To say that 2020 has been a strange year for startups would be an understatement. Businesses of every variety, new and old, have felt the effects of a pandemic-made financial crisis. As markets begin to stir back to life, more startup capital is beginning to circulate, but it is safe to say that waters are still choppy.

What has this meant for HR startups in 2020? In an industry that has already changed radically thanks to automation and AI, it seems that the world of HR is still chugging along nicely, hand in hand with emerging technologies that continue to sculpt the industry. HR Tech with subcategories of service excel, raising significant capital by catering specifically to certain niches.

HR Startup Hard Numbers

Currently, there are:

• 1454 HR companies operating as startups
• 1451 of these are for-profit businesses
• They feature an average startup date of 2014

In the last several years, investment capital directed towards HR startups had been steadily increasing. The first quarter of 2019 saw $1.7 billion raised in venture capital—more than any quarter of the previous year and more than $600 million more than was spent total in 2017.

How has the pandemic impacted these numbers?

HR investments in 2020:

The third quarter investment report has shown that an impressive $1.65 billion was raised for HR startups in the third quarter of 2020. While this is less than the $1.7 billion raised in 2019, it is also the second-highest number seen in the last three years.

The numbers are very good news, and also fairly consistent with capital trends that have taken place throughout the pandemic.

While investments as a whole have been down during the economical downturn of the pandemic, industries that were doing well going into 2020 largely continued to find success raising money—even if at a slightly de-accelerated clip.

The Takeaway:

HR Tech is an industry that has been on the rise for years. However, even startups that make use of AI and automation are likely to find themselves elbow to elbow with other businesses of similar focus. In other words, good tech alone has not been enough to raise VC in 2020, nor will it likely suffice in the years ahead.

Here are some HR startups that are raising capital even during the tumultuous conditions of 2020.

• Sora raises $5.3M to power its HR automation service
• Hibob raises $70M for its new take on human resources
• Video Interviewing Platform HireVue Grabs $25 Million
• Greenhouse Swallows $35M Series C
• Sapling, an employee management and on-boarding platform, lands $4 million in seed funding

It seems that now, as of ever, HR companies that can cater to subcategories of service are doing well. While the HR industry itself is somewhat crowded, startups can carve a space for themselves and raise capital by catering specifically to certain niches.

For example, Workstream, a US based recruitment and HR company has raised a total of $10 million by catering specifically to companies that are looking to find entry level, front line workers. They also promise to reduce hiring time by 20% or more. As described here, HR Tech with subcategories of service excel.

As Ralph Waldo Emerson once said, if you build a better mousetrap, the world will beat a path to your door. HR startups that can differentiate their tech with sub-specialties look poised to continue doing well, both with investors and consumers.

If you want to know more about how to raise funds during this time contact us at hello@product10x.com.

About the Author: Suresh Madhuvarsu is a serial entrepreneur and investor. He is the Managing Partner of Product10x Accelerator, a SaaS accelerator that helps founders build and launch successful startups. He is also the Co-Founder and CEO of Salestable, a purpose-built sales readiness platform for SMBs.

Suresh has over 20 years of experience in the technology/SaaS industry. He is a 4x founder with 2 exits. He is also an active angel investor and mentor to early-stage startups. Suresh is passionate about helping entrepreneurs build successful businesses. He believes that technology can be used to solve real-world problems and improve people's lives.

About Product10x: Product10x is a SaaS accelerator that helps founders build and launch successful startups. The accelerator is run by experienced operating partners who have "been there and done that." Product10x provides founders with mentorship, advisory, and access to a network of investors and partners. The accelerator focuses on Product Led Growth (PLG), Sales readiness, and Fundraise readiness, helping founders all the way from product to go-to-market.