Last week, TechCrunch broke the news that workforce management software company Rippling was on the verge of 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 intended to give some of the company’s investors a bigger bite of the company while allowing Rippling’s employees — some of whom joined the startup in 2016 – redeem some of their shares.
Rippling declined to comment at the time, but in an interview Friday afternoon, founder Parker Conrad confirmed our information, adding that the secondary is actually a $590 million tender, with $200 million available for employees and $390 million available for seed and other investors.
The round, Rippling’s Series F, is also almost entirely an in-house round. Coatue is an earlier investor in Rippling, along with other long-time backers in this round including Founders Fund and Greenoaks. The only new member at the table is Dragoneer, a growth-stage investment firm in San Francisco.
Of course, we were interested in much more than Rippling new fundraiser, so while we had Conrad on the phone, we talked about turnover. We discussed the company’s new San Francisco office lease (currently, the second largest lease signed in the city this year). Conrad also shared why Rippling is relatively “AI-free”. Later this week, you can listen to this full conversation in podcast form. For now, here are excerpts from that conversation, which have been edited for a long time.
So why raise this money?
Honestly, it started out as just one employee competition. We wanted to find a way to get some liquidity for the first employees, so we went to the market, really looking to do about $200 million for employees who wanted to sell some stock. [But] we have a lot of investment interest, so we expanded it first to include a small amount of seed [capital] — mainly as a way to get more ownership for investors who wanted to buy more — and then beyond that, we ended up expanding to seed investors as well.
What does this secondary sale say about your plans to eventually go public? Is an IPO a bit far?
I definitely think it’s a little far, but it’s not like a delay mode [anything]. If anything, it’s probably nice if 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 you go public so you don’t have a lot of people selling as quickly as possible in the public markets.
Is this the first time that employees have been able to sell some shares?
Is not. We did something in 2021. But it was smaller and the company was smaller, and it was a long time ago.
Worried about employee churn after cashing out?
One of the things we talked about internally when we started it was, we said, “Look, the first rule of an employee contest is you don’t talk about the contest internally or publicly.” We don’t want to see anybody capture the football, or anything like that. And the second rule of employee competition is “see the first rule”. This is a very private, personal thing and I’m excited for everyone [participating]; if that makes a difference [their] life, this is great. But it is not the destination. The game is not over.
How do you feel about turnover in general? Some people don’t like to see it. other managers believe it is for the best. Elon Musk seems to be a fan, given the pace at which he is turning around his executive team at Tesla.
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 these roles. Some of them are people I have a long working history with, even before this company. And of course I always like to hold people. I mean, every once in a while, there’s a Rippling employee who leaves the company early, and I always find it 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 we just hang out. On a personal level, this is always very difficult for me.
You were recently hired 123,000 square feet in San Francisco for local employees, who now return three days a week. How did you come up with this policy and are you concerned about retention or recruitment?
We just think there’s enormous value in people being together in the office. We were never a company that went remotely. 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 it was much more than that, but we were back in the office as soon as we could. I think it’s possible for some companies to be completely remote, but it’s like playing the game on hard mode. I think it’s much easier if people can meet in person. you accomplish a lot.
In the meantime, workforce management software is very crowded. You’re dealing with a company you founded and run, Zenefits. There’s Paycor, Workday, Gusto, to name a few. . .
The weird thing is that Rippling isn’t actually a [human capital management] HCM company. Everyone who builds business software believes that the way to build the best business software is to build these extremely narrow, deeply focused products. And I think that is completely wrong. I think the way you build the best business software is to build a really broad product suite with deeply integrated and seamlessly interoperable products. Yes, we have a very strong HR and payroll suite, but we also have an IT and security suite. we have an expense management suite where we do things like corporate cards and bill and expense reimbursements. In fact, we are using the principal capital we raised in this round to fund R&D efforts for a new, fourth cloud that we plan to launch in a completely different area.
The classic example of a company that builds software this way is Microsoft. Microsoft is like the OG of enterprise software.
Speaking of Microsoft, what is your “AI strategy”?
We are a company that is relatively free of artificial intelligence products at this time. There are some things we are working on. But I’m always very skeptical of things that are, like, super hip in Silicon Valley. So I can tell you what [our AI strategy] is not. I am extremely skeptical of 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 circle. I saw [Benchmark general partner] Bill Gurley marked it “Anti-focus doesn’t come cheap.” I wasn’t sure if that was a compliment or a dig. Do you know?
I guess since it came from Bill it’s a dig. And it’s no mistake that taking this contrarian approach is expensive, particularly on the R&D side. If you 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 is going to spend that much on R&D [three rival companies] combined, and we have a much lower revenue footprint than the three. It’s certainly true that there’s a huge initial investment phase in building what we’re building that obviously over time, as a percentage of revenue, will come down. So he’s not wrong, but it’s a very clear part of our strategy. What Bill may not fully understand is the benefit you get from building software this way. much higher initial R&D costs [later result in] much higher sales and marketing performance.
Has Bill ever done business with you?
No, I’ve never met Bill. He’s kind of a solid, low-level competitor, but I’ve never really met him.
I know he doesn’t I am going well very well with Marc Andreessen.
Then Bill and I have this in common. Maybe we should meet up and have a beer about this particular thing.
