Investor demand for shares of popular HR startup Rippleing has been so strong — more than $2 billion in term sheets, it says — that former employees can also participate in the massive tender, the company told JS.
But there is one major exception: Former employees who work for a handful of competitors are prohibited from selling their shares. A small group of former employees have tried to get the company to change this policy, JS has learned, but so far without success.
Ripple also told employees who have previously sold shares, especially if those sales were outside the previous offer, that they would not be authorized to sell as many shares this time.
To recap, in April, JS broke the news that Rippled was making a massive takeover offer of up to $590 million for employees and existing investors, led by Coatue, along with a smaller Series F offer of $200 million for the company. All told, the deal valued HR software startup Ripple at $13.5 billion. the company said.
This wasn't the first or only sale where employees and long-time investors could cash in on certain shares, but it is by far the largest and most profitable. Another smaller one took place in 2021, founder and CEO Parker Conrad told JS's GM and EIC Connie Loizos.
The rules for this were, according to a summary of the details from JS:
- the offer was open to both current and former employees
- these were options, not restricted stock units (the shares that employees were required to purchase, not the shares granted with restrictions as part of their comp packages)
- employees were eligible to sell up to 25% of their acquired shares, but the company included any shares they had sold in the previous takeover bid
- if an employee were to sell shares other than a company offer, the company warned that it would match those shares for the 25%
- former employees who worked for “competitors” were not eligible to participate
Ripple told JS that employees who work for the following companies are excluded: Workday, Paylocity, Gusto, Deel, Remote.com, Justworks, Hibob, Personio. Sources tell JS that employees at those companies did not receive information about the offer, but heard about their exclusion through the grapevine.
None of the former employees JS spoke to were surprised to hear one name on the list: Share. Or, according to a post on Blind: “Anyone who has options is eligible, even former employees. Unless you go to Deel, then you're screwed lol.”
When some former employees realized they had been locked out of the sale, some wrote a scathing letter to Conrad and Ripple's top lawyer, Vanessa Wu, begging Ripple to change its mind. Ripple refused to do this.
Indeed, there was quite a bit of internal drama surrounding the letter, as well as the equally scathing letters, seen by JS, that Rippleing sent to some of them in response. The drama involved a number of people distancing themselves from the letter and many allegations of misconduct on both sides that JS could not independently verify. One person allegedly involved in the letter drama told JS that they wanted nothing more to do with it.
Why does Ripple exclude ex-employees from competitors?
The company told JS that it was cutting employees from competitors because it was concerned that the sensitive information “including detailed financial information and risk factors” revealed in the offering paperwork could ultimately be shared with competitors.
“Rimpling has made an offer on behalf of its employees, ex-employees and early investors. Ripple chose to be unusually broad in its approach to this takeover bid (1) because Ripple wanted to provide liquidity to its early employees and investors, and also (2) because there was so much demand (receiving over $2 billion in revenue) term sheets),” Rippling VP of communications Bobby Whithorne told JS in an emailed statement.
“However, procurement rules require companies to share important sensitive information, including financial data of private companies, which is not material a company would reasonably want in the hands of its competitors. As a result, while most companies exclude former employees entirely, Ripple has taken the more measured approach of excluding only those former employees who currently work at a list of eight competitors with ambitions to develop global HR and payroll products,” said Whithorne.
To be fair, Ripple, as a private company, certainly has the freedom to impose restrictions on participation in stock sales.
Rippling versus Deel, a competitive feud?
Several sources said Deel is a particularly sensitive topic at Rippleing. Both companies play in the rivalry with marketing that touts their own tech stack is better Than the other.
Conrad, Ripple's hardworking CEO, is internally revered as a product genius but is also known as a competitive man who thrives on rivalry, these sources said.
He built Ripple into a $13.5 billion HR technology success with a product that tightly integrates payroll, benefits, recruiting and a host of other services. He also built a famous HR tech startup, Zenefits, into one of the fastest growing startups of its time, until it ran into a world of trouble that ultimately led to its ouster. He then founded Rippleing, which has also grown like dandelions under his watch. During his time at Zenefits, Conrad also had a very public feud with competitor ADP.
Despite the rivalry, Deel was once a Ripple customer, but is no longer, sources tell us.
Another thing to note when excluding ex-Rappling employees who work at competitors is that it's not just about making a profit on their shares. Stock options can be expensive. In addition to the price of the shares, employees may face huge tax bills on the options they exercise based on the paper increases in the value of the shares. Sometimes selling part of their interest, if they can, is a way to offset such tax bills.
When asked about this, Ripple's Whithorne said the company has “tried to issue Incentive Stock Options (ISOs) wherever possible (all US employees) allowing employees to defer their tax obligations at the time of exercise.”
All employees, current or former, will one day, after a lock-up period, be able to sell their shares after the company goes public. But it is not clear when Rippleing will organize an offering. The company probably doesn't need more capital at this point. It just raised that new injection of $200 million, on top of the $500 million emergency aid it announced in 2023 as part of the entire SVB crisis.
However, for some of the people affected by this decision, it's not just about the money. It's also about hurt feelings because their former company thinks they would do illegal or unethical things and are therefore preemptively left out of a lucrative deal.
“Your company doesn't love or appreciate you. They will always do what is in their best interest. So do what is in your best interest,” the source said.
Do you have a tip about a startup culture you've experienced? Contact Julie Bort by email, X/Twitteror signal at 970-430-6112.
