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Analyzing the HR Tech Investment Landscape A data-driven look at financing trends, investors, and hot markets within the human capital management ecosystem 2 cbinsights.com Backed by the National Science Foundation and RSTP, CB Insights uses data science and machine learning to help our customers predict what's nexttheir next customer, their next nvestment, the next market they should attack, the next move of their competitor or the next company they should acquire. The world's leading global corporations including the likes of Cisco, Salesforce, Castrol and Gartner as well as top tier VCs including, NEA, Upfront Ventures, RRE, and FirstMark Capital rely on CB Insights to make decisions based on data, not decibels. To make your life easier, visit http://www.cbinsights.com About CB Insights A unique combination of data science and machine learning to help you see what's next. 3 cbinsights.com Table of Contents Funding and Deals HR Tech Roars Back as Deal Activity Ties All-Time High 5 HR Tech Startups See Over 60% Funding Growth in 2015 8 Zenefits vs the Competition 14 HR Tech Landscape and Investors 125 Startups Transforming Human Resources 18 Across Recruiting, Benefits, Payroll, and More 10 Early-Stage HR Tech Startups 32 The Most Active VCs in HR Tech and their 34 Investments in One Infographic 4 cbinsights.com Funding and Deals 5 cbinsights.com HR tech investment hit record annual levels in 2015 with $2.4B raised across 383 deals. However, funding and deals slipped in the second half of that year after a peak quarter in Q2'15. Now, HR tech has bounced back, with Q1'16 equaling Q2'15 for deal count, while still falling behind in terms of the funding tally ($591M in Q1'16 to $1.1B for Q2'15). Using CB Insights data and analytics, we dig into funding trends, most well-funded companies, and active VC investors in HR tech (aka human capital management), a category which includes tech-enabled management of human resources, staffing, recruiting, and employee benefits. April 11, 2016 HR Tech Roars Back As Deal Activity Ties All-Time High HR tech funding recovered in Q1'16 after tapering off in the second half of 2015. 500 Startups and NEA are the most active VC investors to date. 6 cbinsights.com Deals and dollars In Q1'16, HR tech saw roughly $600M invested across 106 deals. The quarter tied the all- time high in deal count reached in Q2'15 while also reaching the second-highest total tally in funding. The most recent quarter saw several large deals to HR tech startups. On-demand hiring startup SnagAJob raised an $100M Series E, recruitment marketplace Hired raised a $40M Series C, and background-screening platform Checkr raised a $40M Series B. Most well-funded companies Troubled insurance and payroll startup Zenefits is the most well-funded HR tech company in 2016 (the company was in the news early in 2016 after its CEO Parker Conrad resigned following irregularities in how the company complied with regulations). Despite its setbacks, Zenefits has raised a massive amount of money, as we analyzed in a brief comparing its funding figures to those of its competitors. The top 3 list is rounded out by less well-known HR tech companies like OneSource Virtual (a Texas-based provider of HR solutions built on the Workday platform) and China's FXiaoKe. 7 cbinsights.com Most active investors In March 2016, we highlighted the most active HR tech VC investors, with a tie in the first spot between 500 Startups and Andreessen Horowitz. Since then, 500 Startups has emerged as the most active HR tech VC with its recent bet on Thailand-based GetLinks. NEA and Andreessen Horowitz are also active VC investors in HR tech and are now tied in the second spot. 8 cbinsights.com HR tech is a hot category, with both funding and deal activity leaping to new highs in 2015. However, when taking a closer look, $100M+ mega-rounds to Zenefits, OneSource Virtual, and FXiaoKe took a large portion of total funding in the year, making up roughly 30% of investment in HR tech in 2015. Funding growth aside, deal volume also increased significantly in 2015 reaching close to 400 deals, when 2014 had ended at under 300 deals. Using CB Insights data and analytics, we dig into funding trends, most well-funded companies, and active VC investors in HR tech (aka human capital management), which includes tech-enabled management of human resources, staffing, recruiting, and