Why Acadian Ventures loves regional HR and payroll companies

Details matter.

Writing this post was triggered by reading about Kenyan payroll regulatory changes. Wild life I lead, I know.

I was on a call recently with a VC with whom we have co-invested, talking HR and payroll. I may have talked in more detail than he requested or desired. I explained our thesis for SME core HR, and why it is a key part of both our fund I and fund II investment strategy. We have invested in Brio HR, Worky, Palm HR and Workpay.

Here is the thesis:

Local or regional HR and Payroll players will build new solutions, applying modern cloud and AI technologies to an increasingly dynamic and sophisticated set of local and regional compliance requirements. These new players will win companies buying payroll and HR for the first time, increasingly displace legacy incumbents in established companies, and make market entry very difficult for international players. They will also power the global EOR solutions that require local payroll processing.

(See this post for more about our Workpay investment).

The size of these markets is vastly underestimated by most US and European investors and vendors. When you add up the addressable number of payslips in Latin America, MENA, SE Asia and Saharan Africa, we are talking a far larger workforce than the US or Europe. As these economies move more and more taxation and regulation into electronic form it will drive massive payroll adoption. The working populations are growing too, unlike in the west.

In payroll, details matter. I give you exhibit A from Kenya this morning. A juicy retroactive payroll change. More details on Kenya’s tax changes here.

If you look at this requirement, it’s actually not that straightforward. It requires a new (relatively simple) calculation rule, an employee deduction, an employer deduction, a change to the payslip layout, a change to the employee and employer annual tax declaration, and a new integration to the government for reporting and payment.

Strong local product management enables Workpay to discover and specify the requirement, modern development tooling allows them to build this quickly, and SaaS enables them to deploy it immediately to customers.

The story is the same across our other investments: Modern cloud technologies developed with deep local business process expertise, disrupting incumbents and creating a deep functional moat against international, non-localized solutions.

Exhibit B. BrioHR offering bulk salary payments directly into Malaysian banks.

Exhibit C. Worky launching sophisticated time clocking capabilities for Mexico.

Exhibit D. Palm HR’s government reporting integrations, including automated visa processing. For a bonus surprise, check out their new chatbot.

All of these vendors have built products that stack up against the best SME HR products in the US or Europe in terms of user experience, onboarding, functional architecture and underlying technologies, combined with an unrivalled grasp of the local business requirements.

This is part of the reason why my job is so much fun.

As is my sometimes habit, here is a song that has an obscure link to the post. In this case Yello’s Pinball Cha Cha from 1982.