5 Reasons You Should Get into HRTech in 2023

“What used to be a slow-moving corporate technology space a decade ago is now a multi-billion dollar market of HR cloud solutions that address the needs for the future of work.” That’s how Hampleton Partners Director Axel Brill has summed up where HRTech is at right now, highlighting the sector’s rapid rise to significance.

Human resources software solutions take many forms. These include HR analytics tools, employee application tracking systems, and productivity management platforms. It’s a fertile, flourishing ecosystem of products, and here are the reasons why tech entrepreneurs may want to go there.

One of the key takeaways from the new HRTech report from Hampleton Partners (which you can read here) is that the market is in rude health. Since 2020, transaction volume involving HRTech companies has exploded by 282%, with the total disclosed transaction value hitting around $11 billion by the end of 2022.

Activity in the sector has been spurred by private equity as well as strategic buyers, with PE firms showing sustained interest despite recent economic headwinds. In fact, they accounted for almost half all transactions in the latter half of last year, with PE firms zeroing in on HRTech companies that stand out from the crowd.

For example, US-based firm Providence Equity Partners has been active both in direct acquisitions and in acquisitions made via companies already in its portfolio. In late 2021 it completed a majority growth investment in HRTech company Tenstreet, a leading specialist in driver recruiting software and workflow solutions for the haulage industry. Thriving after this cash injection, Tenstreet has itself made a number of acquisitions since then.

The phrase may have become trite from overuse, but the fact of the matter is that the “Great Resignation” is far from over. A new survey of HR leaders and employees across the globe reveals that, despite uncertain economic times, the vast majority of those surveyed plan to change their jobs within the next 12 months. The research also shines a stark light on a deep disconnect between the perceptions of HR leaders and the staff they recruit and oversee. “While 95% of HR leaders believe employees are at least somewhat engaged,” the report states, “64% of employees say they are at least somewhat disengaged.”

Another recent survey by the British Chambers of Commerce shows the scale of the problem in the UK alone, with 82% of firms reporting recruitment difficulties. Companies in the hospitality and manufacturing sectors are the most likely to face such challenges.

While “pandemic burnout” may have accounted for the initial Great Resignation wave, it’s clear there are fundamental and ongoing challenges that businesses still face when it comes to both hiring and nurturing staff. Such challenges can be tackled head on using software that can facilitate better vetting of candidates, optimise internal communications, more accurately monitor who does what, and conduct engagement surveys.

The promotion of equality, diversity and inclusion (EDI) has become an essential consideration in workplaces. Employers are increasingly aware, as never before, of the importance of taking an intersectional approach to EDI, so that all staff members feel comfortable and valued regardless of colour, culture, gender identity, and visible/invisible disability.

By eradicating entrenched negative attitudes and biases in the work environment, businesses can bolster their reputations and position themselves as attractive places in which to forge careers. This sea change in corporate attitudes provides opportunities for HRTech firms which provide data-driven EDI solutions. A case in point is UK startup Diversely, which secured $550,000 in funding in 2021, and whose AI-powered recruitment platform helps eliminate biased language in job descriptions, analyse the diversity of job candidates and track EDI-related analytics.

When the pandemic began to recede, it was natural to wonder if workers around the world would simply return to their offices, and former working practices, as if nothing had ever happened. Of course, this hasn’t been the case. We can now see that the pandemic merely brought forwards a hybrid working revolution that would very likely have come about anyway, thanks to the proliferation of cloud-based IT & Business Services solutions which allow colleagues to seamlessly collaborate whether they’re at the office, at home or at the beach.

Cloud-based HRTech is being adopted as a valuable way for human resources leaders to monitor productivity, log hours worked, and generally manage colleagues wherever they are. Far from a luxury, such tools can be invaluable for relieving immense pressures being felt by HR teams in the wake of the shift to hybrid working.

Speaking at an HR conference last year, Dean Tong – a top human resources executive at United Overseas Bank – emphasised that staff wellbeing was a big concern in the context of decentralised working practices. “The increased number of remote workers means more needs to be invested in mental health,” he said, drawing attention to the potential downsides of colleagues not always being able to share spaces and enjoy a sense of physical togetherness.

Savvy HRTech firms can capitalise here. For example, UK-based company BrightHR has tools not only to help track work hours, set rotas, stay abreast of staff holidays and deal with other tangible work-related issues, but also incorporates an employee assistance programme to help staff deal with stress, anxiety, financial challenges, even relationship troubles. Another player in this subsector is Spill, a UK startup which provides mental health support through Slack and Microsoft Teams. The types of support include automated mental health surveys as well as targeted interventions from real therapists. Spill raised $2.4 million in funding in 2021, reflecting the unprecedented demand for workplace wellbeing solutions.

Download our insight-packed HRTech report for more analysis of trends and valuations within this booming sector.