Opportunities and roadblocks in Africa’s nascent HR tech space

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When Ryan Paterson and his co-founder Thomas Schmider launched their investment fund Getihu back in 2018, it picked what was at the time a trail less trodden when it came to the type of startups it would back.

Getihu would operate in the B2B SaaS space, and the firm’s first investment was in Hi5, a South African venture operating in the unheralded human resources (HR) space. It remains one of relatively few active investors in the sector, with Paterson citing huge opportunities but also many roadblocks.

“HR is still very underdeveloped in Africa. It is still predominantly focused on staff administration responsibilities like leave, payroll and disciplinary actions. These responsibilities must be catered for, but progressive employment environments have transitioned to the future of work where HR becomes people focused around talent selection, talent management, with clear company vision and values which contributes positively to the overall company culture,” he said.

Getihu is investing in this opportunity via its stake in Hi5. The startup helps managers get rich insights about team culture on a dashboard, while team members use a fun app to give feedback and recognition to peers. 

Gary Willmott, the startup’s founder, concurs with Paterson that HR has traditionally been very undeveloped. However, as with many things, COVID-19 has helped to usher in a new era.

“Before the pandemic it was always a shocker to visit so-called “progressive” African companies only to find them using traditional methods to do menial tasks. Most companies that we onboarded had no online solution for the basics such as project management, online storage, internal online communication channels, CRM, or employee performance and engagement solutions,” he said.

“However the pandemic forced a quick uptake for companies to adopt tools such as these that allowed them to work remotely.”

These tools have been around for a while. Gys Kappers is group CEO and co-founder of South Africa’s Wyzetalk, founded in Stellenbosch in 2012 but now a well-funded company operating globally.

“We have innovated our solution to now seamlessly integrate with ERP systems. We are now capacitated to deliver not only two-way communications, but also digital payslip delivery, leave balance, leave application processing, and viewing of schedules,” Kappers said.

A veteran of the sector, he sees a huge opportunity for HR tech in a post-COVID world.

“Wyzetalk deals in the blue-collar frontline workforce engagement space. The total addressable market is 2.3 billion people. We’ve been growing consistently at around 50 per cent per annum and will reach 800,000 users by the end of 2022. We will double that by the end of 2023,” he said.

Emmanuel Okeleji is CEO of Nigeria’s SeamlessHR has developed robust, cloud-based, end-to-end HR software that helps businesses anywhere manage their entire human resource processes “from hire to retire”. Its enterprise-grade solution caters to a diverse range of companies, ranging from SMEs with fewer than 100 employees to large enterprises with over 10,000. 

The startup banked a US$10 million Series A round earlier this year to fund international expansion, and Okeleji said though the HR space is nascent on both the demand side and the supply side, he believes there is a lot of untapped potential.

“From our point of view there is a lot of greenfield across the continent. There are literally millions of companies in the continent that need one form of HR solution or another. Though not for the faint-hearted, we believe startups who can read the tea leaves well and are ready to put in the work will find a lot of opportunities in the market. The market is certainly big enough for a decent number of players,” he said.

Yet Paterson and Willmott believe that demand remains mostly international, as opposed to African.

“At Hi5 we still have most of our clients signing up from the US and Europe as opposed to South Africa. This also has a lot to do with the market size, as South Africa only has about 250,000 SMEs that are knowledge-based compared to the US, which has around 30 million,” he said.

Paterson shares this view.

“Demand comes from SME tech companies, and there are still not enough of these SME tech companies in Africa to drive the demand like developed markets,” he said.

Willmott cites other factors behind the current relative lack of demand from African customers.

“In Africa we are just very far behind the way that regular companies in the US work. We are more reactive and focused on traditional labour and HR best practices to ensure we are compliance,” he said. “In the US there is more of a focus around employee engagement and driving alignment with company vision and values to retain and keep great people.”

Nonetheless, as Getihu’s backing of Hi5 and the significant funding raised by Wyzetalk and SeamlessHR proves, there is investor interest in African HR tech. Kappers says the space has traditionally been held back by lack of funding, but that is changing.

“I have just returned from a global Endeavor conference in Athens, Greece and met with a number of global VCs. This is a hot space,” Kappers said.

Paterson agrees there is interest in the sector, but thinks some of the solutions in the market need to become more powerful to really hit the spot.

“The current solutions are still too much of a vitamin and not enough of a painkiller,” he said.

Okeleji says more and more businesses are being attracted to the space.

“There has been an uptick in the number of startups coming into the space in the last year, especially on the payroll and embedded finance side of things, as well as SME-focused solutions,” he said.

“We are growing at a healthy pace and our view of the space is very positive.”

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Passionate about the vibrant tech startups scene in Africa, Tom can usually be found sniffing out the continent's most exciting new companies and entrepreneurs, funding rounds and any other developments within the growing ecosystem.

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