Why VCs Hate Recruiting Startups

When I started Dover in 2019, I was surprised at how much VCs hated the recruiting space. It seemed like such an obvious opportunity: so much of recruiting is grunt work and should be automated, the "matching problem" can be fixed with better algorithms/data, etc.

Not a single VC was able to explain their gut reaction. But the graveyard of recruiting startups from the past 10–20 years seemed to prove them right.

My company Dover was lucky enough to raise from Founders Fund for our seed and Tiger for our series A. But it took me many years of working on Dover to see why it's so tough to build a venture-scale recruiting company.

Here's why.

1. Recruiting is extremely cyclical

Recruiting is fundamentally cyclical at both macro and micro levels, which makes it challenging to build a sustainable business.

At the macro level, market cycles dramatically impact recruiting spend. During market pullbacks, recruiting is often the first budget to be cut. At Dover, we experienced this firsthand when our revenue dropped by over 70% from peak to trough in 2022. This pattern isn't unique to us — even established players like major job boards and recruiting giants such as Robert Half typically lose 30–50% of their revenue during downturns.

The VC model works for businesses with compound growth. When you have boom-bust cycles every 5–8 years, you're essentially rebuilding from scratch each time, making it difficult to have positive net dollar retention.

At the micro level, individual companies exhibit similar cyclical patterns. Venture-backed companies, for instance, tend to hire aggressively for 3 months after raising a round, then go relatively quiet for 9 months. As a result, they churn through their recruiting software and services, which makes it difficult for those companies to maintain stable revenue (unless you can lock customers into multi-year contracts, a strategy used by companies like LinkedIn and Greenhouse).

2. Recruiting outcomes are impossible to measure

The biggest problem in recruiting is that it's hard to prove you're doing a good job. Metrics like time-to-hire or fill rate exist, but they're often meaningless, especially for startups, where every hire is unique and the sample size is small.

Making a hire depends on a long list of unpredictable variables: the specific role, company stage, market conditions, compensation flexibility, how involved the hiring manager is, how organized the process is, and so on.

Because of this, even strong case studies usually don't land. Every founder or recruiter looks at them and thinks, "Sure, but would this work for us?" There's no consistent baseline for what "good" looks like.

So instead, companies fall back to vague goals like "maintaining a high talent bar" or "creating a great candidate experience." But these aren't real metrics — most teams don't measure them, and even when they try, there's no agreed-upon definition of what good looks like. They're moving targets.

The result is that you're flying blind. You don't have a clear, repeatable path to success with customers. You just hope it works out, which is a terrible position to be in when you're trying to build a business.

3. Your customers are the worst at hiring

Startups will be the easiest customers to sell to early on, but they are usually very bad at hiring. Even if your product works exactly as intended, your success still depends on whether your customer is actually good at hiring, and if you're selling to startups, that's a losing bet.

Startups don't have a ton of budget (so they can't compete with big tech offers), they're extremely picky (because every VC blog says your first ten hires are life-or-death), and they move on unrealistic timelines (very few companies actually have a hiring plan with dates and deadlines). Their processes are a mess — first-time founders love to invent bespoke hiring flows to feel special, even if it directly contradicts their stated urgency. Basically, they want the best hires, they want them fast, and they don't want to spend a lot of money.

On top of that, startups are often finicky about whether they even want to hire in the first place. Internal priorities shift, founders change their minds, etc. Since founders are so involved in recruiting, hiring momentum grinds to a halt when a founder has to focus their attention on one of a million other things they're doing day-to-day.

Lastly, there is a lot of adverse selection here. The companies most likely to pay you lots of money to help them hire are probably the ones that aren't that great at hiring in the first place.

4. You need to satisfy performative metrics

Because it's so hard to control actual hiring outcomes, recruiting teams often optimize for what looks like progress. You see this everywhere — companies constantly switch ATSs or cycling through new sourcing tools. The goal isn't necessarily better results. It's signaling progress and effort.

I constantly see companies moving from Lever to Greenhouse, Greenhouse to Dover, Ashby to Lever… not because anything was broken, but because it looked like motion. It's one of the few levers recruiters can pull to show they're doing something… especially when hires aren't happening.

This mindset also drives feature creep. Tools get flooded with requests for things that feel strategic but have almost zero impact. A classic example that we've actually had requested: A/B testing your third follow-up email. It sounds data-driven, but it doesn't move the needle. People ask for it anyway, because they need something to ask for. When you're not hitting hiring goals, you chase surface-level control instead.

Over time, recruiting products become bloated trying to satisfy these performative needs. The result is that teams churn not because the tool failed, but because they've run out of ways to "show work" with it, or it's gotten too complex to use (this is why everyone hates their ATS). Then the cycle starts again.

As a recruiting startup, you're always balancing the needs of your direct user with the needs of the company. This is normal. But in recruiting, it's particularly bad, because hiring is so hard and often out of your control.

5. You're never exclusive

Startups almost never commit to a single recruiting solution. Whether you're a SaaS tool, marketplace, job board, or agency, you're one of many. They'll spin up every channel they can: three tools, five agencies, and a cold email blast all at once.

This creates a race-to-the-candidate dynamic. It doesn't really matter how good your product is. Whoever delivers the right candidate first gets the credit. Your product is likely not being evaluated on long-term performance, process quality, or candidate experience; you're just another input in a hiring scramble.

It also means you're competing with noise. If a hire happens, it's rarely clear which input drove it, and you'll struggle to attribute success or prove your value. Without exclusivity, you're a vendor in a footrace, not partner.

6. Recruiting teams are resistant to automation

Recruiting teams show surprising resistance to automation, even for mundane tasks. Take scheduling, for example: despite the existence of fully featured scheduling automation tools for over 5 years, many recruiters insist on maintaining control over candidate scheduling emails because it "improves the candidate experience".

I think this resistance stems from a few factors:

The "proof of work" aspect is particularly important. Recruiters need to show hiring managers they've invested significant time and effort in the search, even if automation could achieve similar results more efficiently. A recruiter who says "I spent 20 hours sourcing and vetting candidates, these are the best candidates we can get" is more likely to convince a hiring manager vs who used says "It took me 20 minutes with an AI tool to get these candidates", even if the candidate quality between the two is the same is the same.

7. Recruiting products have negative network effects

Most marketplaces get stronger as they grow. Recruiting platforms often get weaker.

I call this the Triplebyte effect: a platform starts out with "only the best" candidates, gets popular, has to expand their candidate pool to accommodate more customers and suddenly everyone's using the same pool. The average candidate quality drops, and nobody wants to use it anymore.

Recruiting is competitive. Companies don't want to fish in the same pond as their rivals. They want to feel like they found some recruiting arbitrage and are doing something their competitors aren't. Instead, the more widely adopted a tool becomes, the less differentiated it feels and the less valuable it is.

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These problems explain why VCs instinctively avoid recruiting startups. If you're thinking about starting a recruiting company, understand that you're not just fighting against competitors, you're fighting against a lot of structural forces in the industry itself.

Originally published on LinkedIn on April 8, 2025