While venture capitalists, startup founders and major tech companies compete to see who can say “AI” the most in a week, people are busy building other, more useful stuff.
And one particular group has caught our eye: companies that build software for human resource management.
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TechCrunch+ noted in March that there’s a burgeoning group of HR tech unicorns in the United States that are ripe to go public when that window opens. But our initial scope proved limited, because HR tech is hot in Europe right now as well and it’s worth paying attention to.
It makes sense that HR tech has managed to grow rapidly and still fly under the radar — it’s not going to be hyped as the economic model of the future and neither will it be criticized for having the capability to potentially end civilization.
Still, HR tech companies often find themselves moving hundreds of millions of dollars — if not billions — through their channels and have therefore become large and lucrative.
Today we’re digesting notes from a recent GP Bullhound report on European HR tech to expand our general comprehension of the sector in anticipation of an environment in which IPOs are again a reality.
Morphing into unicorns, one paycheck at a time
Strikingly, GP Bullhound reports there is just as much bullish sentiment around HR tech as around AI and climate tech. “We look for these sectors to produce the next tech giants, with maintained if not increased bull-market funding levels and exponential growth in the number of companies,” the report said.
According to the report, 15% of new European unicorns this year were HR software businesses, compared to 4% in all of 2022. This is notable given that we aren’t seeing as many unicorns being minted as we used to. HR tech is proving more durable than other sectors, at least when it comes to fundraising.
Just like in the U.S., the category is seeing demand for workplace productivity software in Europe. But it is also enjoying tailwinds due to the rise of remote work, which hasn’t waned as much as COVID-19 itself has.
“One of the structural shifts from the pandemic we expect to remain is location flexibility for the workforce,” GP Bullhound wrote, adding that “four European unicorns are helping businesses navigate all implications of having a distributed workforce across several [geographies].”
Remote work is a global trend, and since citizens of the European Union can live and work from any of the EU’s 27 countries, there appears to be an acute need for software that helps manage cross-border workforces.
GP Bullhound expects HR tech to grow globally as well, predicting that the global market for talent management software will grow at a 12% CAGR (compound annual growth rate) to $24 billion by 2030 from $10.7 billion in 2023. That’s better than the 11% the category grew from 2022 to 2023.
For sure, $24 billion is by no means a small TAM, but the sector faces a major hurdle to cultivating decacorns in Europe: fragmentation. HR software is seeing demand because the continent has many different jurisdictions, but that very diversity may also prove the barrier that makes it hard for companies to expand across multiple markets.
Looking beyond existing unicorns, GP Bullhound is also taking bets on who might be the next billion-dollar company in Europe. Among its top 50 contenders, we have two HR software businesses: Malt in the freelancing category, and Omnipresent for remote work.
So what?
While it may feel like we are never going to see another blockbuster tech IPO, things will change as they always do. The good news is, we at least know who to look out for.
Going by the trend these days, we’re bound to see some HR tech startups from around the world going public in addition to all the AI startups. With companies like Rippling, Gusto, Velocity Global, Malt, Omnipresent, Factorial and PayFit, our list is growing longer than Thráin’s beard.
We anticipate giving these companies our full attention when they finally decide to leave high school and move on to adult corporate life. Until then, we’ll keep adding to our list and wondering if HR tech valuations will hold up better than what we’ve seen with fintech.