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A VC view of emerging tech in the HR space

May 10, 2024

The way the world works has shifted dramatically over the last few years, starting with the growing number of companies embracing hybrid and remote models. As a result, we’ve seen a huge influx of emerging technologies and services, making it easier for teams to collaborate no matter where employees are based — and driving investor interest.

New investments have recently slowed in some sectors, but human resources technology, or HR Tech, is one segment of the tech industry that is still generating a lot of interest. This includes entrepreneurs starting new businesses and investors looking to fund the next generation of HR Tech companies.

One venture capital fund investing specifically in the HR Tech startup space is Counterpart, a San Francisco and LA-based early-stage fund investing in seed and Series A B2B, SaaS, and B2B marketplace startups. They help build companies by providing meaningful access to real customers and strategic partnerships via its corporate venture capital community called the Counter Club. Counterpart invested in the Seed & Series A round of Remofirst.

David Hughson, Chief Revenue Officer at Remofirst, recently hosted a conversation with Joe Saijo, Co-founder and Partner at Counterpart, and Nurasyl Serik, CEO and Co-founder of Remofirst, to discuss the role of venture funding in future investments in HR technology. If you would like to watch the full webinar, you can find it here.

The VC Perspective on HR Tech Investment Opportunities

Prior to co-founding Counterpart, Joe was responsible for the investment and portfolio strategy of Recruit Strategic Partners (RSP), the corporate venture capital vehicle of Recruit Holdings, Japan’s largest HR/media company which owns iconic HR Tech companies like Indeed and Glassdoor. During his time at RSP, Joe actively looked at the future of work, and for businesses that might disrupt the recruiting industry. Joe’s most notable investments at RSP include Palo Alto Networks, DocuSign, 99designs, Noom, DataRobot, and ShipBob.

At Counterpart, Joe and his team are now investing in early-stage B2B SaaS and mobility and marketplace technologies. They lead deals and invest in the $1-5M range with an emphasis on speed, conviction, and partnership. HR Tech is an area Counterpart has leaned into with its investment in Remofirst, showing the belief they hold in the future of work.

“We look to invest in technologies that support a distributed workforce, enabling businesses to capture talent in all corners of the globe,” said Joe. “Our investment in Remofirst shows our perspective on where we think the HR Tech industry is headed.”

Joe has been working with and investing in HR Tech start-ups since 2008. When it comes to how the HR Tech investing landscape has changed in recent years, Joe distilled it down to supply and demand — where the demand side are companies and the supply side are the job seekers.

“There was more demand than supply in the past several years until 2023,” said Joe. “That meant companies spent more money on job boards and software like Indeed to capture more talent. This led to more investment in B2B side technologies such as sourcing platform, ATS, and skill assessment.”

“Now we are seeing a complicated market after the pandemic, coupled with fluctuations in interest rates and inflation,” said Joe. “We are facing a labor shortage in front-line workers like retail, transportation, logistics, etc., while skilled workers — especially in the tech market — are unstable due to GAFA‘s (Google, Apple, Facebook, and Amazon) huge layoff. Sourcing platforms and job boards for front-line workers are still bullish, but tech companies are looking at quality rather than quantity of candidates.”

Shifts in Fundraising in the VC Environment

Nurasyl Serik is the CEO and Co-founder of Remofirst, and has successfully fundraised twice — including a recent $25 million Series A round. From a founder standpoint, Nurasyl says he’s noticing a change in HR Tech business investments.

“I think the VC environment has shifted overall in the last couple of years,” says Nurasyl. “I still remember when every other founder I met said that investors told them to grow at all costs, and that was the motto for so many founders. Now, it’s the reverse, and investors want you to be more cautious and to think about your unit economics. People care more about business fundamentals.”

When asked what he’s seeing in terms of HR technology customers, Nurasyl says he’s definitely seeing saturation in the HR Tech space, and that the bar has been raised for those looking to tap into the market. As a result, companies looking to break through need to focus on what sets them apart, and how they can help solve customers’ problems.

“What you need to do is to bring a really good value proposition,” says Nurasyl. “In our case, we're focused on helping companies save money while hiring globally. Expanding globally can be a daunting experience for HR leaders. So, our value proposition is not just that we can help your company go global, but that we can also save you money.”

When assessing potential investment opportunities, Joe says there are three factors he takes into consideration. First, the company needs to be able to address a massive pain point that people are willing to pay money to solve. Second, the company needs to have a great product and the technology to solve the pain point. And third, the founders should have a relevant background and already be familiar with the industry and its potential customers.

Fundraising in HR Tech: A Founder’s Perspective

A little back story: Counterpart invested in Remofirst’s first seed round back in 2022, and again more recently in the Series A funding. At the time, the world was still emerging from the global pandemic and Counterpart was actively looking at funding remote work solutions, including the ability to hire people on a global scale.

“We were impressed with the early traction Remofirst already had and the fact that the company was, and still continues to be, incredibly cash efficient,” said Joe. “That’s a very good sign for a potential investor.”

“As Joe said, not only were we very capital efficient when they invested, we were already profitable, so we didn't really have to raise the money,” added Nurasyl. “We were in the very lucky position to have multiple offers, multiple investors. Counterpart stood out as one of the teams that could help elevate us to the next level with their HR Tech expertise and global corporate venture capital network, and that’s exactly what happened.”

When it came time for Remofirst to pursue Series A a year later, Nurasyl observed that the VC landscape had shifted.

