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HR Tech Funding and M&A w/ Georgios Markakis

Let’s look at a few trends going on in workforce tech right now: inflation, layoffs, lack of VC funding, tightening budgets and technological disruption. All combined to create uncertainty in multiple dimensions and end up laying the table for what should be a feeding frenzy for M&A. That’s why we invited Georgios Markakis, managing partner at Venero Capital Advisors, to the show. In addition to the acquisition and fundraising landscape, we look back at what things were like during the pandemic, what’s going on with IPOs and what makes a good founder when dissecting M&A opportunities. It’s a must-listen for vendors and the founders who run them.


Intro: Hide your kids. Lock the doors. You're listening to HR's 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: Oh, yeah. What's up everybody? It's your favorite guilty pleasure, AKA, The Chad and Cheese Podcast. I'm your co-host, Joel Cheesman. Joined as always, the Barney to my Fred, Chad Sowash is in the house. And we welcome today Georgios Markakis. Did I say that right?

Chad: No.

Georgios Markakis: That's right.

Joel: I didn't say it right, Chad? [laughter] Georgios is the managing partner at Venero Capital Advisors. He's educated at Carnegie Mellon and the University of Chicago, and a super fan of the show.

Chad: What?

Joel: Which we certainly appreciate. Georgios, welcome to The Chad and Cheese Podcast.

Georgios Markakis: Hi, guys. Great to be here.

Chad: Great to have you, man. All the way from Greece. Dude, that is freaking awesome.

Joel: The breadbasket of democracy, I think. Isn't that...


Chad: The breadbasket? Is that what we're going with?

Joel: The breadbasket. [laughter] The birthplace.

Georgios Markakis: People listening to the show all over the world, including Athens, Greece.

Chad: Including Athens, Greece.

Joel: We're huge in Greece.

Georgios Markakis: Big fan base in Greece.

Joel: Although there's no Chipotle, so I won't be visiting anytime soon.


Chad: And Greece is thanking you for that.

Joel: I Appreciate that. [laughter] So Georgios, a lot of our listeners don't know who you are. Give them a Twitter bio on you.

Georgios Markakis: Yes, I'm a managing partner at Venero, like you said, Venero Capital Advisors. We were ranked number one HR tech focused M&A advisor globally in terms of deal flow, number of deals. So Venero, we have the largest number of deals in the sector, across HR tech and work tech. So anything in talent sourcing, talent management, workforce management, payroll benefits, that's what we do. My personal background, so before Venero, I was at Deutsche Bank doing M&A across Europe, and have been focusing on HR tech for the last almost five years now as part of Venero.

Chad: What got you into HR tech?

Joel: Well, if you're gonna be number one in something, it might as well be HR tech.


Georgios Markakis: So the answer I like to give is, as a young boy growing up in Greece, I've always dreamt of working in HR.

Chad: What? Said no young man ever.


Georgios Markakis: No, the reality is basically we just stumbled into the sector when we started the firm and we were generalists, and we happened to get one mandate in HR tech, then a second one and then a third one. And also, we called the sector a great time. I think we decided to specialize in the sector back 2019. And at the time, that was boom year for HR tech. So we got a great time and just momentum built. So we decided just focus exclusively on the space.

Joel: You've recently been at a conference and you're on the circuit giving presentation. But we haven't had sort of an M&A money guy on. I wanna know your historical perspective of the insanity that was 2020 through like 2022. What was it like from where you sat when all that money was being thrown around and companies were just flushed with cash? What was that like?

Chad: Money flowed through the streets, and yes, that the true breadbasket.

Georgios Markakis: It was fresh. So back in time... So we go back to that... We keep track of things and then you go back to 2016, 2016, '17. If you look at the M&A multiples, so evaluations where companies were getting acquired, back then, there's maybe two times revenue, one, two times revenue. [laughter] And it was very much I think I like to say kind of the HR tech was the unloved cousin of SaaS. People just didn't think the addressable market was there. People just didn't think that HR departments would adopt all these new SaaS tools. But what happened over time, if you look at the multiples, evaluation multiple, is gradually, they've been expanding. So from one to two times they went, three to four, six to seven. And the best year, actually, for the sector was 2019. If you keep track of the median and the average multiple, 2019, they're very close, the median and the average, which basically means that 2019, basically every company was getting acquired at around nine, 10 times.

