How the HR Technology Landscape Is Changing: The Silicon Valley VC View - Nick Sturiale
A fascinating insight into how Silicon Valley view the HR tech market, the trends that will shape HR Tech over the next few years and where the money is actually going. Nick delivered an engaging and insightful session with a level of humility rarely seen amongst money types. The takeaways for me:
Investment in HR tech has exploded - in 2015/16, $3.9bn was poured into the sector. That’s a lot of cash. The market started to grow significantly around 2009/10, in part fuelled by the likes of Workday and also the shift to the cloud, enabling lots of point solutions to emerge.
The chart below shows the increase in money invested and rounds. The number of rounds has plateaued since 2013, but 2015 saw a more than doubling of the actual amount in hard cash invested year on year.
We are investing in symptoms, not solutions - One look at the chart below and you can see that by far the most attractive sector is Recruitment, attracting $3.9bn in cumulative investment. Compare that to the comparatively tiny amount put into Performance Management, which is by far the lowest invested category at a paltry of $98m.
This is good news from a talent acquisition providers perspective, but feels out of sorts with where the issues actually are. Whilst an element of recruitment can be said to be planned, a good deal of it is like a distress purchase, due to staff shortages, high employee turnover, strategic gaps in the workforce, unplanned absences etc.
And it’s not cheap. The cost of this fulfilment dwarfs the investment in the sector, which is where the problem is, as I see it. The recruitment supply chain is hideously broken but it's a lucrative business, and as ever, investors follow the money. They have little or no interest in fixing the internal problem.
The fact is, a lot of the cost associated with recruitment could be significantly reduced or even avoided altogether if we worked harder on making sure the right people were in the right seats at the right time, every time. Performance management and training could be far more effective, with exponential results for the company if we invested more in getting the workplace opportunity right.
Public social to private social - The other interesting chart shown by Nick demostrates how messaging apps have overtaken open social media platforms as the increasing social posting destination of choice. We are still very much conversing socially and activity levels are growing, but our choice of platform is, inevitably, changing.
The popularity of open social platforms like Facebook and Twitter are waning over the private and encrypted messenger platforms like Whatsapp. This really shouldn’t be a surprise for two reasons. Firstly, even back in the day of news groups, ICQ and chat rooms, once connections were established it wasn’t long before individuals and discreet groups of individuals deferred to talking in private.
Secondly, as technology changes, habits change. At one stage, no one could see how AOL and Compuserve would ever not be at the top of the internet connectivity game. But fall from favour they did. And it would be naive to think that branded platforms like Facebook and Twitter will always continue to grow and own the social updating space. As hard as it is to imagine, Facebook will at some point in the future feel as irrelevant as Myspace does now. And I think hardware will do that, but that’s another blog ;)
How is this relevant for HR Technology? Well, a quick whizz around the expo and you will see many solutions built on either scraping or integrating with open social platforms at their core. Something that interestingly, would have been classed as voodoo only a few years ago. Background checking, candidate marketplaces, sourcing tools, assessments, you name it, there is an increasing number of solutions out there that feed off the open social framework. And if that dies, they die.
You might be able to scrape and assess my social media 'footprint' but you can't scrape my snaptchat and whatsapp conversations. Not yet anyway! The younger generation and increasingly the older ones amongst us are defaulting to private messaging.
The old guard are waking up - This last slide shows the number of established, traditional businesses that have a research outpost in Silicon Valley, with the distinct purpose of tapping into the transformative opportunity of digital. With Uber being worth more than GM, Airbnb more than Sheraton and Amazon more than Wallmart, they have little choice.
Overall a fascinating insight into the mind of a Silicon Valley investor. My recommendation for next year would be to have Nick return and deliver an update presentation in the main hall. The larger audience would appreciate his view.