Investor demand for shares of popular HR startup Rippling (term sheet worth $2 billion) is so strong that it's allowing former employees to participate in a large public offering sale, the company told TechCrunch.
However, there is one big exception. It has banned former employees of a handful of competitors from selling their shares. A small group of former employees have been trying to get the company to change this policy, but so far to no avail, TechCrunch has learned.
Rippling also told employees who had previously sold stock that they would not be authorized to sell as many shares this time around, especially if those sales were outside the scope of the previous open offer.
To recap, TechCrunch broke the news last April that Rippling was making a massive public offering of up to $590 million for employees and existing investors, led by Coatue, and was working on a $200 million Series F bid for the company. . All told, the deal values HR software startup Rippling at $13.5 billion, the company said.
This wasn't the first or only sale that allowed employees and longtime investors to cash out some of their stock, but it was by far the largest and most profitable. Founder and CEO Parker Conrad told TechCrunch's GM and EIC Connie Loizos that another smaller event is planned for 2021.
According to a summary of details seen by TechCrunch, the rules are as follows:
- The offer is open to both current and former employees.
- Options were included that were not restricted stock units (stock that employees were required to purchase, not stock that was subject to restrictions as part of their compensation package).
- Employees could sell up to 25% of their vested shares, but the company included here all the shares it sold in previous public offers.
- If an employee sells shares other than through a company tender offer, the company warns that the shares will be double counted at 25%.
- Former employees of “competitors” are not eligible to participate.
Rippling tells TechCrunch that this excludes employees who work for companies like Workday, Paylocity, Gusto, Deel, Remote.com, Justworks, Hibob, and Personio. Sources told TechCrunch that employees at the company had not been informed of the public offering, but had heard through the grapevine that it had been excluded.
None of the former employees TechCrunch interviewed were surprised to see the name Deel on the list. Or, as Blind’s post puts it: “Anyone who has a choice deserves it. The same goes for former employees. Except if you went to Deel you’d be screwed lol.”
When some former employees realized they had been left out of the sale, some wrote scathing letters to Conrad and Rippling's top lawyer, Vanessa Wu, imploring Rippling to change his mind. Ripling refused.
There was actually quite a bit of internal drama surrounding those letters, as well as equally scathing letters that Rippling sent in response to some of them, as seen by TechCrunch. The drama included many claims of wrongdoing on both sides that led some to distance themselves from the letter and which TechCrunch could not independently verify. One person reportedly involved in the letter drama told TechCrunch that he no longer has anything to do with it.
Why does Rippling exclude former employees of competitors?
The company told TechCrunch it was excluding employees of its competitors because of concerns that sensitive information “including detailed financial information and risk factors” disclosed in the offering document could be shared with competitors.
“Rippling has advanced its public offering for the benefit of its employees, former employees and early investors. Rippling decided to be unusually broad in his approach to this public offering. Because (1) Rippling wanted to be able to provide liquidity to its early employees and investors, and (2) there was so much demand (it received over $2 billion in 2008). Rippling Vice President of Communications Bobby Whithorne told TechCrunch in an emailed statement.
“However, the tender offer rules require companies to share important and sensitive information, including private company financial information, which is material that no company reasonably wants to put into the hands of a competitor. As a result, while most companies exclude former employees entirely, Rippling, with its ambitions of building a global HR and payroll product, has taken a more cautious approach, only excluding ex-employees who currently work for a list of eight competitors.” Whithorne said.
Certainly, as a private company, Rippling is free to limit its participation in stock sales.
Ripling vs Dil, a competitive feud?
Several sources said Deel was a particularly sensitive subject for Rippling. Both companies compete through marketing touting that their technology stack is better than the other's.
Conrad, Rippling's hard-charging CEO, is respected internally as a product genius but is also known as a competitive person who thrives on competition, these sources said.
He built Rippling into a $13.5 billion HR technology success with products that tightly integrate payroll, benefits, recruiting, and a variety of other services. He is also famous for growing his former HR technology startup Zenefits into one of the fastest-growing startups of its time, which ran into problems that ultimately led to his ouster. He then founded Rippling, and under his care it grew like a dandelion. While at Zenefits, Conrad also had a public spat with rival ADP.
Despite the rivalry, Deel was once a customer of Rippling's, but no longer is, sources say.
Another thing to note when excluding former Rippling employees who work for competitors is that it's not just about profiting from the stock. Stock options can be expensive. In addition to the stock price, employees can face a hefty tax bill for options they exercise with a paper gain on the value of the stock. Sometimes selling a portion of your equity, if possible, is a way to offset that tax bill.
When asked about this, Rippling's Whithorne said the company “has tried to issue incentive stock options (ISOs) to the extent possible to allow (all U.S. employees) employees to defer their tax liability upon exercise.”
Any employee, current or former, can sell shares any day after the lock-up period has passed after the company is listed. However, it's unclear when Rippling will launch the product. The company is unlikely to need more capital at this time. As part of the overall SVB crisis, it has raised a new $200 million infusion on top of the $500 million it famously raised in emergency funding in 2023.
But for some of those affected by this decision, it's not just money. It's also about the hurt feelings of being preemptively excluded from a lucrative deal at a previous company because they thought they would do something illegal or unethical.
“Your company doesn’t love you or value you. They will always do what is in your best interest. So do what is in your best interest,” one source said.
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