Joel: The good old days.

Georgios Markakis: The good old days. And that's when we first started to hear complaints from buyers and investors about, "Hey, frothy market, what's happening?" Everyone's expecting to be acquired, those multiple. So in 2020, you started to see the median and the average multiple diverge, which basically means that buyers started to become a bit more discerning. The average was still high, which means that the best-in-class assets were still getting acquired a really high multiples, even well into double digits, et cetera. And then everybody else was getting more modest multiple. And then 2021, that trend continued. And then 2022 is when you started to see that contraction. But 2019, '20, '21, and even if you look at investing, like funding flowing into the sector, '21 was a record year for the space. So a lot of funding went into recruitment, a lot of funding went to... Even you had a lot of companies raising income in the billions. So the likes of Access and big private equity started coming into the sector, and those guys were investing hundreds of millions and billions into this space. So you have 2021 really being a record year for the sector.

Chad: So did you see that... I mean, HR is slow to the party. They are slow, finally catching up to, let's say, for instance, SaaS or the sales, the marketing kinda like platforms over the years. So was that kind of like key for you guys to say, "Hey, look, these guys are lagging probably by at least five years. We can jump into this and we can be early adopters when they actually catch the rise?" Is that what you guys saw? What... I mean, because HR just isn't sexy. Let's just say that.

Georgios Markakis: It's not sexy. And look, I'd love to say that it was all planned and it was, we saw the opportunity and... But it was, basically, we just had the deal flow. So we went with it, and we were small team at the time. So it just made a lot of sense for us to specialize. And look, at the end of the day, today, people think about HR tech and we talk about HR tech and work tech as a superset of HR tech. We think it's a small sector. It's actually quite a big sector. So there's about 15 of us now. And still the sector is really, really, really, really large. So the opportunity for us was big. We caught it a great time. At this point, we're experts in the space, and we're happy that we made that decision back then.

Joel: I noticed that a lot of your deals are cross border, they're global. Talk about that because I think it's a relatively new trend. I assume that you expect it to continue. Talk about the global nature of M&A and how that's gonna be in the future.

Georgios Markakis: Yeah. No, that's a very good point. And so, again, it goes back to the history of the sector. When all these funding started flowing into the space, you had a lot of these point solutions crop up. A lot of companies, a lot of vendors were addressing specific pain points. So we actually have a thesis. We call that part of the history kinda the period of rapid innovation. So a lot of new companies being spun off and addressing all these pain points. Now, of course, customers, for the most part, they don't want to deal with like tons of systems. So that's when we started to see this consolidation. So we went from the phase of rapid innovation to growth and consolidation, which was maybe the last, three years or so. What that meant was that a lot of buyers, a lot of corporates would either decide either build a more unified and more seamless offering or acquire best-in-class point solution. And so that's what was happening. And of course, these point solutions exist anywhere in the world. They cater to customers, for the most part, globally. Of course, it depends. There's others who focus on certain geographies, but for the most part, HR tech is a horizontal geography agnostic solution. So a lot of companies were being acquired, integrated into a broader offering, and then rolled out internationally. So, yeah, cross border is super typical, let's say.

Joel: And Chad and I talk a lot about sort of the promise of India, Africa, South America. What's your read on those three areas and what they'll mean to recruitment in the future?