employee benefits. March 8, 2016 Software Eats The Back Office: HR Tech Startups See Over 60% Funding Growth In 2015 Deals also leapt in the year. Rounds to Zenefits, OneSource Virtual, and FXiaoKe accounted for a big chunk of funding. a16z and 500 Startups are the most active investors in HR tech. 9 cbinsights.com Deals and dollars Total funding to the space in 2015 hit $2.4B across 383 deals representing 62% growth in funding over the total in 2014. When comparing 2015 to 2011, funding totals grew 8x in the period, climbing 707%. Despite impressive growth, 2015 funding was buoyed by three deals that together represented $750M in investment, or 30% of total funding for the year. Those deals were the $500M Series C to Zenefits, the $150M Growth Equity round to OneSource Virtual, and the $100M Series D to China-based employee management platform, FXiaoKe. Deal volume increased through 2015 with 383 HR tech deals completed compared to 296 deals in 2014, representing 29% growth in activity Quarterly trends The quarterly trends echo the annual growth seen in the previous chart, but also reveal a drop-off in funding toward the end of 2015. After reaching an all-time high of $1.18B in funding in Q2'15, quarterly funding totals declined to just under $400M in Q4'15. 10 cbinsights.com Deal volume remained strong in Q4'15 at 91 deals, with the last 6 quarters all reaching 80+ deals to HR tech companies. Deal and dollar share HR tech deal share skews towards the early-stage (seed/Series A) deals with 3 of the last 4 quarters seeing these stages account for at least 65% of deal share. Mid-stage accounted for 9% to 19% of deals over the past five years while late-stage deal share made up between 6% to 10% of HR tech deal share. There was an increase in deals classified as "Other" in 2015, which includes convertible note funding and minority investments by corporations who are increasingly active investors in the startup scene generally. 11 cbinsights.com In terms of dollar share, funding doesn't weigh as heavily toward the early-stage. Mid-stage took the bulk of dollar share in 2015 accounting for 44% of dollars to the space, and made up between 20% and 41% in the four prior years. Early-stage dollar share still represented a significant portion of HR tech dollar share, taking between 20% and 31% of dollars in the five-year period. Late-stage deals accounted for up to 44% of dollar share, a peak reached in 2013, but dropped to 29% in 2015. Most well-funded company Perhaps the most well-known HR tech company in this analysis is Zenefits (the company was in the news early in 2016 after its CEO Parker Conrad resigned following irregularities in how the company complied with regulations). Zenefits raised a $500M mega-round led by Fidelity in May 2015, and has raised over $580M to date. The top 3 list is rounded out by less well-known HR tech companies like the aforementioned OneSource Virtual (a Texas-based provider of HR solutions built on the Workday platform) and FXiaoKe. Check out the top 10 list ranked by total disclosed funding on the next page. 12 cbinsights.com Top VC investors Andreessen Horowitz tied 500 Startups as the the most active HR tech VC investor over the past 5 years. A majority of Andreessen's deals are happening at the early-stage, and it's worth noting their largest investment position is in HR tech company Zenefits. NEA is also an active VC investor in HR tech, rounding out the the third spot. 13 cbinsights.com Top early-stage investors Andreessen Horowitz was also the most active early-stage VC investor with recent investments in HR analytics company Reflektive and recruitment software Jopwell. 500 Startups was the second most active early-stage VC investor, with the number 3 spot tied between NEA and East Ventures. 