Last week, TechCrunch broke the news that workforce management software outfit Rippling was close to closing a new $200 million funding round at a hefty $13.4 billion valuation led by Coatue. We also reported that the round included a separate $670 million secondary component aimed at giving some of the company's investors a larger share of the company, while also allowing Rippling employees, some of whom joined early in 2016, withdraw some of its shares. .
Rippling declined to comment at the time, but in an interview on Friday afternoon, founder Parker Conrad confirmed our information, adding that the secondary component is actually a $590 million tender, with $200 million available. for employees and $390 million available for seeds and other investors.
The round, Rippling's Series F, is also almost entirely an internal round. Coatue was a previous investor in Rippling, along with other backers in this round who have been investing all along, including Founders Fund and Greenoaks. The only new member on the cap table is Dragoneer, a growth-stage investment firm in San Francisco.
Of course, we were interested in much more than Rippling. new fundraising, so while we had Conrad on the phone, we talked about changes. We're talking about the company's new office lease in San Francisco (right now, it's the second-largest lease signed this year in the city). Conrad also shared why Rippling is relatively “free” of ai. Later this week, you'll be able to hear that conversation in full as a podcast; For now, below are excerpts from that conversation, edited for length.
So why raise this money?
Honestly, it started as just a employee tender. We wanted to find a way to get some liquidity for early employees, so we went to the market, really looking to make about $200 million for employees who wanted to sell some shares. (But) we got a lot of interest from investors, so we expanded it first to include a small amount of primary (capital) – mainly as a way to get more property for investors who were looking to buy more – and then beyond that , It ended up also expanding towards initial investors.
What does this secondary sale say about your plans to eventually go public? Is an IPO a bit far away?
I definitely think it's a little far away, but it's not like a way to delay (anything). If anything, it's probably a good thing that there are people who want to buy a house or (want more cash) because life happens. It's great to relieve some of that pressure before going public so you don't have tons of people selling as soon as they can in the public markets.
Is this the first time that employees can sell some shares?
It's not. We did something in 2021. But it was smaller and the company was smaller, and it was a long time ago.
Are you worried about employees leaving after getting paid?
One of the things we talked about internally when we launched it was we said, 'Look, the first rule of an employee tender is that you don't talk about the tender internally or publicly.' We don't want to see anyone spike the ball or anything like that. And the second rule of employee bidding is: “see the first rule.” This is something very private and personal, and I am delighted that everyone (participates); If this makes a difference in (your) life, great. But that is not destiny. The game is not over.
What do you think of the rotation more generally? Some people don't like to see it; Other managers think it's best. Elon Musk seems to be a fan, given the pace at which his executive team at Tesla is giving up.
Rippling's executive team has been remarkably stable for a long time. Many of the people on the team are people I originally hired for those roles. Some of them are people with whom I have a long working history, even before this company. And I certainly always like to retain people. I mean, every now and then, there's an early Rippling employee who leaves the company, and I always find it very emotionally sad when that happens, even if the company is going to be fine and they want to do something else or, you know, in some cases just hanging out. On a personal level, that's always very difficult for me.
you just rented tech-company-rippling-quadruples-s-f-19384181.php”>123,000 square feet in San Francisco for local employees, who now return three days a week. How did you decide on that policy? Are you worried about retention or recruiting?
We just think it's very valuable for people to be together in the office. We were never a company that went remote. When we went remote temporarily during the pandemic, we said, this is for three weeks, and then we'll go back to the office. Of course, unfortunately much longer passed, but we returned to the office as soon as we could. I think it's possible for some companies to be completely remote, but it's like playing hard mode. I think it's a lot easier if people can meet in person; you do many things.
Meanwhile, workforce management software is overcrowded. You will face a company that you founded and ran yourself, Zenefits. There is Paycor, Workday, Gusto, to name a few. . .
The strange thing is that Rippling is not actually an HCM (human capital management) company. Everyone who has been building enterprise software believes that the way to create the best enterprise software is to create these extremely narrow and deep products. And I think it's completely wrong. I think the way to build the best enterprise software is to build a really broad product suite of deeply integrated, perfectly interoperable products. Yes, we have a very strong payroll and HR package, but we also have a security and IT package; We have an expense management suite, where we do things like corporate cards and bill payments and expense reimbursements. We are actually using the core capital we raised in this round to fund R&D efforts for a new fourth cloud that we intend to launch in a completely different area.
The classic example of a company that creates software this way is Microsoft. Microsoft is like the OG of composite software companies.
Speaking of Microsoft, what is your “ai strategy”?
We are a company that is relatively free of ai products at the moment. There are a few things we are working on. But I'm always very skeptical about things that are very trendy in Silicon Valley. Then I can tell you what (our ai strategy) is not. I am very skeptical about these chatbots. I don't think anyone wants to chat with 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 saying, “twitter.com/alexsongis/status/1780677083485577520″>Antifocus is not cheap.” He wasn't sure if that was a compliment or a hint. Know?
I guess since it came from Bill, it's a dig. And you're not wrong to say that taking this opposite approach is costly, especially in the R&D space. If we look at Rippling financially, what really stands out is how we spend on R&D. If you compare us to other HCM competitors (because you talked about the crowded HCM space), they spend an average of 10% of their revenue on R&D. Next year, Rippling will spend as much on R&D as (three rival companies) combined, and we have a much smaller revenue footprint than all three. It's definitely true that there is a huge initial investment phase in building what we're building that obviously over time, as a percentage of revenue, should decrease. So you're not wrong, but it's a very explicit part of our strategy. What Bill may not fully understand is the benefit of creating software this way; Much higher initial R&D costs (which later result in) much greater sales and marketing efficiency.
Has Bill ever done business with you?
No, I never met Bill. He's kind of a constant, low-grade antagonist, but I've never really met him.
I know he doesn't get along very good with Marc Andreessen.
So Bill and I have that in common. Maybe we should get together and have a beer while we talk about that particular thing.
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