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Leveling Up Organizations: Our Investment in Sprockets

Sprockets allows companies to ‘level-up’ their employees.

Sprockets creates a “fit” score to best match job seekers with companies, allowing employers to level-up their talent. What this means: Sprockets' tech enables employers to hire more employees who are very much like their already known top-performers. How do they do this?

It’s powered by a pscyholinguistics platform that takes text from known top-performing employees to analyze their key psychographic and motivation profile traits. Sprockets can then quickly – and accurately - assess the incoming lot of potential employees who also have the traits associated with success in a company. Simply: an employer shows examples of excellence and Sprockets finds more of it.

All of this happens automatically. Sprockets' customers are immediately matched with the prospective employees with the best ‘fit’ scores. Contrast that with what happens today: a very messy, analog, and variable process where HR uses their gut instinct. The alternative to Sprockets is a process that barely works better than a coin flip and is full of implicit biases.

In fact, a significant part of Sentio’s IP relates to its ability to remove bias from the fit algorithm.

With a ~10% US unemployment rate, finding entry-level employees isn’t a problem. Identifying which employees will be the best performers within your organization is a problem. Retaining your best employees is a problem. Maintaining a productive culture is a problem.

Sprockets uniquely solves these problems – and delivers a high-performing employee base at scale.

We invested in a $3.3m seed round and secured 9% ownership and a board observer seat.

Healthcare companies are facing massive workforce dislocation

While Sprockets services companies of multiple industries, healthcare is their biggest vertical. More healthcare is shifting to the edges: to taking care of patients outside of hospitals and doctor-offices. The coming “silver tsunami” of seniors, as the baby-boomers retire, is exacerbating this trend.


Staffing these “edge” healthcare workers is an especially difficult problem because the jobs are low-skill – resulting in an enormous potential labor pool – but the work is bespoke and variable, meaning fit hugely influences productivity. Conservatively, this group covers at least 1.5m workers today, a full 1% of the US workforce. Sprockets is squarely positioned to unlock this labor supply conundrum – a pain felt in all sectors but particularly in the last mile for healthcare services.

300 customers and growing.

Sprockets has over 300 customers paying a monthly SaaS fee; and is already generating $400k ARR. To date, most of its customers are in the home health space, but there are also an increasing number of fast-casual restaurants.

Fit first, sourcing second, benefits third.

There are 3 revenue opportunities for Sprockets:

Sprockets initial revenue comes from the fit product, a steady and profitable SaaS revenue stream with essentially zero marginal cost to service.

Concurrently, Sprockets uses its “fit” product to quickly amass a substantial volume of job seekers for whom it has already done a fit analysis and thus can better place in jobs. This attracts new customers: “come on board, we’ve already identified hundreds of job seekers in your given market that would be a good fit for your company.” So, with this growing supply side of labor, Sprockets can quickly expand to also power an open job marketplace.

Sprockets will become the default “fix index” for entry-level job seekers, becoming as pervasive as Chekr is for background checks. This gives them a durable advantage and zero CAC to build out the second (job marketplace).

Lastly, for many hourly employees who work across several agencies and gigs, Sprockets would emerge as the natural proxy full-time employer. It is through Sprockets that they’ll receive benefits like healthcare, retirement, and insurance – which historically were provided by a full-time employer. Sprockets would be able to readily step in and provide these benefits and provide financial products they can uniquely underwrite by understanding the employees’ job history, fit, and current employment. With employees who work concurrently for several agencies and switch jobs relatively frequently, Sprockets will be the pervasive vendor of financial wellness products.

Sprockets' 2nd and 3rd order opportunities follow an arc seen elsewhere (e.g., Gusto with their payroll software but now also layering in pay advances or Square with now offering Square credit to small business owners). This playbook is one we very much like to see in investments: margin positive SaaS revenue as a Trojan horse to fuel additional derivative, large scale opportunities.

Like Gusto and Square, the step-wise fashion that Sprockets is building its product opportunities enables existing customers subsidize the CAC for future products.

Notably, each of these business opportunities has strong network effects:

  • An employee’s core characteristics, which determine their fit, don’t change dramatically, leading to a strong cost network effect.
  • As the employment marketplace grows, the CACs decrease and value of each participant increases.
  • Serving the complete needs of the employee is a 2-sided platform, creating efficiencies on the employee side and the product vendor side (e.g., financial services company).
  • Increased distribution of benefits and financial services products provides more cost scale to procure them – and data to continuously improve their underwriting.

Is the M&A Market Attractive?

YES. Broadly, Sprockets falls into the Human Capital Management (HCM) space – including talent acquisition, talent management, and benefits/HR. This space continues to consolidate, with acquisition interest from corporate and, increasingly, private equity acquirers and their portfolio companies.

In the past year alone, Hellman & Friedman acquired Ultimate Software for $10.5 billion, a 10x revenue multiple; Indeed acquired Glassdoor for $1.2 billion (7x revenue); Hg (PE firm) acquired P&I for $2.3B (15x revenue multiple), Salesforce acquired Click for $1.4B, and Carlyle bought Hire + Vue for $400m. Sprockets platform could also be highly relevant to acquirers in the insurance and financial services markets, seeking to distribute their products to the growing 1099 segment.

Sprockets: A Healthy Ventures Deal

Sprockets ‘fits’ with the traits of a successful Healthy Ventures investment:

  • Targets for-profit small- and medium-businesses, vs non-profit payers or providers
  • Is multi-vertical, but targets a problem in which healthcare overindexes, and that Healthy Ventures will help them penetrate (beginning with home health).
  • An interesting initial business (employee “fit”) that gives them an unfair advantage in building out their second-order business opportunities (employment marketplace & 360-degree benefits).
  • Already has positive unit economics, a 77% GM on $400k ARR

We secured 9% ownership, joining Lytical Ventures and helping to attract Thayer Ventures to the syndicate.

Sprockets is led by a dynamic and hungry first-time CEO.

We are excited to partner with AJ on his first venture-backed company. AJ created his first company when he was 12 years old. He began working on the idea that became Sprockets while in high-school at Phillips Exeter Academy

To date. AJ has been CEO and CTO, having built much of the core software himself. He brought his father, Pete, on board to be COO because Pete had previously built a $1B revenue distribution company, relying on an efficient inside-sales force, exactly Sprockets go-to-market.

In addition, he recruited a third co-founder, Chad, to focus on marketing and demand-generation. Chad came from a restaurant point-of-sale software company where he was responsible for all online and offline demand generation activities. Sprockets price-point, its sales process (inside sales), and its value proposition of organizational efficiency is very similar..

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