The Money Shot
The Money Shot with George Larocque for Q3 2019
Would you believe the amount of money going into HR tech decreased last quarter? Well, it did. But money man George Larocque ain't scared. In fact, he's as bullish as ever on investment flowing into the space, and he lays it all out for Chad & Cheese in the Sovren exclusive.
For more on who got money and who wants more money, tune in now.
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Intro: Hide your kids, lock the doors. You're listening to HRS most dangerous podcast. Chad. Sowash and Joel Cheesman are here to punch the recruiting industry right where it hurts. Complete with breaking news brash opinion and loads of snark. Buckle up boys and girls it's time for The Chad and Cheese Podcast.
Joel: All. Yeah,
Chad: It's the money shot baby.
Joel: Back, back again. And guess who's back? Tell a friend...
Chad: George Larocque is back.
Joel: Larocque rock out with your…. Uhhh…
Chad: Yeah, eh. Well you're, you're in Larocque out. Yeah. So I just thought this is going to be a new segment that we do every quarter called The Money Shot. What do you think?
Joel: Are you asking me or George?
Chad: I'm asking you. This is our show dip shit.
Joel: Oh, well, I don't care what we do. It's George's name gets to be attached to The Money Shot.
Chad: George Loves it. It's the money shot with George Larocque. Hello everybody.
Joel: I think he left. Is he still there?
Chad: Are you there? George
George: Can I speak now? You guys need, I got the riot act on the way in about being muted and introductions and stuff.
Joel: I'm about your crappy survey. We're talking about what you actually know about your your money. Money, time, money, report, money time.
Chad: Before we get to the money shot, tell, tell us about George, the rock. For all those listeners out there who don't know who George is, they've, they've, unfortunately, I don't know who wouldn't, but who is George Larocque and what does this HR Win's thing?
George: George Larocque. I'm going to, I know, I don't want to speak in the third person, but I am George Larocque and I'm a market analyst. I've been in the industry for 30 years. I've been in recruiting and in HR, spent 10 years there, 10 years on the vendor side, a couple of good runs with a couple of bigger brands taking Bullhorn and BrassRring to market and a couple and one or two others. And then for the last 10 years I've been a market analyst. So I cover the market, I with employers to help them understand the tech trends and the technology that's out there. Right, a lot of reports about it, work one on one with them. I also work with vendors and do advisory on helping them understand the customer. One of the things I do is track all of the investment the VC and the private equity and the mergers and acquisitions in the space.
George: And I put out a quarterly, I cover every deal day in day out at HR winds.com. But I also put out the quarterly, a quarterly update report on everything that's happened and an annual look back. And today we're going to talk about the quarterly report, but everything's at HRWins.com and we're breaking news today, soon to be released. HrLoses. I do own the URL thanks to Chad and Cheese. I thought I better own it so that the, you know, something responsible happens when you guys get ahold of it.
Chad: Dude, I'm really hoping that we get a version of fuckedcompany that is just on the HR side. I'm hoping that's what we get. But today, today, this is what we're going to get kids so dangerous today that this is what we're going to get. It's, it's HR Wins Q3 2019 global HR tech investment update, AKA The Money Shot. George, where can they find this? So if our listeners aren't driving but they are listening and they can go to their mobile or they can go to their desktop, how can they follow along?
George: A real simple, just go to HR wins.com. Scroll down to the feet. You'll see featured reports and it is the big featured report right now, a big purple picture of like a report cover with the title on it. You can't miss it.
Chad: Big purple monster looking money shot. Okay.
George: You're not going to get me to say it. I'm not going to say, I'm just not going to say you can say it all you want. I'm not going to say it.
Chad: Oh, everybody's going to take it. Everybody has to take a shot when I say money shot. Okay. So let's go ahead and dive into this. So we have close to a billion dollars that was actually spent in Q3. Tell us, tell us a little bit about this and what we're seeing on the trend lines.
Joel: Yeah. What's the executive summary of this thing for everyone?
George: The executive summary is, I mean, it was another, you know, big quarter. I've tracked details for the last three years and this is the, a, this is quarter number five, right as fifth largest. It's an incredible amount of VC coming into the space. The talent acquisition. And HCM categories are the big categories as usual. And you know, the, the subcategories talent in talent acquisition, job boards and assessments scored big this quarter job boards is every quarter and month. You know, across all categories. The leader this quarter assessments, you know, edged it out. So that's a, that's the high, the high level. There's, you know, we can go deeper into analysis if you want.
