SquarePeg: Why we invested.

Glassboxes, deep domain chops and oodles of grit.

We invested in SquarePeg last year, we held off announcing it, but I’m thrilled to kick off the new year with an explanation of why we made the investment. More details on the round here.

This post may also give you some insight into what we sense is happening with recruitment technology.

Back in my Gartner days I led the e-recruitment Magic Quadrant, and then led the team responsible for the recruiting product stack at SAP SuccessFactors. I’ve been on the board of a job board, and worked closely with many recruitment tech players over the last decade too. It looks simple from the outside, but it isn’t.

Recruitment’s conundrum

Recruitment is often at the forefront of new technology exploitation. The job board was really the first internet application that disrupted an industry. Remember the massive Sunday newspaper full of job adverts? Linkedin was founded before Facebook was. ATS providers such as Taleo and Mr Ted were some of the earliest SaaS vendors. Next up recruitment agents….

Yet for all the technological wizardry, the time to hire has not really changed in decades.

(I wish I could find who originally made this, so that I could credit them).

One can break the recruitment process down into multiple components,from planning, requisition, advertising, sourcing, passive and active, candidate relationship management, assessment, interviewing, selection, background checking, offer management, and onboarding.

To get a sense of how complex and fragmented this world is, have a look at this excellent chart from Glenn Lindley. I suspect a full market map would be multiple times this size.

We see several pitches for recruitment plays every week. Many promise to kill the job board, make the ATS obsolete, completely replace the recruiter and more by next Sunday. However, we haven’t yet seen a truly compelling early next generation, broad, end-to-end recruiting play and team.

We have a small position in SmartRecruiters, and we are thrilled with the progress the new CEO, Rebecca Carr is making there.

We don’t think that (incumbent or new) suites will ever consume all the niches, as the scope of innovation will grow faster than any one suite vendor can build. And given the dramatically improving integration and API technologies, we see a healthy future for best of breed solutions. Recruitment tech is particularly best of breed friendly.

We do believe that AI creates an opportunity to significantly improve the recruiting experience for candidates and recruiters. Founders can build things today relatively easily that were almost impossible just a year or two ago.

What excites us at this stage of the recruitment tech meets AI journey are founders that deeply understand a specific problem, and are building aggressively to solve that problem really really well. There is a lot to get excited about with agents and AI, but to do AI well, founders really need to understand data and the process they want to inflict AI upon. There are opportunities to build 100m ARR businesses by solving one part of the recruitment problem really well. Remember 3,2 billion people go to work.

2024 involved lots of pilot deals and proof of concept efforts for many organizations. 2025 is going involve a lot more genuine deployment. We think that solutions that solve a specific problem, and play nicely with the existing stack and data are going to better than those that require AGI-like brilliance to get stuff done. HR leaders will be asking what can I actually deploy in production today, that has a measurable business impact.

Over the last 3 years, talent acquisition departments have shrunk, yet hiring demands have not. Automation that works needs to fill the gap.

Why SquarePeg specifically?

We were introduced to Claire McTaggart through Virginie Raphael at FullCircle, Will Price at Next Frontier Capital and Alex Kübel at Kombo, one of our portfolio companies.

Firstly, the founder. Claire has prior startup experience early in her career, and then went to work for MonitorGroup (acquired by Deloitte). At Deloitte, one of the partners asked her to run the hiring strategy for Deloitte, so she built a team of 20 (tech, ops, strategy, etc.) and couldn’t find the right technology stack. When she left Deloitte, she met her co-founder, Dan Pupaza and this was the impetus to build SquarePeg. At Acadian we have a thing for founders who look to solve a challenge they deeply understand. We have seen this with Charlie, who was a compensation practitioner before he started Compa.

Claire describes Peg is a play at taking all of your ATS data, CRM data, and global 3rd party data, and solving a narrow problem that has plagued recruiters for decades - too much noise in the form of digital resumes and profiles, and not enough signal - who do I want to talk to and why?

Think of SquarePeg as looking at everything a hiring manager or recruiter would do when evaluating an applicant if they had unlimited time to do it, and using models to produce that analysis (with a score as the output) in a fully transparent/explainable way. This cuts down the workload but also provides deep insights for better decision-making. No one wants to research all their historical ATS data, linkedin data, resume data, Crunchbase company data, etc when they have thousands of applicants to review.

The timing for this is good

• Better APIs make this data more usable. We actually learnt alot about SquarePeg from Kombo.dev (Thanks Alex). Better APIS also enable more fluid stack assembly.

• Advancements in AI make domain expertise more valuable. At one level, the technical barriers to build solutions has lowered, but the problem complexity deepens, given the heightened user expectations. Focusing on a relatively narrow use case

• Leaner HR teams mean greater openness for software to automate manual work that sourcers/recruiters have historically been tasked with. As it becomes easier for candidates to apply, recruiters have a harder challenge in sifting through applications.

Fairness, Bias, Accuracy and regulations.

Claire uses the term “Glassbox”. Transparency and explanability are at the core of the product design and user experience. Explaining WHY a candidate is a top match is fundamental to what they are building. It’s all about building a trustworthy product.

Wrapping this up.

As usual, I like to end things with a tune. Based on Claire’s comment I had a look for songs that mentioned glass….you know where this is going. One of the greatest pop songs ever.