Investor demand has been so strong for shares of hot startup HR Rippling — a tenure worth more than $2 billion, it says — that it’s allowing former employees to participate in its giant IPO as well, the company told TechCrunch.
But there is one big exception: It has barred former employees working for a handful of competitors from selling their shares. A small group of former employees has been trying to get the company to change that policy, TechCrunch has learned, but so far, to no avail.
Rippling also told employees who have sold shares in the past, particularly if those sales were outside of its previous auction, that they would not be authorized to sell as many shares this time.
To recap: in April, TechCrunch broke the news that Rippling had made a giant offering of up to $590 million to employees and existing investors, led by Coatue, along with a smaller $200 million Series F for the company. All told, the deal valued HR software startup Rippling at $13.5 billion. the company said.
This wasn’t the first and only sale that allowed employees and long-term investors to cash out some shares, but it’s by far the biggest and most profitable. Another smaller one took place in 2021, founder and CEO Parker Conrad told TechCrunch GM and EIC Connie Loizos.
The rules for this, according to a summary of the details seen by TechCrunch, were:
- the offer was open to both current and former employees
- involved options, not restricted stock units (the stock that employees had to buy, not those that had restrictions as part of their packages)
- employees were eligible to sell up to 25% of their vested equity, but the company included in that number any shares they sold in the previous auction
- if an employee sold shares through any method other than a corporate auction, the company warned that it would double count those shares against the 25%
- former employees working for “competitors” were not eligible
Rippling tells TechCrunch that employees who work for the following companies are excluded: Workday, Paylocity, Gusto, Deel, Remote.com, Justworks, Hibob, Personio. Sources tell TechCrunch that employees at those companies didn’t receive information about the offer, but heard about their exclusion through the grapevine.
None of the former employees TechCrunch spoke with was surprised to hear one name on the list: Deel. Or, according to a post on Blind, “Everyone with options is eligible, even ex-employees. Unless you’ve been to Deel then you’re confused lol.”
When some former employees realized they were being shut out of the sale, some wrote a scathing letter to Conrad and Rippling’s top lawyer, Vanessa Wu, begging Rippling to change his mind. Rippling refused to do so.
Indeed, there was quite a bit of internal drama surrounding the letter, as well as the equally scathing letters, seen by TechCrunch, that Rippling sent to some of them in response. The drama involved some people distancing themselves from the letter and several allegations of wrongdoing on both sides that TechCrunch could not independently verify. A person who was reportedly dragged into the letter drama told TechCrunch that they wanted nothing more to do with any of it.
Why does Rippling exclude ex-employees to competitors?
The company told TechCrunch it was shorting employees at competitors because it was concerned that sensitive information “including detailed financial information and risk factors” disclosed in the bid documents could end up being shared with competitors.
“Rippling has put together an offer for the benefit of its employees, former employees and early investors. Rippling chose to be uncharacteristically broad in its approach to this auction (1) because Rippling wanted to be able to provide liquidity to its early employees and investors, and also (2) because there was so much demand (that it received over $2 billion term sheets),” Rippling VP of Communications Bobby Whithorne told TechCrunch in an emailed statement.
“However, the auction rules require companies to share important sensitive information, including private company financials, that are reasonably not material that any company would want in the hands of its competitors. As a result, while most companies exclude ex-employees entirely, Rippling took the more measured approach of excluding only those ex-employees currently working at a list of eight competitors with ambitions to build global HR and payroll products,” he said Whithorne.
Certainly, as a private company, Rippling certainly has the freedom to place restrictions on participation in its share sales.
Rippling vs. Deel, a competitive feud?
Several sources said Deel is a particularly sensitive issue at Rippling. Both companies they play in the rivalry with marketing that they advertise their own technology stack is better from the other.
Rippling’s hard-nosed CEO Conrad is revered internally as a product genius but is also known as a competitive type who thrives on competition, these sources said.
He built Rippling into a $13.5 billion HR technology success with a product that tightly integrates payroll, benefits, recruiting and a whole bunch of other services. He also famously built a previous HR technology startup, Zenefits, into one of the fastest-growing startups of its time, until it hit a world of problems that eventually led to its demise. He then founded Rippling, which has also grown like dandelions under his care. During his time at Zenefits, Conrad also had a very public feud with competitor ADP.
Despite the competition, Deel was once a Rippling customer, though he no longer is, sources tell us.
Another thing to note about the exclusion of former Rippling employees working at competitors is that it’s not just about profiting from their shares. Stock options can be expensive. In addition to the stock price, employees may face huge tax bills for rights they exercise on the paper gains of the stock value. Sometimes selling a portion of their share, if they can, is a way to offset such tax bills.
When asked about this, Rippling’s Whithorne said the company “has sought to issue Incentive Stock Options (ISOs) where possible (all US employees) that allow employees to defer their tax obligations at the time of exercise.”
All employees, current or former, will be able to sell their shares one day, after a lock-up period, after the company goes public. But it’s unclear when Rippling will make an offer. The company is not likely to need more capital at this time. It just raised this new infusion of $200 million, on top of the $500 million contingency it famously raised in 2023 as part of the whole SVB crisis.
For many of the people affected by this decision, however, it’s not just about the money. It’s also about hurt feelings that their former company believes they would do illegal or unethical things and so they are preemptively left out of a lucrative deal.
“Your company does not love you, nor does it value you. They will always do what is in their best interest. So do what’s in your best interest,” said a source.
Do you have a tip for a startup culture you’ve experienced? Contact Julie Bort by email, X/Twitteror Signal at 970-430-6112.