Georgios Markakis: Okay, so there's two dimensions there. One is on the candidate side of things. And now with remote work and everything, we're seeing a continuation of the trend where you source talent from all these regions, so India, and so on and so forth, Africa, to some extent, Asia. So when it comes talent marketplaces, there, you have a very spread out geographically reach across all these geographies. So there's talent marketplaces, from Upwork to Fiverr, and everybody, who have talent globally. So, of course, India and Asia is very prominent. Now, when it comes to SaaS solutions. And we do have mandates globally, so we have mandates in Southeast Asia and Australia, of course, North America and Europe. With SaaS, it's different. A lot of SaaS vendors that are headquartered in Southeast Asia, for example, they will tend to focus on customers in southeast Asia. Some Indian vendors try to cross over to the US, but that's less common. Australia, same thing. So a lot of Australia, New Zealand vendors, they tend to be a bit more local. They'll try to transition maybe to the US, but rarely will they come to Europe. European ones and US, there, you see more of a cross pollination. US, you have bigger concentration North America, and of course, globally. So that's, I think, how... When it comes SaaS, there is this geographical focus. There's more investment going into Africa. It still, I think, has room to go before it grows out of Africa into other regions.

Chad: Let's talk about the invasion of European companies, startups trying to come to the US. It's not easy. And a lot of times, they don't have enough cash, let alone experience, to be able to make that work. And everybody just thinks it's easy because we're just 50 states, we speak the same language and it's a big pile of money, but it is hard to achieve successful invasion of the US and then also try to follow the recipe for acquisition at that point. So when you're talking to European startups and when they start to get more money, they know that they have to increase their TAM. That's what you're looking for. You're looking for a bigger pile of money. So how do we do that? Oh, shit, let's go to the US. It seems like the de facto, but it's not a successful de facto. Tell us a little bit about that. What happens behind the scenes when you're talking to a startup, you're talking about funding, that funding is growing, it's like, "Oh, shit, we've gotta increase the TAM? Where do we go? What do we do?"

Georgios Markakis: Yeah. No, actually, you're absolutely right. It is the default go-to market, simply because... I think it's probably process of elimination. People thinking, "Okay, should I fight about... Suppose am in the UK already, should I fight a battle in France or Germany where I have to get a different language, different culture? It's still Europe, but they're very different. Or do I pick a very large addressable market that's relatively more uniformly than Europe?" A lot of companies and founders do choose to go to the US. I think there are a couple of different recipes for success. So the ones that I've seen that are doing this, I think, properly are doing two things right. First of all, at least one of the founders moves to the US [laughter] to build a team there. And the secondly, they get support... They get local knowhow from investors that know the market, who can guide them in building that market. Of course, you need to build up the team from scratch and have unique go-to-market strategies for that. So those guys do it properly. If you try to grow into the US from Paris or from Munich, I think that's much harder to accomplish or to do properly.

Chad: So what about the other way around? We have US companies that now they look at Europe to be able to, again, expand. And that's a hell of a lot harder just because of everything that you just said in trying to grow within Europe. I mean, if you're in the UK and trying to grow in Europe, that's hard, right?

Georgios Markakis: Yeah.

Chad: So being a US company trying to come across the pond, what are some of the recommendations and/or advice that you provide to startups who are prospectively looking at that path?

Georgios Markakis: Yeah. Yeah, no, we see that as well, and with mixed success. I think the most successful ones would be either large companies that open offices locally in Europe, but we've seen companies either make sizeable acquisitions in Europe and then from there expand, make acqui-hires in Europe, and then use that to expand. You can acquire business and then make that founder kind of head of European expansion. So those are strategies that work. But what doesn't really work is to have a marketing team sitting somewhere in the US try to sell... Do a marketing plan for a French company.

Chad: So one thing that we have noticed and working with the House of HR is how they acquire companies throughout Europe, but yet they keep the brand, to be able to give that sense of, "We're not changing anything. This is a French company. It's gonna stay a French company. It's under the house of HR umbrella" And in the US, we usually don't do that, because it's just like, "Let's cram everything together." But when we started seeing that type of strategy in Europe and then started to do a lot more digging and research in Europe, that made a hell of a lot of sense. What are your thoughts around the house of brands versus just a single brand?

Georgios Markakis: That has a less obvious answer, I think. We've seen both. We've seen companies acquire kinda relatively wellknown brands, but then decided to sunset that acquired brand. And others keep things separate. I think there's merit to both. I think the answer is, it depends. So yeah, I don't think there's a single right answer for everybody. It depends on the product, your go-to-market strategy, your customer base, how global is your customer base, versus local customer base, how strong is the local brand. So I think the answer there is, it depends.