Joel: Oh, we're going to go deep with The Money Shot George, don't you worry.
Chad: Top of the report, a bit close to a billion dollars, $964.3 million spent. So how does that compare? Is that looking good? How are we trending?
George: Yeah, well, when you look at the, you look at the chart it, you know, the, your first reaction it, it's, well, it's the fifth largest in the last three years. It's a drop from the last couple of quarters. But the thing to remember about the last two quarters is we had something like eight mega rounds, right? Deals worth over 100 million and half of those were worth over 300 million. So we didn't have any mega rounds in this, in in Q3. So that's that, that's the impact right now,
Chad: Q3, are we taking a breath? Is that what's happening?
George: I don't know if you can say $1 billion is taking a breath. It's, it's, it's a lot lower than two, three last year though. Okay. Yeah. I, but we did have mega rounds last year. We had, we consistently have some really large routes now in Q4 already started and we've already had a Mega round in Q4. We had a $300 million round go to rig up. So maybe but I, I really don't think quarterly. I, I do this quarterly because everybody wants a quarterly. And I think over time it's good to see the trend, but I don't think quarterly is the way to look at VC and private equity coming into the space to take, to take the to take the temperature. Right. I, I don't think that's the way to look at it
Joel: Or this year is not a Canary in the coal mine, if you will. And if you were in their prediction game, you wouldn't sort of name this the death knell of the investment money coming in. You expect to see greater numbers going forward.
George: We had a, a high, a good deal volume D D the number of deals didn't go down. The average deal size when you take out the, the outliers and comparatively the last quarters is, you know, right on track. I, I, I'm not a financial analyst, so you know, something happens in the economy. And that's going to cause all investors to tap their brakes, get more conservative. But what I do see, I, you know, I got I got I see a lot of new funds being created, not, not just for HR tech, but across the board. The, the venture capitalists are raising a lot of money. They're, they've, they're bringing a lot of money into their funds that they need to find homes for. And I'd have had a call in you know, in the last 48 hours of someone creating a new fund for just for HR tech.
George: So, you know, as we sit today with the economy not, nothing seems to be slowing down. You know, that's, that's my, that's my take now. I, but I, I again, if anything happened, of course, if anything happens in the economy, things will, will slow. And I, I don't know if this is the new normal or if this 2000, 18, 2019 level of investment was like our peak. Yeah, it's, it's, it, it really is. I, I, yeah, you look at the number of of startups. You look at the number ILA cow you know, anybody can, you know, really at low cost, create an app. And we see a lot of apps coming into the market. So you know, all of these things, you know, play into this, there's going to be no shortage of folks starting up companies. And when the economy does go soft, that's sort of the best time to start. If you, if you have the capacity to do it, if you have the resources to do it. So,
Joel: So you mentioned, you mentioned mobile. Can you look at sort of other trends that may have sparked this? Like I know for me you know, Microsoft dropping 26 billion for LinkedIn kinda started this, this gold rush, but what's your take
George: Yeah, that those sizeable investments have a lot to do with it. I think a lot of investors see Workday and I'm not talking about the, the product that they're providing to the market, but looking at look, they look at Workday and they see how it's trading. They see it's multiples, they see and it's a big shiny object and it's in the HR technology category. I think that's another thing that that draws a lot of investors, you know, in, into the space.
Chad: Do you think they liken it to Salesforce and Salesforce is obviously exploded? I mean, it's almost like it's a different segment, different industry. And this could prospectively be the sales force of the HR tech industry.
George: I think there's something to that. I think it's they liken it to a lot of things. Most investors don't know much of anything about this space.
Chad: Neither do most of the startups that get in this space.
George: Yeah. So you hear just like from the startups, I, you still here, I'm still hearing like, you know, we're, we're going to be the Match.com of recruiting. We're going to be the Uber of recruiting. We're going to be this. Yeah. Yeah. The Tinder of recruiting. We're going to be all of this stuff and have HR and have employee engagement, whatever the category is. And you hear it from the investors to you here. And I, I think there has been a trend with vendors and marketplaces sort of emulating Salesforce. I think the, the challenge with the Workday is a different kind of topic, but the challenge with the legacy vendors in Workday is now a legacy vendor. They've been around a long time. They've got really limited, they don't have workplaces like Salesforce. Salesforce is, is just open, right?
