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Venture Capital and Private Equity Continue to Have a Taste for HR and HCM Tech Opportunities

The Surprise: While recession risks have led VCs & PEs to press pause on many pandemic favorites, the Human Capital Management (HCM) Tech niche has proven to be the exception.

It is a crowded space – over 400 HCM companies set up shop at the 2022 HR Technology Conference in Las Vegas. There’s a reason for all the competition. The need for a scientific approach to managing a company’s workforce gained steam during the COVID-19 pandemic, leading HR Tech to receive a record amount of venture capital (VC) attention in 2021. Despite all the hype over the past two years, this trend shows signs of staying power. The global HR Tech space is projected to expand at a CAGR of 9.1% through 2029 to $46.85 billion, which dwarfs the current size of $25.53 billion.

Let’s provide some perspective on Human Capital Management’s dramatic rise in relevancy.

HR Tech companies received a 250% increase in VC funding in Q4 2021 compared to Q4 2020. In that final quarter of 2021, VCs poured $11.2 billion into 212 unique HR Tech startups, which equates to an average deal size of $58.3 million. In H1 2022, HR Tech was the beneficiary of $14.2 billion in funding across 387 deals, which equates to an average deal size of $41 million.

While the 2022 numbers thus far aren’t nearly as eye-popping, context is everything. Recession fears in the U.S. and around the world kicked in during Q4 2021. Officials admitted inflation wasn’t transitory. The public accepted the inevitability of higher borrowing costs. The stock market, being a forward-looking indicator, peaked in October of 2021.

It’s no surprise then that funding slowed from its peak. In fact, as of September 2022, overall VC investment has hit a two-year low. But not all industries feel the effects equally – flows into HR tech are holding up much better than the overall market.

Private equity (PE) has also remained very interested in HR tech and HCM software. Thoma Bravo is one software-focused private equity firm that has been on an acquisition spree recently. In October 2022 alone, the PE firm acquired ForgeRock (NYSE: FORG), Ping Identity, UserTesting (NYSE: USER) and completed a strategic investment into SMA Technologies.

The Problem: Stubborn inflation and a fractured employer/employee relationship has put many small to midsize businesses at a crossroads.

An American Express survey revealed that while the average small to midsize business enjoyed an 87% increase in revenue from July 2021 to July 2022, that same average also saw profits decrease by 4%. That’s the equivalent of running faster while falling even more behind. It’s easy to settle for top-line growth during a bull market, but downturns are when metrics like profitability and free cash flow become king.

While expenses creep up, the expectations gap between employers and employees is also growing wider. As the gap expands, employee productivity, morale, & retention fall. The disconnect between both parties has become so widespread that it led to the coining of the term “quiet quitting,” which is an employee consciously doing just enough not to get fired. So while simply cutting costs through a reduced headcount would put a dent in the first problem, it would only exacerbate the second. A more comprehensive approach is needed to ensure a workforce is both happy and efficient.

The Solution: Asure allows a small to midsize business to adopt a scientific attitude towards the management of its workforce.

Asure Software’s (NASDAQ: ASUR) platform helps small and midsize businesses attract, manage, & retain the right people by automating the boring essentials – payroll, HR, & taxes.

By removing administrative tasks from the equation, you free up the team’s day to do what they were hired to do. This streamlined approach saves employers money by reducing unnecessary headcount, and it ensures team members have the time to work on the business rather than just in the business.

Let’s share a few examples of how the software is relevant in this climate.

The tax laws in this country are more complex than ever. Under the CARES act, the Employee Retention Credit provision incentivized small and midsize businesses to keep employees on the payroll. For every employee spared, the business could receive a tax refund of up to $26,000. While the savings are significant, owners that looked to leverage this provision manually wasted hours navigating the application process.

Do I fill out Form 941-X or Form 5884-A? How do I know if my business even qualifies? Am I compliant? Asure’s clients didn’t have to ask these questions because the company’s in-house experts and streamlining technology help to make the entire filing process smooth and without any time burden or confusion for the business owner.

Asure recently integrated Equifax’s (NYSE: EFX) The Work Number technology with its platform to allow for instant verification of employment & income. Before this partnership, employees would have to fill out a verification request ahead of big applications like a mortgage or a car loan. Employers would then manually respond to each one. This Equifax integration eliminates all that back & forth at no extra cost to Asure’s clients.

It’s easy to miss the latest integrations or to only use a fraction of a software’s capabilities. While Asure emphasizes efficiency for its clients, it’s a company that believes in a personal touch. Upon subscribing, each client is assigned a dedicated team of Asure specialists in the local area. The implementation and maximization of the platform become significantly easier when help isn’t outsourced to a call center.

Asure offers its B2B cloud-based software via a subscription model. The company has a laundry list of individual solutions – Performance Tracking, Electronic Onboarding, Workers’ Compensation, you name it. But for small and midsize businesses that want to move beyond the a la carte approach, Asure offers comprehensive payroll & HR plans that bundle a host of services together.

Asure has been around since 1985. Over those decades, Asure has earned the trust of 80,000 clients – 95% of which are SMBs. So despite being a company with vast resources, Asure markets itself to the business with say 100 employees. And as that business grows its market share, the software can scale and grow right along with it to serve 1000+ employees without expensive upgrades.

In addition, the strong activity in the industry by institutional investors highlights the underscoring demand is represents an overall “bullish” signal for the industry. Retail investors who believe in the secular shift to Human Capital Management would be wise to do further due diligence into the ticker symbol ASUR.


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