Joel: Let's get into your presentation that you did at Transform. Some of our listeners may have seen you there. Let's look at the laundry list of global headwinds, inflation, layoffs, dry-up of VC funding, tightening budgets, technological disruption, which we'll get into in a little bit with a little thing called chatGPT. I'll ask about that.

Chad: What's that?

Joel: It all looks like chaos, companies looking for an out, the IPO markets have dried up. This looks like the dawn of the glory days of M&A. Am I wrong?

Georgios Markakis: Some of these indicators are leading, others are lagging indicators, but, okay, a few things are happening. So when it comes to buyer spend, companies acquiring these kind of SaaS tools for HR tech and work tech, what we're seeing and what we're hearing is that at least on the recruitment side of things, at least the vendors are exposed to recruitment. They're seeing an impact. So they have a problem. Even if you look at some of the publicly traded ones, without disclosing any information on private companies, like Super Recruiter is forecasting, I think, a 15% drop to revenue this year. Upwork or Fiverr and those kind of companies, they're projecting kind of a much slower growth, like in the single digits. Of course, they've been suffering for a while. So the recruitment vendors, they are seeing this impact of companies just not hiring as much. And this, of course, comes on the back of very strong performance in last year, believe it or not. 'Cause last year, even though the headlines were talking about recession and macro headwinds, last year, businesses weren't cutting back on their spending. But this year, they sort of are. So this is in recruitment.

Georgios Markakis: In the other segments, we're hearing about longer sales cycles, we're hearing about CFOs and everybody just thinking, "Okay, do I need this?" On the investment side, a lot of investors are asking... Before they invest, they're asking, "Okay is this product a must-have or a nice-to-have?" And that's the reality on the ground. On the inflation side, of course, that means that salaries sometimes will need to be adjusted. We keep hearing about businesses need to update the salaries of their employees, which increases their cost base, which, of course, affects their cash per. And then the funding side, we're reading in the headlines, it's true, the investor, the VCs, they're being a lot more discerning when it comes to investing. And so they'll talk about, okay, must-have versus nice-to-have, they'll talk about what's the outlook for the next 12 months. They won't take the longer term view of this is something that's temporary. 2024 could be a better year. They're a bit more, at least shortsighted when it comes to investing this year.

Chad: I'm gonna say, get that ALDI bag out because it's shop time, baby. [laughter]

Joel: Yeah, it sounds like a feeding frenzy for the M&A guys. Like, are you feeding calls constantly to get deals done? Are there companies with dry powder looking to say, "Who's ready to sell?" It's gotta be a busy time for you. Talk about that.

Georgios Markakis: Yeah. So on the M&A side, again two things are happening. First of all, last year companies just decided not to come to market. Companies were saying, "Well, I'll wait. I've been reading the headlines. Valuations are down. I don't know what to do about... I'm just not going to come to market." This year, we're seeing a big uptake in companies have different conversations. They're saying, "I'll come to market, I plan to come to market." And usually, there's... Typically, there's two drivers. First is need. Some companies just need to come to market because of all the other things we talked about, because revenue is being impacted, because funding is not as easily available. So some companies need to come to market. Others, believe it or not, choose to come to market, because some companies actually are doing okay. Their KPIs are fine. And it just so happens that all they're waiting for is for sentiment to stabilize.

Georgios Markakis: Last year, sentiment was pretty bad. This year, we found a floor. It seems like, okay, at least there's no worsening of sentiment. So as soon as sentiment picks up a bit, these companies will choose to come to market. Now, what I'm telling you, you don't see this in the numbers. If you look at the numbers of announced transactions, you don't see this. Why? Because announced transactions have a six to nine-month lag. Deals get announced today are the deals that were launched nine months ago. But at the end of the year, and maybe early next year, you'll see that uptake because processes are getting launched this year.