George: They don't care, you can replace any of their features with your own apps coming through their marketplace. You can't show me an HR vendor like that. Some of the newer vendors that came up after 2010, 2015 ha, culturally they're more aligned with that. But, but most of the, you know, do, none of the HR platforms are are open like that. They should be. But, but they're not. So I think that that confounds the vendors and the investors over time because to this, to this point, buyers don't act like people that buy or, or, or companies that buy Salesforce or marketing platforms or other financial systems or things like that.
Joel: You, you mentioned Uber and I'm curious because we've, we've had a lot of, I guess, work platforms or, or companies in our space go public this past year and frankly be pretty challenged. You know, Upwork, Lyft, Uber, Fiverr. I'd even maybe throw Slack in there. As someone in the public market that has been challenged, do you think that will affect the, the amount of money coming into this space negatively? Or will it not matter?
George: You know, if you look at you look at some of these mega rounds you know rig up this quarter Q for 300 million I think it brought their total to 450 million. You know, the, the pressure on the back side of that level of investment. You know, that's, you look, you look at a lot of those vendors that you mentioned, they raised huge amounts of capital and then you know, the, the results that are expected as a startup, but then as they look to go public, you know, what their market cap needs to be. It's, it's kinda hard for me to see where we aren't going to have, you know, the only examples we had are like, you know, we've had linked LinkedIn go to Microsoft. That was acquisition, right? We, we don't have a lot of, we don't have a lot of experience with massive investment, you know, sort of going public. And we do have, we've had unicorns like Zenefits imploded. They're, they're still like, they're chugging along out there, but there are different Zenefits now. So I, I just, I, I expect have we'll have some, some brands to put on HR loses.com. I think we'll have some, some brands to put over there at some point. Yeah.
Chad: So a 2019 surpassed 2018 yep. In three quarters. Right. Versus, so we still have a quarter to go. I mean, we're, we're in the, in the gravy set right now as we, as we take a look at the investment map. Obviously, the money is still, it's in the US. 29 deals in the U S and then there's just sporadic onesy, twosy is all over the rest of the world. Right.
George: Yeah. It's, it's good to see deals coming in from other places. You know, France has a, a healthy ecosystem. The UK is always sort of number two Canada can pop up onto the list with a few deals, but we're, we're talking about, you know, the most I've seen from any other country in any quarter of the last three years has been like seven deals. And that's been like, Whoa. You know, usually it's two or three from one, and that was France. And that was France. Yeah, the, yeah, sometime last year. And then when I, when I look at the U S now I don't, I don't report on the cities but it's, it's, you know, Silicon Valley gets the lion's share of the VC investment. But the good news is, you know, I'm seeing I, you know, there has been, I don't want to, it's not like some an Exodus. But they're, you know, many cities have built you know, an ecosystem for startups and technology to attract more talent to attract investment businesses. And that's starting to be reflected, but it's a sort of like, you know, it's, it's analogous to comparing the U S to other countries. You know, Silicon Valley sees the bulk of it. That's where the bigger, you know, sort of top rate VCR where you see the big mega rounds coming out of. But you know, it's, it is starting to expand within the US a little bit.
Joel: Let's talk about chatbots for a second. And I, I want to say going back to like 2017 was when I think Maya got their first big round and then you had sort of a, you know, a cavalcade of, of players come into the space that got money. What's sort of your take on what's gonna happen with them in the next couple months or years? Are we going to see them, you know, consolidate and at how much? I think we're looking at AllyO at, you know, above the $50 million mark. I'm sure you can correct me if I'm wrong on that, but we're seeing some big dollars there. And also, what other spaces do you see becoming hot or heating up in the next, you know, 12, 18 months? Chatbots?
George: There's no you won't get any disagreement from me that conversational interfaces, chat bots, messaging, all of that automation surrounding it, machine learning, behind it, making the system smarter. That's, you know, that's the future. There's a run on chatbots, right? It's and, and it's not just the startups. So the thing that we're starting, you know, all of the larger vendors that were a little more hesitant or they started looking at these interfaces. Not really, not rushing to market with a product, but exploring AI, seeing, you know, where does it make sense for our customers, but now they've been coming out with these products. I think you're going to see some acquisitions. That's a, it's a place where you're going to see some of these vendors who might have raised some cash, got some traction, share some customers with, with some platforms get acquired.
