Last week, TechCrunch broke the news that worker management software company Rippling was on the verge of closing a new $200 million funding round at a whopping $13.4 billion valuation, led by Coatue. We also reported that the round included a separate $670 million secondary component that was intended to offer some of the company’s investors a larger stake in the company while also allowing Rippling employees – some of whom initially joined in 2016 – to money out some of their shares.
Rippling declined to comment at the time, but in a Friday afternoon interview, founder Parker Conrad confirmed our information, adding that the secondary component is actually a $590 million tender, of which $200 million can be available to employees and $390 million to seed investors and others investors.
The round, Rippling’s F series, is also almost entirely an inside round. Coatue was previously an investor in Rippling, along with other backers in this round who invested throughout, including Founders Fund and Greenoaks. The only new addition to the cap table is Dragoneer, a growth-stage investment firm from San Francisco.
Of course, we were interested in much greater than Rippling new collection, so when Conrad and I talked on the phone, we talked about turnover. We talked about the lease agreement for the company’s new office in San Francisco (currently it is the second largest agreement signed this 12 months in this city). Conrad also talked about why Rippling is relatively “AI-free.” The entire conversation can be available as a podcast later this week; for now, here are excerpts from that conversation, edited for length.
So why collect this money?
Honestly, it just began worker tender. We wanted to search out a technique to provide liquidity to entry-level staff, so we entered the market looking to actually make about $200 million for staff who desired to sell some stock. [But] We enjoyed great interest from investors, so we first expanded it to incorporate a small amount of primary raw material [capital] – mainly as a technique to get more ownership for investors who desired to buy more – and we also expanded to seed investors.
What does this secondary sale say about your plans to eventually go public? IPO is a bit far-off?
I definitely think it’s a little far off, but that is not the technique to delay it [anything]. If anything, it’s probably nice if there are individuals who wish to buy a house or [want more cash] because life happens. It’s great to alleviate this pressure before going public to avoid a situation where tons of individuals are selling on the public markets as quickly as possible.
Did employees manage to sell some shares for the first time?
This is not. We did something in 2021. But it was smaller and the company was smaller, and that was a very long time ago.
Are you nervous that employees will leave after you get paid?
One of the things we talked about internally when we launched it was, “Look, the first rule of employee bidding is that you don’t talk about the bidding internally or publicly.” We don’t need anyone tweaking the football or anything like that. The second rule of worker bargaining is “see the first rule.” This is a very private and personal matter and I’m excited for everyone [participating]; if it makes a difference [their] life, that is great. But this is not the destination. The game is not over.
How do you rate turnover overall? Some people don’t love watching it; other managers think this is best. Elon Musk appears to be a fan of his, given the pace at which he is handing over his leadership team at Tesla.
The executive team at Rippling has remained exceptionally stable for a very long time. Many of the people on the team are people I originally hired for these roles. Some of them are people I have a long history of working with, even before this company. And I definitely at all times wish to stop people. I mean, every now and then a Rippling worker leaves the company, and it is often very emotionally sad for me when that happens, even if the company is fantastic and he desires to do something else or… you know, in in some cases we just hang around. On a personal level, this is at all times very difficult for me.
You are newly hired 123,000 square feet in San Francisco for local staff who currently return three days a week. How did you come to terms with this policy and are you concerned about your livelihood or employment?
We simply imagine that working together in the office has great value. We have never been a company that operated remotely. When we temporarily went distant during the pandemic, we said it was for three weeks and then we’d go back to the office. Of course, it took much longer, but we returned to the office as soon as possible. I think some firms might be completely distant, but it’s like playing on hard mode. I think it’s a lot easier if people can meet in person; you’ll achieve a lot.
Meanwhile, workforce management software is very crowded. You’ll be up against a company you founded and ran, Zenefits. There is Paycor, Workday, Gusto, to call a few. . .
The weird thing is that Rippling isn’t [human capital management] HCM company. Everyone who builds business software believes that the best technique to build the best business software is to build extremely narrow, focused, and deep products. And I think that is completely fallacious. I think the best technique to build the best business software is to build a really broad set of products that are deeply integrated and work together seamlessly. Yes, we have a very strong HR and payroll package, but we also have an IT and security package; we have an expense management suite where we do things like corporate cards, bill payments and expense reimbursements. In fact, we are using the seed capital that we have raised in this round to finance research and development work on the new, fourth cloud, which we intend to launch in a completely different area.
A classic example of a company building software in this fashion is Microsoft. Microsoft is something of an OG among complex software firms.
Speaking of Microsoft, what is your “AI strategy”?
We are a company that is currently relatively freed from any AI products. There are a few things we are working on. But I’m at all times very skeptical of things that are super trendy in Silicon Valley. So I can inform you what [our AI strategy] is not. I’m very skeptical about these chatbots. I do not think anyone desires to seek advice from their HR software.
I have to ask about a tweet related to our story about your new round. I saw [Benchmark general partner] Bill Gurley chimed in: “Anti-focus is not low cost” I wasn’t sure if it was praise or a dig. Do you know?
I assume this is a dig, considering it got here from Bill. And he is not fallacious that taking the opposite approach is expensive, especially on the R&D side. If you look at Rippling’s financials, what really stands out is how we spend on research and development. If you compare us to other HCM competitors – because you mentioned the crowded HCM space – they spend an average of 10% of their revenue on R&D. Next 12 months, Rippling will spend as much on research and development as [three rival companies] combined and we have a much lower revenue footprint than all three. It is definitely true that building what we are building requires a huge initial investment, which after all should decrease over time as a percentage of revenue. So he is not fallacious, but it’s a very clear a part of our strategy. Bill may not fully understand the advantages that might be gained from developing software this fashion; much higher initial research and development costs [later result in] much higher sales and marketing effectiveness.
Has Bill ever done business with you?
No, I’ve never met Bill. He’s a constant, low-quality antagonist, but I’ve never actually met him.
I know I do not get along superb with Mark Andreessen.
So Bill and I have that in common. Maybe we must always meet up and have a beer about this particular case.