Chad: So from a personal standpoint and also from the organization, what is that one thing that you guys look for in a founder? And I'll tell you what I mean. When we first started seeing this frenzy, we started seeing founders that have huge exits from like marketing in sales. And they felt like they could come into this space and just rock the shit out of it. And they, in many cases, failed miserably. And as we started to see kind of like the recipe, I guess you could say, for a good organization, Joel and I have our own, like, personal one thing that means everything for at least the start. What is that for you? What is that for you from a founder standpoint, from an organization standpoint?

Georgios Markakis: Interesting. So instinctively, somebody might say, "I'm looking for a founder who knows the sector, who knows the sector that they're catering to." And that's always a plus. A lot of times though, what we've seen is sometimes the people who know the sector don't necessarily have the best execution or best product in the market. So we've seen that being a plus. But equally, it's not the one thing. It's not the one thing. I think the one thing really comes down to personality, I think. It's this charismatic founder. Like, we keep hearing this from investors or for acquirers, this founder and their co-founder, they're just... They have this 'Je ne sais quoi' if you wanna use French on the show.

Joel: Bless you.


Georgios Markakis: Bless you. Thank you. So it's just this charisma that translates into fantastic execution and the ability to solve any problem that comes their way. So I think that... Which probably true for every sector, but it's equally true for this sector as well.

Chad: I have to say that a friend of mine who did sell, Adam Gordon with Candidate.ID, he was on every stage he could be on. And again, very charismatic and just getting out there. And I asked him, I was like, "Why are you getting on so many stages? I know it's good from an awareness standpoint." He said, "No, it's better for me sharpening my message and then being able to get feedback from practitioners. It just... It starts a conversation that prospectively wasn't there before." So I agree 100%. So when you take a look at, Joel and I every week, and I'm sure you hear it, we keep wondering how some of these companies get funding. It's literally a solution looking for a problem. It is somebody who literally has no experience in this space, along with trying to find a problem for a solution. When you were looking and assessing, adding someone to your portfolio from a funding or an M&A standpoint, what are you looking for? What's... Beyond just the charismatic piece of it, what are you looking for?

Joel: Obviously someone in a kilt, in Adam Gordon's case.


Georgios Markakis: If you think about it from an M&A side of things, it's different from... Versus an investment. For an investor looking to invest, they look at the founder, the founding team, fundamentally. And they go to market and their ability to execute. But for M&A, it's a bit clearer. So an M&A, a buyer basically looks at their existing offering and they say, "What gap do I have in my offering?" So they also look at it from a product perspective. So they look at the founder and the management team, but equally, if not more, they're looking for alignment between their own strategy as a vendor and what products the target company is offering. So that's a bit more... It's a bit clearer. "What's the size of the vendor, of the target company? Is it big enough? Does it move the needle for me? What's the product it's offering? Is it good enough quality wise? From a technology perspective, does it fit with my platform? Geography, does it cater to the same geographies that I want to target or same target customers?" That's what... So it's a bit more clear cut, if you will.

Chad: Well, the founder... At that point, if you're not looking to make that founder the CEO of the bigger organization, they're gonna be out the door anyway. So really, it is about all of the assets and not the personnel as much.

Georgios Markakis: Exactly. The founder typically will stay on for a couple years to ensure the transition, maybe hit some earn-out targets, and then maybe they stay on, maybe they move on. Usually, it's their choice.

Joel: You've been doing this for a while, and diversity has been a hot topic for the last few years. From your perspective, are we seeing a healthy trend toward more diversity with founders, boards, et cetera? Are we making progress on that end, or does now look like it did mostly like it did 10 years ago?

Georgios Markakis: Yeah. On boards, definitely. And actually here, I'll plug the boardroom, which is... My sister actually launched the boardroom out of Switzerland, which is basically supporting gender diversity in the boardroom. From a founder perspective, there's been a big push for non-mainstream founders to raise funding. So that's definitely been a positive. Now, to what extent that has translated into actual major exit, et cetera, I think it's a bit early, 'cause usually, remember, it takes quite a few years for a new company, a newly funded company to make kinda headlines through an exit. But look, I think at least we're doing the right things when it comes to talking about it, creating new funds for these types of founders. So at least we're doing the right things. And I think the next few years we'll see the results of today's actions.