14 cbinsights.com Zenefits' raised a gargantuan $500M financing round in May 2015 which valued the company at $4.5B. Described as the fastest-growing SaaS (software-as-a-service) company of all time, the company's fortunes turned after a series of regulatory issues came to light which ultimately resulted in the company's CEO, Parker Conrad, stepping down. One of the issues as reported by William Alden of Buzzfeed was that that the company had built software to help brokers cheat on licensing requirements. Subsequent reporting by Julie Bort and Eugene Kim at Business Insider painted a picture of a company that spiraled out of control and that resulted in bans on drinking alcohol and having sex at the office. It was a PR nightmare that could bury most startups. But Zenefits had raised a funding warchest which may help them weather this storm. To put their funding in perspective, we compared the total funding of Zenefits to seven of its VC-backed competitors using CB Insights data on company comparables. Specifically, we compared Zenefits funding figures to Gusto, Justworks, Lumity, EaseCentral, Maxwell Health (which raised a $22M Series C March 21, 2016), Flock, and Namely. These companies compete with Zenefits either by brokering health insurance via HR and payroll software channels or helping insurance brokers modernize their operations. March 20, 2016 Zenefits vs The Competition: Will The Funding Gap Help Them Weather The Storm? Zenefits has raised $217M more in total funding when compared to the aggregate funding of its competitors. Will the sizable funding advantage help them get through their current woes? 15 cbinsights.com Zenefits vs the competition Outside of the enormous $500M Series C Zenefits raised in May 2015, they raised roughly $84M across their Seed, Series A, and Series B rounds. In comparison, competitors like Gusto, Justworks, Lumity, EaseCentral, Maxwell Health, Flock and Namely in aggregate have raised roughly $367M to date. To put the total funding comparison in perspective, we breakout the individual funding figures of Zenefits and its seven competitors. Arguably Zenefits' largest competitor is HR insurance and payroll software startup Gusto (formerly ZenPayroll) which has raised $136M to date. Other competing companies to raise large amounts of funding include New York-based Namely, which has raised roughly $103M since 2012. Both companies account for the bulk of funding raised by Zenefits' competitors, however the total funding figure still comes nowhere near Zenefits' total as can be seen on the next page. 16 cbinsights.com 17 cbinsights.com HR Tech Landscape and Investors 18 cbinsights.com HR tech startups have seen considerable momentum, raising $2.4B in 2015. With funding and deal count reaching all-time highs, we decided to dig into HR tech on a more granular level. Startups in the HR tech space are addressing pain points like staffing, recruiting, employee benefits, and much more. We used CB Insights data to identify 115 private companies in HR tech as well as 10 exited investor-backed companies bringing the market map's total to 125 companies. We mapped them according to the eight main categories in which they're operating. The 125 HR tech startups included are addressing productivity, recruiting tools, freelancer and contractor hiring, perks, job search, operations, payroll, and insurance. March 29, 2016 125 Startups Transforming Human Resources Across Recruiting, Benefits, Payroll, And More From unicorns like Gusto and Zenefits, to early-stage startups improving employee productivity and recruiting, HR tech is a hot category. 19 cbinsights.com The breakdown is as follows: Recruiting Tools: This was the largest category in the market map. It includes company- information service GlassDoor as well as Hireology. This section includes Applicant Tracking as a sub category and counts Greenhouse Software in the section, among several others. Recruiting Marketplaces & Job Search Platform: Companies in this category include short-term job matching marketplace Jobbatical and job search engine Simply Hired. These startups are making it easier to find, post, and search for employment, among other things. Recruiting: Contractors/Freelancers: Startups in this category are addressing on demand workers and part-time freelancers. Examples include HourlyNerd, which connects small- and mid-sized businesses to part-time consultants as well as HR software company, PeopleMatter. Operations Management: HR outsourcing software OneSource Virtual is one of the more well-funded companies in the category, having raised $165M in funding to date. Companies here are addressing payroll, benefits, and other services. 