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On Starting a Fund Exclusively for HR Startups

YourStory.in, Feb 23, 2012

On-Starting-a-Fund-Exclusively-for-HR-Startups-with-CEO-Varun-Talwar

In 2010 Varun Talwar researched on the US market to find out which ideas had scaled up in the US. He found ideas from 10 key sectors had scaled up, HRO, RPO, Payroll, Temp Staffing, Contingency Staffing,  Executive Search, HR Consulting, PEO, Online Staffing, and HR Software.  While in US there were overall about 30 companies, i.e. about 2 to 5 companies in each of these sectors that were publicly traded, in India there was only 1 company. That’s when he felt there was a need to start a fund that would focus only on HR Space.

Pankaj, CEO of People Strong and Varun presented their findings to a few HR industry stalwarts like, Santrupt, NS Rajan and Arvind, and they too seconded the notion. This is how they came up with the idea of The HR Fund.

Founded: November 2011


Philosophy of the fund
: The HR Fund is an investment company that funds HR companies in India. The Fund currently is one of the largest shareholder of an HRO company called People Strong. The Fund’s focus is to bring “Best in Class” HR ideas and practices in India and Middle-East.

Areas of interest: Human Resources, i.e to focus on HR Software, Contingency Staffing, and Training.

In 2006 Varun set up an incubator by the name of Withya Group. Their mandate was to focus on business services companies as that is what they knew how to build. They looked at three business services ideas, HR, Marketing and Design. “We invested in a HRO company, People Strong. And since we got success in HR more than marketing and design, we decided to focus more on this vertical.”

Founding team: The fund is anchored by some of the leading lights in the HR and corporate world. They include:

  • Arvind Agrawal, President Corporate Development and Human Resources, RPG Enterprises.
  • Santrupt Misra, CEO, Carbon Black Business and Director Group HR, Aditya Birla Management Corporation.
  • Venky Mysore, CEO, Kolkata Knight Riders.
  • N.S.Rajan, Partner & Global Leader, People & Organisation Advisory Services, Ernest and Young.
  • Pankaj Bansal, Co-founder and CEO, People Strong
  • Varun Talwar, Founder of Withya.

Fund size & deal Size: This is a small seed fund of INR 60 crore. The funding size of each investment will be between INR 2 to INR 8 crores.

Investments made so far: “The HR Fund has shortlisted a number of companies and the process of finalization is on. Once this is done we will be happy to share names,” says Varun.

Investment road-map for 2012:  The HR Fund plans on making 4-6 investments this year and some pool will be left for making further investments in the above mentioned four areas. Post which, they will reassess.

HR success in India: Drawing from his personal experience, Varun says, “People Strong, a Human Resources Outsourcing (HRO) company, incubated at Withya that grew to a 300 strong organisation in six years, is one of the sectors greatest success stories.”

When Withya started the incubation of People Strong it was a paper plan. We have learnt a lot on how to build and scale companies in India due to our experience at People Strong”, recollects Varun.

Size of the HR industry in India:  The permanent recruitment is estimated to be a 30 billion market, the value of the search market is in the range of 6-7 billion and is largely dominated by global companies expanding into new sectors and geographies. Temporary recruitment market is estimated at 172 billion with professional staffing at 53 billion and general staffing at 119 billion.

Major challenges according to Varun:

  • Lack of entrepreneurs who understand what it takes to build scale.
  • These ideas typically take a long period to build and hence the team needs patience.
  • India overall is a far more corrupt place when compared to western markets, many times the entrepreneurs who get funded do not understand that with freedom comes responsibility. Also Indian entrepreneurs unlike their western counterparts are far too emotional and hence tend to make lot of errors of judgment in hiring.

On adding value to entrepreneurs: “We are positioning ourselves as a coach to the CEO and founding team” Varun states. “Funding is something we do as a necessary step to help entrepreneurs scale up. As a coach to the founding team, we have built a training manual for entrepreneurs where we share ten key lessons that we have learnt in scaling up companies in India.

This is a very exhaustive training program. We have seen real results, entrepreneurs who have gone through this program, have been able to double their revenues, team size, office space etc in one year’s time even though some of them were only given training and no funding support.

We believe our USPs are, our team of LPs who are industry stalwarts and second, is our robust training program for the entrepreneurs.”

 On trends in HR space: “We feel the HR will move more and more into strategic role and companies will have to outsource their transactional work to HR Service provider.

Organizations in India will require HR service providers who bring expertise and scale, whether they are grappling with growth and its intrinsic challenges – ramping up talent, enhancing capabilities, building global HR process; or with negative externalities in a recessionary market – cost pressures, focus on efficiency and productivity.” Some key trends that Varun pointed out:

Social Media, blurring the line between real and virtual - Social media sites such as Facebook and LinkedIn have emerged as new recruitment avenues and transforming the landscape of employer branding and lead generation of candidates. The social media savvy younger generation joining the workforce will change the industry landscape, forcing companies to make social media mainstream.

Talent analytics and predictive modeling - Organizations are moving from ‘value added’ to ‘value delivered’ wherein the emphasis is more on the tangible deliverables which can be quantified in terms of revenue, cost savings etc., rather than the intangible value that may have been added to the business. A new class of analytics and predictive modelling will be the need of the hour which can help HR teams understand and appropriately respond to trends and future events.

Boundary less engagement - Organizations are revisiting their employee value propositions and focusing on defining their employer brand to create a differentiated way to attract retain and engage talent.

Emergence of RPOs - The recruitment space is changing fast and organizations are relying on outsourcing of their recruitment processes. In this context of RPOs, there will be two clear trends; the first is the emergence of RPOs specific to industry verticals like IT, pharmaceuticals and BFSI while the second will be that of a generic RPO, cutting across sectors and will cater to specific roles like sales and customer care across verticals.

Key take-aways for Entrepreneurs in this space: 
Think scale – There are three ingredients that entrepreneur is responsible to bring together, investors, clients and employees (ICE). These three can sometimes be in conflict – These three key stakeholders pull the entrepreneur in three different directions. Investors want to invest less money and get more value. They expect you to charge your customers high and pay your employees low.  Clients want to pay less and want you and your employees to work more. Employees want to work less and get paid more.

Investors want to look at ideas that have three key ingredients (a) ideas that are scalable (b) idea that have first mover advantage (c) ideas that have a clear IP. If you cannot get all these three criterion fulfilled, then at least get two.

A founding team should have ideally have two members – one that is right brain and the other that is left brain. Right brain people are creative; they think macro and focus on quality. Left brain people are analytical; they can focus on micro and focus of quantity.

We at YourStory.in thank Varun for his time, and wish The HR Fund team much success. Do watch out this space for updates from The HR Fund.  

http://yourstory.in/2012/02/on-starting-a-fund-exclusively-for-hr-startups-with-ceo-varuntalwar/