Joel: So we saw you last in November in Paris at Unleash. A little thing called chatGPT launched back in November and has [chuckle] had some impact. You may have heard of it. So in your LinkedIn post, you said, "Generative AI will disrupt the future of work more quickly than people anticipated, and the impact will be more pronounced. It seems to be catching a lot of people off guard." Talk about generative AI and what it means from where you sit.

Georgios Markakis: Right. First of all, let me just say, I'm not... I'm a finance person. I'm not a tech person, although I do have a master's in computer science.


Joel: Studied at Carnegie Mellon. I know about technology. Yeah.


Georgios Markakis: As I jokingly say every now and then, I do have a master's. But look, we think there are two... And of course, AI has been around for a long time. And a lot of vendors already use AI in their tools. And they use what we call predictive AI as opposed to generative AI. And we think there's two fundamental aspects that make this different. The first thing is that applications like chatGPT, they're iterative and interactive. So up until now, with predictive AI, you would give the AI an input, it would spit out an output, and that's it. I think it would be explainable and all that, but that was it. Now, we're talking about something that's interactive, that's iterative, that improves the results in a user-friendly and iterative way. And we think that's the one thing that is initially very different. It will improve the user experience dramatically. So that's the one point. And the second point is that the barriers for AI are being lowered significantly. Up until now, to build AI, you needed to have experts, and money, and data scientists, and access to data, and servers, and you get to train it and then... Now, all these barriers are being lowered. So what's going to catch people off guard is that AI will become mainstream.

Georgios Markakis: Today, companies that use AI, relatively few, and they have a competitive advantage. Soon, everybody will use AI, and those who don't will be at a disadvantage. It's a shift in the mentality of the competitive landscape. And of course, this will change the competitive landscape dramatically. AI will no longer be a competitive advantage. You'll need to find a different moat for your competitive advantage. So I think that's what's going to catch people... And of course, there are some vendors that will be completely disrupted, but that's a whole different story.


Joel: You think?

Chad: Yes. So Georgios, so last question, the hardest question of this entire interview, conversation. [laughter] Why do you listen to The Chad and Cheese Podcast? Is it because we're a couple of bumbling Americans and we're funny to listen to or why? What is it? I don't wanna feed you with reasons, but go ahead.

Joel: Chad needs a hug.


Chad: Always.

Georgios Markakis: Well, first of all, you guys make it interesting. I think I've listened to other... I mean, no offense to others, but...

Chad: They all suck. No, I get it. It's 'cause... It's okay.


Georgios Markakis: You make it interesting. You bring on very interesting guests. And for me, it's just I'm interested in finding a way to stay up to speed with what's happening in the sector. So as a finance person, that's my... I listen to it, I enjoy it, I have fun and laugh with you guys. And also it's informative. So that's a...

Joel: He has the same hairstylist as you, Chad. That's why he listens.

Georgios Markakis: Is there going to be a video with this? 'Cause yes, that's true.


Chad: It's sexy. I'm excited.


Joel: That is Georgios Markakis, everybody. Georgios, for our listeners who wanna connect with you or learn more, where would you send them?

Georgios Markakis:, or on LinkedIn, Georgios Markakis. Yeah.

Joel: I'm a lot smarter, Chad. I don't know about you. Georgios, thanks for coming on the show. Hopefully, we can see each other face to face again.

Chad: Amen.

Joel: It'll be over a few beers this time.

Georgios Markakis: Absolutely.

Joel: Chad, another one is in the can. We out.

Chad: We out.

Outro: Wow. Look at you. You made it through an entire episode of The Chad and Cheese Podcast. Or maybe you cheated and fast forwarded to the end. Either way, there's no doubt you wish you had that time back. Valuable time you could have used to buy a nutritious meal at Taco Bell, enjoy a pour of your favorite whiskey, or just watch big booty Latinas and bug fights on TikTok. No, you hung out with these two chuckleheads instead. Now, go take a shower and wash off all the guilt. But save some soap because you'll be back. Like an awful train wreck, you can't look away. And like Chad's favorite Western, you can't quit them either. We out.


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