20 cbinsights.com HR Insurance/Benefits: Companies here are either brokering health insurance via HR and payroll software channels or helping insurance brokers modernize their operations. The category includes Gusto and Namely, which have raised $136M and $103M in funding to date, respectively. Employee Perks: Startups here include employee reward software Bonusly, which counts FirstMark Capital and Bloomberg Beta as investors. This is the smallest category in the market map. Culture & Productivity: Companies here measure, quantify, and improve employee culture and productivity through technology. The category includes company culture startup CultureIQ as well as Culture Amp, which uses analytics to provide insights on employee engagement and company culture. Select HR Tech Exits: Notable exits in HR tech include Workday and job-search site Indeed, which exited for $4.4B and $1.4B, respectively. See the full company list on the following pages. 21 cbinsights.com 22 cbinsights.com 23 cbinsights.com 24 cbinsights.com 25 cbinsights.com 26 cbinsights.com 27 cbinsights.com 28 cbinsights.com 29 cbinsights.com 30 cbinsights.com 31 cbinsights.com 32 cbinsights.com Funding to HR tech startups exploded in 2015, hitting $2.4B across 383 deals. Tech companies are addressing various pain points within HR, including issues like diversity (Jopwell), connecting talent to jobs on-demand (JobToday), talent sourcing (Lytmus), and more. We used the CB Insights Mosaic algorithm, which provides predictive analytics on the health of private companies, to assess early-stage startups in the space (Series A or seed/ angel companies). The list of companies below have raised financing in Q4'15 or 2016 year-to-date, have less than $11M in total funding, and show other positive metrics, including jobs listings data or recent news mentions, among other signals parsed by Mosaic. Among the high-momentum startups on our list is Phenom People, which applies CRM tech to hiring and has raised roughly $11M to date, making it the most well-funded company on our list. The already-mentioned mobile HR app JobToday (which tries to connect candidates with retail/restaurant jobs within 24 hours) along with pre- employment testing service Criteria Corp round out the list's top 3. The list ranks the startups by total disclosed funding. Bloomberg Beta and Accel Partners are each investors in 2 of the 10 companies on our list. Check out the list on the following page. March 14, 2016 From Pre-Employment Testing To On- Demand Jobs: 10 Early-Stage HR Tech Startups Bloomberg Beta and Accel Partners are each investors in 2 of the companies on our list. All the companies have raised in the last 6 months. 33 cbinsights.com 34 cbinsights.com HR tech investment is booming. In 2015, HR tech saw $2.4B in funding across 383 deals. Outside of the $100M+ mega-rounds to companies including OneSource Virtual, and FXiaoKe there have been a flurry of investments into startups addressing pain points ranging from staffing, recruiting, to employee benefits and more. Which firms are most active? We used CB Insights data to rank VCs by their unique HR tech investments over the past 5 years. Andreessen Horowitz and 500 Startups top the list as the most active investors in HR tech startups. Both firms are now not only the most active VC investors in HR tech but also were among the most active early-stage VCs overall in 2015. Some other takeaways from our infographic: In the past year, Andreessen Horowitz has made various early-stage HR tech bets including investments in HR analytics company Reflektive and recruitment software Jopwell. Additionally, they have placed a big bet (reportedly their largest single investment) on Zenefits. Andreessen Horowitz participated in a $500M mega-round to Zenefits in May 2015. 500 Startups is tied in first place as the most active HR tech investor since 2011. They have recently placed bets in office management software Service Partner ONE and HR management platform Allay, among several other companies. March 10, 2016 The Most Active VCs In HR Tech And Their Investments In One Infographic a16z, 500 Startups, and NEA are the three most active investors in HR tech startups. 35 cbinsights.com The third- and fourth-most active HR tech VC investors were New Enterprise Associates and Khosla Ventures. NEA has made investments in freelance marketplace Elance, which merged with Odesk to create parent company Upwork Global. Following the merger, NEA invested in a $30M round to Upwork in November 2014. Khosla, which ranks fourth on our list, is invested in recruiting software startup Pymetrics, among other companies. Other firms on the table are SV Angel, East Ventures, Kapor Capital, and Lerer Hippeau Ventures 36 cbinsights.com Want access to the underlying data that made this white paper? CB INSIGHTS Get the Data
