Must Read Blog March 23, 2023

Sharpening Your 2023 Investment Theses in the HCM Market

We have seen continued investment activity in the human capital management (HCM) market across the past few months.

The transactions were primarily early-stage investments, with a few growth-stage investments (e.g., Bitwise, Plum, Skillable) and M&As (e.g., Coding Dojo, Digital Marketing Institute, Qualified and Codewars). The early-stage capital raises were a mix of B2B technology platforms that help companies hire (e.g., HireLogic, Glider AI) and train (e.g., Colossyan, HowNow), as well as consumer-facing learning platforms (NxtWave).

Despite recessionary concerns, this wave indicates investors’ continued interest in the HCM market supported by a structural and persistent skills shortage.

Unlikely Reversal: The Structural Trend of More Job Openings than Job Seekers

Recent tech layoffs hitting the headlines may have caused people to question the strength of the labor market and employers’ propensity to spend on HCM. However, the workforce reduction is likely a correction based on tech companies’ aggressive hiring and persistent cash-burning activities during the pandemic. We do not believe these staffing adjustments are representative of labor market dynamics on a broader level.

While there were nearly one million more job openings in the U.S. a mere six months ago, the labor market remains hot overall. Moreover, the labor-force participation rates of prime-age workers (i.e., those aged 25-54) and foreign-born workers have almost fully recovered from the pandemic. The most significant shortfall in labor supply is coming from Americans getting older and leaving work behind. Short of a massive recession – as compared to the relatively mild and short one many economists expect – or a significant increase in net immigration from abroad, we’re unlikely to see a reversal in the structural trend of more job openings than job seekers.

    Spotlight on Three Investment Themes

    With our long-term confidence in a hot-to-warm labor market, we want to note a few themes that warrant investor attention in this cycle.


    Training Directly Tied to Business Outcomes

      Investors should pay special attention to companies that help employers develop employees’ skills most directly related to both revenue generation activities and cost savings initiatives. During an economic slowdown, business leaders prioritize training providers who can help employers in critical areas like sales and marketing and information technology. Recent deal activity exemplifies this trend.

      • Skillable creates hands-on labs for sales enablement to accelerate employees’ ability to support and drive organizational revenue growth.
      • Similarly, Digital Marketing Institute develops digital marketing capabilities for individuals and teams with its portfolio of courses and programs to help companies win business in the digital era.
      • Coding Dojo and NxtWave, on the other hand, train software developers for companies that require technology talent in product development and process digitization, among other areas, which contribute to business performance on the both growth and operational efficiency fronts.


      Solutions Enhancing Efficiency in Managing Employee Learning and Development (L&D)

      When the macroeconomic forecast is bearish, investors – and companies – often shift from a growth orientation to one focused on optimizing margins and efficiencies. Unsurprisingly, investment opportunities that help employers improve efforts to realize these benefits by focusing on optimizing existing approaches – including managing employee recruitment and onboarding – may prove compelling. Recent investments highlighting this theme include Pearson Ventures, JFF Ventures, and Strada Education Network’s financing of Plum (which provides employers with a solution that uses psychometric data to enhance and make more scalable talent management decision) and HowNow (a streamlined learning platform that aims to accelerate employees’ onboarding experience and close employee skill gaps). Interestingly, Pearson (which has articulated a strong shift toward the HCM space in the past 12-18 months) also participated in HowNow’s fundraising.


      Compliance Training as a Defensive and Offensive Strategy

      Investments in compliance or regulation-driven training represent both a defensive and offensive thesis in a period of expected retrenchment and increasing regulation. On one hand, investing in anti-cyclical training areas such as compliance helps investors weather market volatility and preserve long-term value; on the other hand, investors should capitalize on recent trends that promote workplace safety and compliance. For example, policy shifts under the current Biden administration have led to workers gaining more power and to penalties increasing for violations of workplace safety and compliance standards. More broadly, COVID-19 and ESG investing have influenced employers to increase safety and compliance regulations, and digitization has enabled employers to automate their compliance processes and programming.

      Taking advantage of these dynamics and its July 2022 recapitalization, leading compliance provider 360training continued to expand its presence in the space with its recent acquisition of AdvanceOnline last December, which helps employers comply with health and safety regulation. The reported M&A process for HSI is another pending data point relative to this theme.


      We continue to see strong interest in HCM opportunities across all asset classes. With continued pressure to find, develop, and retain employees in a supply-constrained environment, companies will need to invest in solutions.