Japan’s SmartHR raises $140 million in Series E as strong demand for HR technology pushes its ARR to $100 million

SmartHR, a cloud-based human resources and work management software startup, announced Monday that it has raised $140 million in a funding round led by KKR and Teachers’ Ventures Growth, an investment arm of the Ontario Teachers’ Pension Plan, with participation from existing investors.

The Series E funding round, which comes three years after the company raised $142.5 million (JPY 15.6 billion) Series D at a $1.6 billion valuation, is the latest indicator that investors are still interested in backing technologies that help companies more efficiently manage their largest cost base: human resources.

The company declined to comment on its current rating.

Co-founded in 2015 by Kensuke Naito and Shoji Miyata, SmartHR has seen strong demand for its SaaS platform, which helps companies manage and streamline human resources and operations, for several years now: Annual recurring revenue (ARR) reached $100 million in February 2024, a company spokesperson told TechCrunch, marking a decent increase from the total revenue of $80 million reported in fiscal year 2023.

This growth is in line with the strong demand for HR technology we’re seeing in other parts of the world. US company Rippling, which SmartHR says is the closest comparable in terms of products and strategy, managed to double its ARR to $350 million by 2023, according to The Information. Gusto, which provides payroll software and services, told TechCrunch that its revenue exceeded $500 million by April 2023; and Deel, which manages payroll for companies internationally, said in March this year that it had achieved an ARR of more than $500 million.

There’s also a mountain of venture capital in this market, which is estimated to be worth a whopping $81.84 billion by 2032, according to Fortune Business Insights. Rippling, one of the biggest startups in this space, has raised about $2 billion, according to Crunchbase, and said it was valued at $13.5 billion after a $200 million funding round in April. Gusto has raised nearly $750 million, according to Crunchbase data, and is worth around $9.6 billion, according to PitchBook. And Deel, which is valued at $12 billion, has raised a total of $679 million, according to Crunchbase.

And there are investors showering money on smaller startups attacking nearly every facet of traditional HR: Remofirst, which helps its clients hire globally without opening local offices, recently raised $25 million; Palm is taking a mobile-first approach to improve the HR tech experience in the MENA region and received $5 million last year; Compa received $10 million in January to build its platform that gives recruiters aggregated salary data so they can be more competitive in hiring; and Legion raised $50 million last month to automate hourly staffing for companies.

SmartHR’s competitors in Japan include back-office software providers such as Works Human Intelligence, freee and Moneyforward. The company stands out by “obtaining the most up-to-date and accurate employee data through work management, which positions it as a system of record in the human resources field,” its spokesperson said, adding that using this employee data allows it to launch new products quickly.

The startup said the new capital will go towards developing new solutions, new hires, and organic and inorganic (read: M&A) growth strategies. The company currently employs about 1,000 people.

Previous backers include Light Street Capital, Sequoia Capital Global Equities and Whale Rock.