Investing in Recruiting Tech: Advice From the Experts
Welcome to Recruiter Q&A, where we pose employment-related questions to the experts and share their answers! Have a question you’d like to ask? Leave it in the comments, and you might just see it in the next installment of Recruiter Q&A!
Today’s Question: With robust investment demand and new companies launching every day, the recruiting technology startup environment has never been healthier. Startups that help companies with their No. 1 problem – finding great people – are getting a lot of attention, and a positive employment market has added fuel to the fire.
Recruiter.com recently sat down with a number of recruiting technology experts and asked them one question: What would you look for right now when evaluating a recruiting tech startup?
1. Human Touch in Recruiting
The potential that new developments have for automating the old-fashioned recruiting process is endless; artificial intelligence, people analytics, and big data have the capability to substitute for a large part of the recruitment funnel.
However, effective human interactions are still highly appreciated by both clients and candidates. Startups should try to find a way to maintain these human interactions while leveraging new technologies in the process. People that are able to this while improving or automating processes and/or further engaging candidates are always interesting to chat with.
— Florian Chilla, Investment Analyst at Randstad Innovation Fund
2. Product and Founder Market Fit
The first thing I focus on is the product. Does the company have a product that is actually solving a problem that exists in the market or have a better solution than others do? And is there a market for the solution they are offering?
The second thing I focus on is the founder/team. Is there more than one founder? Good! Is the team knowledgeable about where they fit into the space? Most importantly, do they listen? Not just to me and my team, but to the market!
— Jonathan Kestenbaum, Executive Director at Talent Tech Labs
3. Market Validation and Traction
Market validation/traction is the primary factor I look for when considering investments in the recruiting space. I am always inspired by the ingenuity and creativity of entrepreneurs, and when the market receives an innovation well, it’s a real thing of beauty.
– David Wieland, Founder and Executive Chairman at RIVS
4. The Ability to Cut Through the Noise
When evaluating tech startups in the recruiting space, top investors are looking for solutions that demonstrate the ability to lock up talent supply through defensible marketplaces, software that helps employers cut through the noise, or, in some cases, both. Given the strength of incumbents like LinkedIn and Indeed, startups specializing in high-value niche talent markets that provide a foothold into the broader recruiting space such as college recruiting, diversity recruiting, or top technical talent are compelling. On the recruiting software side, investors are keeping an eye out for startups focused on helping employers dig their way out from under a sea of candidates by identifying and nurturing top prospects.
— Andrew Maguire, CEO and Cofounder at Looksharp.com
5. The Right Strategy and the Right Metrics
If it is a B2B SaaS play, I would be looking at a company’s sales strategy and metrics (most importantly, customer acquisition costs versus customer lifetime value); the company’s ability to differentiate itself from the competition (the recruitment tech landscape is really crowded these days!); and the stickiness of the product (it has to integrate seamlessly in the user’s workflow).
If it is B2C, candidate-focused product, I would be looking at the company’s cost of user acquisition, user growth dynamics, churn, and engagement metrics. Obviously, a company would also need to have a clear path to monetization and a healthy balance of supply and demand (i.e., candidates versus vacancies).
— Taras Polischuk, Investment Manager at Talent Equity Ventures
6. Strong Revenue and Audience Strategy
Top investors are looking for one of two things: the ability to make more money or exposure to more people. Anything that doesn’t get an investor one of those things should be a non-starter.
Unfortunately, it seems that a lot of people confuse impressive tech or lots of eyeballs with future sales, and this leads to many of the B.S. investments we saw in 2013. Today, folks are a little smarter. They’re looking for something that either gets them a great team or a great audience – or something that is a giant threat (in the case of acquisitions).
— Maren Hogan, CEO at Red Branch Media
7. Something That Makes Recruiting Easier for Real People
Don’t fall for the smart bots! Seriously, recruiting is and always will be a human process. Look for a startup offering tech that assists the humans and lowers the labor required. That’s where you will find a win in the market.
— Lane Campbell, CEO at June
8. A Well-Defined Market Fit
Startups need to figure out how they fit into the recruiting and employment market. This is important not only when it comes to understanding potential partnerships, alliances, and technology integration opportunities, but also for an exit strategy. It’s easy to say that you’re in it to win it and go public, but investors also want to know why another big player will have to buy your company. Tell investors how you are uniquely positioned to grab hold of a very particular market segment – then be prepared to go after it hard.
— Miles Jennings, CEO at Recruiter.com
9. A Battle-Tested Team
There are so many ways to answer this question. “Does the team have experience in this space?” or “Is their solution or vantage truly unique?” are questions that come to mind.
But what I do look at – the most important thing – is this: Has the team been through battles? Have they fought through barriers such as building a team, selling a product, and reaching customers? Moreover, do they have the grit to do that time after time?
Startups, whether in HR tech or other industries, require a team of people who have the discipline to not give up until the next answer is found. Yeah, you hear it all the time that startups who succeed have that “something special” – but what you don’t read is that they peak under pressure. They learn to cope with adversity and are gritty as heck!
— Ryan Mead, CEO and Founder at Vitru
10. Candidates Delivered Quickly
When evaluating a recruiting tech startup, I’d look at the speed of sending quality leads. In this day and age, when we’re seeing “Uberization” in every industry possible, I’d expect a great recruiting tech startup to offer great candidates within days rather than weeks.
— Weiting Liu, CEO and Cofounder at Codementor