell is a cybersecurity software used to empower security teams to outsmart attackers, and nxyz is a provider of blockchain data intended to enable creatives and entrepreneurs to build a better internet for all. Early startups to follow are companies like Sunny Day Fund, as they offer employees assistance when navigating their finances and encourage intelligent financial advice. In 2022, venture capital funding for employee financial wellness increased almost 40%. Venture capitalists like Matchstick Ventures, Tomorrow Ventures, and Crosscut Ventures have closed nearly $112 M in funding to startups like Branch, Finfit, and Tapcheck. Sequoia’s interest in the data and financial security verticals may interest UKG as HR technology adopts new concepts like data ownership and financial wellness.

The 250+ Startups to Watch

The HRMS category outperformed others this year, and there are plenty of early-stage startups, such as Velocity Global, Flex, Ease, and Kakeai, that work to improve work efficiency and employee experience through digital transformation. These four startups alone have raised almost $440 M this year.

In talent acquisition, there is a significant focus on expediting the hiring process. Startups like A.Team offer a more nuanced approach to recruiting; the company helps companies find talent outside their core competencies. The startup collected $55 M in funding, a standout in the early-stage category. Omnipresent, Multiplier, and TestGorilla were amongst the top funded by investors at $249 M by the first half of the year. These platforms offer comprehensive approaches and time-saving features.

This year showed no slowdown in virtual and augmented reality funding, especially in development and education. Additionally, the overall funding for all educational and learning platforms in 2022 reached $47.04 B. Learning and education are the biggest category in virtual reality-based experiences, next to video games.

Early startups like Immerse, Shift, and FireflyVr received over $10 M in funding in Q1 and Q2. Immerse is a language learning platform. Shift is a platform that aims to treat students equitably, while FireflyVr is dedicated to improving mental health through immersive experiences. Virtual reality is experiencing introductions in many industries, even our space, as we have seen applications in the past, like Pixel Labs, address diversity and inclusion concerns. This indicates that UKG should pay close attention to this vertical and how this technology and talent development will dictate the future of work.

The talent engagement category addresses several ways to enhance the employee experience. The technology in this space is very creative, with new categories like reward & recognition. Even though reward & recognition platforms did not receive the most funding in the engagement category, it is still worth noting that these platforms may assist with residual effects that come with employee burnout issues, which are increasing year over year.

Startups like Bonrepublic and AwardCo are early-stage startups in the engagement category that aim to increase team morale. The Health & Wellness category received the most funding, and many platforms like Headversity, Holivia, and Unmind aim to tackle mental health issues and increase workplace resilience.

Sequoia’s funding behavior in 2022 indicates a need to improve data management and financial security measures for people. Finwello Inc. and Sunny Day Fund are early startups to follow, as they offer employee assistance when navigating their finances and encourage intelligent financial advice. In 2022, venture capital funding for employee financial wellness increased almost 40%. As HR technology considers ideas like data ownership (passports) and financial wellness, there may be a need to increase security measures once these new concepts take off in the market.

This year, New York City Council passed a law requiring employers to disclose pay ranges in job advertisements. However, other states like Colorado, Maryland, Nevada, Rhode Island, Connecticut, Washington, and Ohio were the first to adopt salary transparency laws. As legislation typically takes time, startups like Compa aim to automate offer workflow and make fair and competitive offers at scale. In 2022, Complete, Figures, and OpenComp were the highest-funded compensation startups in recent years; these three companies alone have collected $41 M. These startups primarily focus on data collection to ensure fair pay for employees. This is worth paying attention to as we start to see major companies like American Express voluntarily disclosing pay ranges in every US state.

Conclusion

This year, there was still a $12 B opportunity in HR technology despite a 15% decrease in HR technology funding compared to 2021. While global funding remains 23% down across the board, HR technology still outperforms most categories in the market.

In November 2022, series A and B startups received the most deals compared to all other stages. This shows that there is a lot of creativity in the market, and in combination with utility, it is enough to keep investors hopeful of the HR technology space. Emerging technology like virtual reality is on the up and up and thrives when utilized in education and development categories. Hiring is becoming more comprehensive, with a major emphasis on personality and culture, especially as remote work surges. In every category of HR technology, there is a push to create a more productive, resilient, and diverse environment for teams to flourish in the flow of work.

References

Default Alive or Default Dead? (October 2015). http://www.paulgraham.com/aord.html

Fittes, E. K., & Fittes, E. K. (2022, January 11). Global Venture Capital Investment in Ed-Tech Soared in 2021, Hitting $20B. Market Brief. https://marketbrief.edweek.org/marketplace-k-12/global-venture-capital-investment-ed-tech-soared-2021-hitting-20b/

Fundz, L. Series A, B, C Funding: Averages, Investors, Valuations. https://www.fundz.net/what-is-series-a-funding-series-b-funding-and-more

Immersion VR. (2022, September 28). VR for Education — The Future of Education. https://immersionvr.co.uk/about-360vr/vr-for-education/

LaRocque, G. (2022, August 12). Why global HR tech VC investment is outperforming the market. HR Executive. https://hrexecutive.com/why-global-hr-tech-vc-investment-is-outperforming-the-market/

Malik. (2020, December 7). Skills Transformation for The 2021 Workplace. IBM Training and Skills Blog. https://www.ibm.com/blogs/ibm- training/skills-transformation-2021-workplace/

Montañez, R. (2022, November 14). This Overlooked Element Can Help Combat Burnout Via The Metaverse. Forbes. https://www.forbes.com/sites/rachelmontanez/2022/11/14/this-overlooked-element-can-help-combat-burnout-via-the- metaverse/?sh=5b993dfa2483

Somaiya, M. (2022, October 8). Q3 2022 digital health funding: The market isn’t the same as it was. Rock Health. https://rockhealth.com/insights/q3-2022-digital-health-funding-the-market-isnt-the-same-as-it-was/

The Disruption Never Stops. (2022, September). The Josh Bersin Company. https://www.nayya.com/blog/josh-bersin-hr-tech