Last week, JS broke the news that workforce management software company Rippleling was about to close 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 larger stake in the company, while allowing Rippled employees – some of whom joined as early as 2016 – could cash in on some of their shares. .
Ripple 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 seed and other investors .
The round, Ripple's Series F, is also almost entirely an indoor round. Coatue is a previous investor in Rippleing, 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 based in San Francisco.
Of course, we were interested in much more than Ripple new fundraising, so while we were on the phone with Conrad, we talked about sales. We discussed the company's new office lease in San Francisco (currently the second largest lease signed in the city this year). Conrad also talked about why Ripple is relatively “free” of AI. You'll hear that full conversation in podcast form later this week; for now, excerpts of that conversation follow, edited for length.
So why raise this money?
Honestly, it started out as just one employee quote. We wanted to find a way to get some liquidity for early employees, so we went to the market and wanted to make about $200 million for employees who wanted to sell some shares. [But] we received a lot of interest from investors, so we expanded it first with a small amount of primary money [capital] – mainly as a way to gain more ownership for investors who wanted to buy more – and then we also eventually expanded to start-up investors.
What does this secondary sale say about your plans to eventually go public? An IPO seems to be in sight?
I definitely think it's a bit off in the distance, but it's no way to procrastinate [anything]. In any case, it is 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 that you don't have a lot of people rushing into the public markets to sell.
Is this the first time employees can sell 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 concerned about employees leaving after being paid?
One of the things we talked about internally when we launched this was, “Look, the first rule of an employee procurement is that you don't talk about the procurement internally or publicly.” We don't want anyone spiking the football or anything like that. And the second line of the employee tender is: 'see the first line.' This is a very personal, personal matter, and I'm very happy for everyone [participating]; if this makes a difference [their] life, that's great. But it's not the destination. The game isn't over yet.
What are your thoughts on sales in general? Some people don't like it; other managers think this is best. Elon Musk appears to be a fan, given the speed with which he is transitioning his executive team at Tesla.
Rippleing's management 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 I have a long working history with, even before this company. And certainly, I always like to keep people. I mean, every now and then there's an early Ripple employee who leaves the company, and I always find it emotionally very sad when that happens, even if the company is doing well and they want to do something else or, you know, in some cases it just hangs out. On a personal level, I always find that very difficult.
You are newly rented 123,000 square meters in San Francisco for local employees, who are now present three days a week. How did you arrive at that policy, and are you concerned about retention or hiring?
We just think it is extremely valuable when people are in the office together. We have never been a company that went remote. When we temporarily went remote during the pandemic, we said, this is for three weeks, and then we'll go back to the office. Of course, it unfortunately took much longer than that, but we were back in the office as quickly as possible. I think it's possible for some companies to go completely remote, but it's a bit like playing the game on hard mode. I think it's a lot easier when people can get together in person; you get a lot done.
In the meantime, workforce management software is super crowded. You're taking on a company of which you are the famous co-founder and leader: Zenefits. There's Paycor, Workday, Gusto, to name a few. . .
The strange thing is that Rippleing isn't really one [human capital management] HCM company. Anyone who has built enterprise software believes that you can build the best enterprise software by building these extremely narrow, focused, deep products. And I think it's completely wrong. I think the way you build the best enterprise software is to build a very broad product suite of 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 payments and expense reimbursements. Basically, we're using the primary capital we raised in this round to fund the R&D efforts for a new, fourth cloud that we want to launch in a completely different area.
The classic example of a company that builds software in this way is Microsoft. Microsoft is something like the OG of composite software companies.
Speaking of Microsoft, what is your “AI strategy”?
We are a company that is currently relatively free of AI products. There are a number of things we are working on. But I'm always very skeptical about things that are super trendy in Silicon Valley. So I can tell you something [our AI strategy] is not. I'm super 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 agreed that “Antifocus is not cheap.” I wasn't sure if that was praise or a dig. Do you know?
I guess since it came from Bill, it's a dig. And he's not wrong when he says this opposite approach is expensive, especially on the R&D side. When you look at Ripple financially, what stands out is the way 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, Ripple will spend as much on R&D as… [three rival companies] combined, and we have a much lower revenue footprint than the three. It is absolutely true that there is a huge investment phase to build what we are building, which should obviously decline over time, as a percentage of sales. So he is not wrong, but it is a very explicit 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 efficiency.
Has Bill ever done business with you?
No, I've never met Bill. He's kind of a constant, low-level antagonist, but I've never actually met him.
I know he doesn't can get along very well with Marc Andreessen.
Then Bill and I have that in common. Maybe we should meet up and have a beer at that particular thing.
