In 2025, venture capitalists invested a staggering $6.24 billion in work technology firms, reflecting a 31% increase in the average size of deals. This surge in investment comes amid growing legal challenges faced by key players like Workday and Eightfold AI, which may significantly alter the legal framework for implementing artificial intelligence in human resources.
The End of ‘Algorithm as an Alibi’
The juxtaposition of record investments with escalating legal scrutiny signifies, as George LaRocque, founder of global advisory and market intelligence firm WorkTech, puts it, the demise of “algorithm as an alibi” in HR decision-making.
“The $6.24 billion in VC funding documented in the 2025 report is colliding with regulatory mandates,” explains LaRocque. “The emphasis is shifting from what capabilities does the AI possess to how can AI demonstrate fairness?”
The report identified 193 transactions across 31 countries, with the U.S. leading with 88 deals, followed by the U.K. at 24 and India at 10.
The year also featured 17 mega-rounds, each exceeding $100 million, marking an increase from 14 in 2024. Underscoring investor interest, Rippling secured a top spot with a $450 million Series G round, highlighting a strong demand for comprehensive HCM platforms designed to unify various HR functions. Other significant funding included isolved’s $350 million secondary market round and Deel’s $300 million Series E.
Read more | Eightfold suit highlights the legal risks of AI in hiring
Algorithmic Decision-Making ‘On Borrowed Time’
However, LaRocque cautions that AI-driven platforms could expose companies to consolidated legal risks. If a single system governs algorithmic decisions across compensation, performance evaluation, and internal mobility, any of these areas could become a compliance risk.
“Hidden black boxes exist throughout the entire HCM and talent management ecosystem,” he asserts. “From automated performance evaluations to sentiment analysis in retention, businesses are operating under algorithmic assumptions that could lead to significant legal liabilities.”
Ongoing class-action lawsuits against Workday, which allege age discrimination concerning hiring algorithms, and Eightfold AI, which focuses on violations of the Fair Credit Reporting Act like concealed dossiers on candidates, may set benchmarks for necessary modifications in how AI solutions are developed and employed.
The 2025 market remains fragmented, despite consolidation at the top, with deals spanning 44 subcategories—up from 39 in 2024—as investors pursued specialized AI solutions for areas such as compensation intelligence and proactive sourcing strategies.
Early-stage ventures experienced robust activity, with 72 seed rounds raising a total of $364 million, averaging $5.05 million per deal. However, the concentration of capital among leading deals was substantial, with the 17 mega-rounds making up a significant proportion of total investments.
“This isn’t just a growing challenge in talent acquisition,” LaRocque warns. “It transcends that; it’s a company-wide issue. Every area that relies on opaque algorithmic decision-making is functioning on borrowed time.”
