Investor demand for shares in high-profile human resources startup Rippling is so strong (the company says its term sheets total more than $2 billion) that it's allowing former employees to take part in a major tender offer, the company told TechCrunch.
But there is one big exception: the company prohibits former employees of a handful of competitors from selling stock in the company. A small group of former employees has lobbied the company to change that policy, according to information obtained by TechCrunch, but so far has been unsuccessful.
Ripple also told employees who had previously sold stock that they were not authorized to sell as many shares this time, especially if their sales were outside the scope of the previous tender offer.
To recap, in April TechCrunch broke the news that Rippling was launching a massive tender offer led by Coatue to raise up to $590 million for employees and existing investors, along with raising $200 million in Series F funding for the company. The deal valued the HR software startup at $13.5 billion, according to the company.
This wasn't the first or only sale that allowed employees and longtime investors to cash out some of their shares, but it was the largest and most profitable to date. Founder and CEO Parker Conrad told TechCrunch general manager and editor-in-chief Connie Loizos that another, smaller sale took place in 2021.
According to a summary of the details seen by TechCrunch, the rules were:
The offer was open to both current and former employees The offer included options, not restricted stock units (shares that employees had to buy, not granted with restrictions as part of a compensation package) Employees were eligible to sell up to 25% of their vested shares, but the company included shares sold in a previous tender offer in that number If employees sold shares outside of the company's tender offer, the company warned that it would double-count those shares against the 25% Former employees who worked for “competitors” were not eligible to participate
Rippling told TechCrunch that employees at Workday, Paylocity, Gusto, Deel, Remote.com, Justworks, Hibob and Personio are excluded. Sources said employees at those companies had not received information about the tender offer but found out about the exclusions through rumors.
None of the former employees TechCrunch spoke to were surprised to see Deel on the list, or as Blind posted, “Anyone with options is eligible, including former employees, except not anyone who went to Deel lol.”
Some former employees found themselves left out of the sale, and several wrote scathing letters to Conrad and Ripple's top lawyer, Vanessa Wu, pleading with Ripple to change its mind. Ripple refused.
Indeed, there was a fair amount of internal drama surrounding the letter, as well as an equally scathing letter Rippling sent to some people, as TechCrunch has seen. The drama included people distancing themselves from the letter and numerous allegations of misconduct on both sides that TechCrunch could not independently verify. One person allegedly caught up in the letter drama told TechCrunch that he no longer wanted to be involved.
Why is Rippling excluding former employees of its competitors?
The company told TechCrunch that it excluded employees of competitors because it was concerned that confidential information disclosed in the acquisition documents, “including detailed financial information and risk factors,” could be shared with competitors.
“Ripling is undertaking a tender offer for the benefit of its employees, former employees, and early investors. Ripple chose to take an unusually broad approach to its tender offer because (1) Ripple wanted to provide liquidity to its early employees and investors, and (2) demand was extremely strong (it received over $2 billion in the term sheet),” Bobby Whithorn, Ripple's vice president of public affairs, told TechCrunch in an emailed statement.
“But tender offer rules require companies to share material confidential information, such as the private company's financial health, which is information no company would naturally want to give to a competitor. As a result, while most companies would exclude former employees entirely, Rippling took a more cautious approach by excluding only former employees who currently work for eight competitors that are looking to build a global HR and payroll product,” Whithorn said.
To be sure, as a privately held company, Ripple is free to limit its participation in its own stock sale.
Rippling vs. Diehl, a competitive feud?
Deal is a particularly sensitive issue for Ripple, according to multiple sources, as the two companies have fueled a rivalry over marketing efforts that tout their tech stacks as superior to others.
Ripple's passionate CEO, Mr. Conrad, is respected within the company as a product genius, but he is also known as someone who is fiercely competitive and thrives on competition, the people said.
He grew Rippling into a $13.5B HR tech company with tightly integrated products for payroll, benefits, recruiting, and many other services. He is also credited with growing his previous HR tech startup, Zenefits, into one of the fastest growing startups of its time, but it eventually ran into problems that led to his ouster. He then founded Rippling, which also grew like a dandelion under his stewardship. During his time at Zenefits, Conrad also publicly feuded with competitor ADP.
Despite the rivalry, Deal was once a Ripple client but is no longer, sources said.
Another thing to note about excluding former Ripple employees who work for competitors is that it's not just about making a profit on the stock. Stock options can be costly. In addition to the price of the stock, employees may be subject to significant tax on the options they exercised from the book gain on the value of the stock. Selling some of the stock, if possible, can be a way to offset such taxes.
Asked about this, Rippling's Whithorn said the company has “strived to issue incentive stock options (ISOs) to all U.S. employees wherever possible,” which allow employees to defer tax liability when exercised.
All current and former employees will be able to sell their shares at some point after the company goes public, subject to a lockup period. But it's not clear when Ripple might go public. The company likely doesn't need more capital right now; it just raised $200 million in new funding, on top of the $500 million it raised in 2023 as part of the SVB crisis.
But for many of those affected by this decision, it's not just about money – it's also about hurt feelings that their former companies preemptively cut them out of lucrative deals because they perceive them as engaging in illegal or unethical behavior.
“Your company doesn't love you or care about you. They will always act in their own best interest, so act in your own best interest,” one source said.
Do you have any tips about startup culture you've experienced? Contact Julie Bolt via email. X/Twitteror contact Signal at 970-430-6112.