“2023 was a very challenging year for Series A fundraising,” said Nurasyl. “A lot of founders I knew weren’t able to raise. The key differentiator for Remofirst is that we were continuing to grow aggressively, despite the headwinds and economic challenges in the world, which I think is rare in this market. We were also very cash efficient, and investors tend to be impressed by companies that are able to punch above their weight.”

The Role of Artificial Intelligence in HR Tech

One of the major elephants in the room when talking about any type of HR technology company today is AI, including how it’s currently being used, and future opportunities to incorporate AI in HR Tech.

“Every application can embrace AI to streamline the process, and HR is no exception,” said Joe. “I always look at three pillars in HR — sourcing, assessment, and onboarding. At sourcing, AI can deeply profile the candidate by looking at various data points and then provide better matching between candidates and recruiters. At skill assessment, AI can discern the candidate’s skill set for both hard skills and soft skills. At onboarding, AI can streamline the various workflows like contracts, signups for the HRMS, compliances, etc.”

Joe noted that AI can help recruiters with talent acquisition by assessing them for both hard and soft skills. In addition, it can identify candidates with the right skill sets for a particular position — something he says Indeed is actively focusing on. AI can also help streamline the onboarding process, creating a more frictionless experience for employees as they complete paperwork, upload documents, etc. Another opportunity Joe noted for utilizing AI in the HR space is talent management, by recommending upskilling and career development paths for each employee.

“To be honest, I would look unfavorably on potential investment opportunities in companies that are not incorporating AI into their product to some degree,” said Joe.

Nurasyl agreed that AI is changing lives and will continue to do so over the next few years. He sees an opportunity to tap into AI capabilities to optimize workflows and save employees time normally spent performing menial tasks. And while he acknowledges there are some concerns about AI replacing engineering or customer service roles, Nurasyl thinks AI can actually empower employees, giving them faster access to the data they need.

“You’re not going to replace every engineer with AI,” says Nurasyl. “But instead of hiring two, you might hire one engineer and a junior AI person to perform the hands-on work so the engineer can focus on the orchestration of it. Companies should approach AI advancements as an opportunity to uplift your workers and help them be more productive.”

The Importance of Networking in Fundraising VC

The conversation then shifted to fundraising, and if the old adage of “location, location, location!” applies when it comes to raising venture capital. The consensus: founders interested in tapping into venture capital don’t necessarily need to pack up and move to Silicon Valley. However, they should be prepared to go to San Francisco and invest time in meeting and networking with others in the tech industry, including investors.

“You might find a business creating something innovative and disruptive in a new school way, but venture companies themselves are based on a very old school environment,” said Joe. “Building relationships is crucial for venture capitalists looking for companies to invest in, as well as for founders who want to get funded by the venture capitalists. It can be harder to build those relationships online. That’s why tech founders should come to San Francisco, to meet people in person and to network, which is key.”

“I don’t disagree, there’s definitely a time where you need to go to the Bay Area to find investors, meet different people, network, and get connected,” added Nurasyl. “But after that, you don’t have to be there; you can fundraise from anywhere in the world. I mean, we raised everything online, and that’s how most people raise it.”

Nurasyl pointed out that COVID-19 led to the creation of a new globalized world, and more people are realizing that you don’t have to meet face to face, deals can be made via email and Zoom.

“Other than Counterpart in the seed round, we haven’t met any of our investors face to face,” said Nurasyl.

Prior to raising seed and Series A funding, Nurasyl did a smaller “friends and family” fundraising round. We asked him how he approached the process and his advice for other entrepreneurs trying to get their business off the ground.

“It’s just reaching out to as many people as possible who can introduce you to a potential investor,” said Nurasyl. “I think that’s one of the most important things people forget, the introduction. Find people that you know who can open doors and that will make your life easier. Also, try to be global, create your social media presence, reach out to different people, and don’t take no for an answer.”

The Counter Club Advantage

Like startups, venture capital firms have to compete and differentiate themselves in a crowded market. To do this, Joe and Patrick Eggen, his Co-founding General Partner, leaned into their more than 20 years of combined Corporate Venture Capital (CVC) experience at Recruit Strategic Partners and Qualcomm Ventures, respectively. They created the Counter Club community as a value exchange marketplace between their portfolio companies and corporate venture capital.

“Everyone in venture capital will say it's all about networking,” said Joe. “So, we created a broad network to connect people. By leveraging our expertise and network of corporate venture capital, we connect the CVC community worldwide. We regularly host events to exchange best practices and share learnings among CVCs. We have 600+ corporate investors on our platform, and 1,000+ in our larger community. In turn, we provide our portfolio companies with meaningful access to real customers and strategic partnerships with corporate investors in our community.”

“Another thing we liked about Counterpart is that they’re very well connected with CVCs,” said Nurasyl. “They can facilitate relationships and intros to corporates through their Counter Club community, which we did utilize a few times.”

One way the Remofirst team is engaging with the corporates part of the Counter Club community is by co-hosting a side event ahead of Counterpart Ventures' premier CVC conference, Counter V, in September 2024. With 400+ investors arriving in San Francisco from all over the world for Counter V, this will provide an excellent opportunity to bring fintech-focused founders and investors together.

Conclusion

As the conversation drew to a close, our panelists reflected back on their key takeaways. The primary one is that there’s incredible opportunity for companies in the HR Tech space, but at the same time the bar is high when it comes to landing new investments or catching the attention of customers. Founders that want to stand out need to focus on solving the three key factors Joe laid out: have a background in the space you're working in so investors feel that they can trust you, address a massive pain point customers are willing to pay for, and make a great product to solve the pain point. They should also take Nurasyl’s advice of networking as much as possible and not taking no for an answer.