HR tech startups need to showcase scalability

HR technology has emerged as a strong magnet for investors in recent years. Funding and deal activity has increased by leaps and bounds, with the industry touching new heights in 2015-16. In both the years combined, HR technology startups raised $4.36 billion in funding across 733 deals globally (till 27th October, 2016). In India, there was a funding of $65 million across 47 deals in 2015 and 2016.

The rise of HRtech and HRtech startups is attributed to many things. First of all, it is the overall growth of the Indian startup ecosystem, which has really boosted people with powerful ideas to break the barriers and shed fears to start something new and radical. We generally see Indian market following the US market in many aspects. No doubt it is going to be the same for HR startups as well. There are many examples of flourishing HR startups not only in the US but also globally which are raising funds and generating good returns. We are seeing a rising number of IPOs as well in the HR sector. India alone has already seen two IPOs this year namely IKYA and Teamlease. These factors are boosting investor confidence even more.

A good amount of investment in the HR space in our country with focused VC funds will be the next big game changers. The Indian HR fraternity has also experienced a change of mindsets of the CEOs and other decision makers of organizations who are becoming sensitive towards HR issues and are realizing the need for new-age solutions to the age old problems. The participation of HR heads and CHROs in strategy building of an organization has seen growth. The smart Indian entrepreneur is looking all these factors and working towards making the most of the opportunity. There is a mix of entrepreneurs in the ecosystem – most of them are trying to solve age old problems such as recruitment, assessment, learning & development, workforce management; while some are trying to solve new world problems like facilitating remote working, creating freelancing platforms, social referral platforms, solutions to improve employee engagement, big data and analytics to predict employee behavior, gamification and micro-learning for L&D products, or making product and services mobile first.

From an investor’s point of view, a startup in HR tech needs to showcase scalability. A tech product always has a higher possibility of being easily scalable compared to a services solution. So, this one is not that difficult for entrepreneurs to build upon. What they lack while approaching the investors and clients is usually the product readiness. Also one of the main areas of concerns with any HR technology is the ease of adoption at the end customer level, i.e. with the employees of an organization. The simpler the product is to use, the easier it will be to market and the more attractive it becomes for the investors. Like any other field, innovative and groundbreaking ideas take precedence as essentially like any other field, but it is about how best to solve problems. Various new technologies such as being mobile first, analytics, gamification etc. have become a norm in the field of HR tech. It is very easy to become a “me too” product in HR Tech and the entrepreneurs need to be mindful of that.

India is all set to witness a very strong market for HR startups. As stated above, increasing workforce, rising importance of HR in corporate India, along with the positive government policies in the direction of skilling and boosting startups are the factors that would propel the Indian HR market to the next level very soon and we will definitely see the Indian HR Tech entrepreneurs building upon the opportunity.