George: You're going to see if, if you're going to see a lot of these vendors have to branch out. Because there are, there's just there, there are, there are a lot of vendors across every category right there. There are too many recruiting chatbots, there are too many benefits advisor chat bots, there are too many internal HR help desk chatbots. So they're going to have to branch out and start to do more and start to look like some of the platforms that they've tried to avoid or they're, they're, you know, they're just going to turn into, you know, zombie vendors out there that, you know, they make enough recurring revenue to keep the lights on and show up at a trade show here or there. But and maybe run a lifestyle business, but they're not going to take over market share bold statements.
Chad: Yeah. Let's dig into some of these categories real quick. So to me, it looked like talent acquisition, and correct me if I'm wrong, it seems like talent acquisition in this quarter took more of the pie than it normally does because HCM usually dominates the dollars side of the house is that the case? Is talent acquisition, talent acquisition tech actually on the rise from an investment standpoint?
George: So over the last three years, we've had 9.2 6 billion across all HR tech, 3.9 to HCM and 3.4 to talent acquisition. Okay. So I would say like, I, I w I didn't have that reaction to this chart. It's always to me there, it's always w which one's going to be edge out, the other one, talent acquisition or HCM. The thing about HCM is they consistently, that that category consistently has a small, you know, larger, average deal size bigger deal amounts because you were looking at, you know, payroll and benefits and you know, larger systems and systems that everybody needs. Right? So, yeah, there's a everybody needs payroll. Every, everybody needs in the U S everybody needs a benefits platform.
Chad: Well, and it's the difference between getting money to something that is a feature that could go on and get acquired and an actual system, like you're talking about a payroll system.
George: Yeah, you're right. You're right. And, and investors, I think yeah, that's why job boards and talent acquisition do well. Another reason is because w w an investor sees a marketplace and they see a need that regard regardless of the economy. People are looking for jobs. Either they're looking at their other, either more people or fewer people looking for jobs. There's, there are always people hiring more. You know, there's a two sided market investors love that you can go in and really specialize and go after that. That, you know, that segment of the market investors can really get their head around that business. Whether they understand the nuances of it or not. Totally different conversation. Human capital management, you know, payroll, everybody needs payroll. Everybody needs to be compliant. Everybody needs to pay their people on time. And they, they need to, they need to do it in more modern ways where funds are more accessible. I can get my head around that pretty, pretty easily. Talent management, we get into like, you know, learning and employee engagement. Those are those by definition that that's sort of where you need to have a deeper understanding of what's happening in leadership and development and management and so forth. Yeah. And so investors that, that's a, that's a scarier ground for most VC investors because it's not a a transactional marketplace or a, I, it's harder for me to see every company needing your learning management system.
Joel: All right, George, I'm a, I'm a young entrepreneur and I want to get into this space and I want to raise a lot of money. What recommendation would you give me on what kind of company to start to really make the bank? Don't do it.
Chad: Pretty fucking simple. Don't do it. This is not the space for you. Get the fuck out of here.
Joel: No, it's seriously, isn't it? Is it, is it automation? Is it AI? And what kind of AI? And I mean, the crypto, right? Is getting money. Like what? Blockchain?
Chad: On my God!,
Joel: Bad recommended or what is it? Just start a job board.
Chad: God, he's reaching.
George: So, all right, here's what I think. And I, I'm not I'm not, again, I'm not a financial analyst and I'm not giving anybody any advice on what kind of company to, to start necessarily. But I, I see you know, blockchain is still early, although I know at Workday rising this week they reportedly demoed some pretty cool stuff about, you know, skills who've been Tory and you know, PO PO
Joel: ...And recruit holdings just bought a block chain company. Right?
George: That's true. That's true. So I think it's still early on blockchain and I think it's really hard for buyers to get their head around a block chain until it becomes a requirement from, from it. Right? It's like, it's sort of like GDPR or data security. You know, they're trying to solve business problems that are out in the town, in the recruiting pipeline or in the, in internal mobility or their, their level of engagement inside. They're inside their company and starting to deal with like changing my complete infrastructure and you know, how data gets to, gets to move through the organization and outside of the organization. I once it says we're going blockchain, that's, that's when, that's when we're going to have a run on blockchain. Now it's like the move to the cloud. I think you're right. And so here's the deal.
George: We've seen a lot of vendors like look at all this programmatic activity. I remember in you know, I'd say about, you know, seven years ago, there were some vendors that came out with retargeting and, and they were talking the programmatic talk. They flamed out. Yeah, I can't remember the names, but they flamed out. And now you've got you know, the market's moved to where, you know, app cast and the others they got, their timing was, was better. Their timing was more right than, than wrong. So, so I think blockchain's a scary one for me. If I'm an entrepreneur in this space unless I've got a real patient investor or I'm willing to sort of go, go as a on a, on a bootstrap or you know, sort of go with the market, you know, stay with it early at a lower earlier stage until I start to see more adoption.
George: So that, that's a scary one to me.
Chad: Job boards are getting a shit ton of money, right?
George: They are, they're getting a ton of money and I think there's some, they're not dead. And I, I think there's, there's an, I don't think they're ever going to be dead. And I think you're going to see so here is some interesting that one of the big things I love in the job board space is so we talk about the skills gap in the skills shortage and all this stuff. Now you've got these job boards, they're coming out and they're blending education and job boards. So there was one in Q3 called paths stream, they raised $12 million. They are, they work with traditional universities and they create branded learning content. So like Salesforce creates a CRM essential certificate. Tablo has like data analytics certificates that you get through.
George: I dunno if it's universities, I don't know if they get down to the community college level, but what are they doing? They're creating a pipeline of talent for themselves. Right? And they're creating a marketplace where as a student, I'm coming in to understand what's available at, at these shops. There's another there are others which companies should be doing with their own data and their own applicant tracking system. Yeah, I agree. Now there's another one. Next step. It's a healthcare. They don't work with they don't work with universities, but they create a health care learning and education for individuals that are displaced in the workplace and want to move into the healthcare sector. Now that, that's a, to me that's like, that's, that's the kind of thing you expect to hear politicians talk about. Right? This is like job retraining except businesses are doing it and so it will probably be more successful.
George: And it's and that's something where now then you start to think about what's in their tech stack. Now did they bring AI and do they bring machine learning in to make their systems more effective and more valuable for the, for the students and for the candidates. And you know, the consumers that are going through the process and for the employers, there have been some others too. There's you know, last year there was a big round to a university in San Francisco that is funded by Apple Microsoft, Salesforce and all they do is train people for a skills that those companies you know, and they've impacted the curriculum, let's put it that way. So it's, and it's, and it's, there's an online marketplace for this stuff as well. So it's, it's pretty cool to see the talent acquisition and learning training side of things coming together.
George: And that's, if I were starting a job board, I'd be looking at, let's look at rig up $300 million. Why specialization? I'm, I'm drawing a blank on the guys in Boston who do no collar, blue collar Jobcase job kids, right? Underserved market, underserved, underserved, right. They now, but, but so LinkedIn is for you know, S, you know, we'll call it skilled re PR candidates, job case. Well the electricians have mobile phones, they have iPhones, they have hand. Troy's you know, folks that are, that you would think blue collar. They’re out on the road. They're not in front of laptops every day. So the market has caught up with that segment of candidates. So there are a lot of places where job boards are really leading this specialization trend for all of HR tech. And that, that's where you're going to see all of HR tech go ultimately is you know, they're going to be, you're going to have the apps that are better or the, and the platforms that are better serving healthcare or industrial or tech or whatever. So is your answer to the young entrepreneur a specialized job board? I think that's, that's one, that's one of the answers. There's another area that I think is around analytics for workforce planning. I'm hearing a lot, a lot of a lot of employers are looking for help aligning their company's goals for the next, you know, two years, five years.
George: Yeah. Okay. But, but with aligning that with their internal talent and the external talent that's available and the platforms generally don't do that well. And I'm getting, I'm hearing a lot of that. I'm hearing a big need for that. And so that's something that's, that's, that's interesting to me.
Joel: Fantastic. George, as always, we appreciate your time and your sense of humor and your humility. If you were sending someone to learn more about you that's listening right now, where would you send them?
George: Go to HRwins.com and you find everything you need to know or links to it from there.
Chad: Excellent man.
Chad & Joel: We out!
Ema: Hi, I'm Ema. Thanks for listening to my dad, the Chad and his buddy Cheese. This has been the Chad and cheese podcast. Be sure to subscribe on iTunes, Google play or wherever you get your podcasts so you don't miss a single show. Be sure to check out our sponsors because their money goes to my college fund for more visit ChadCheese.com.