Parker Conrad's Rippling Valuation Soars to $6.5 Billion

Zenefits' Founder Finds Redemption with Rippling

In 2013, Parker Conrad launched Zenefits, an HR company that rapidly gained recognition as a high-growth Silicon Valley enterprise. Within three years, its valuation peaked at $4.5 billion. However, the company soon encountered significant compliance issues.

Conrad was compelled to step down from his position, and Zenefits experienced a dramatic decrease in valuation. Subsequently, over 60% of the company’s workforce was reduced through multiple layoff rounds.

From Setback to New Venture: The Birth of Rippling

Rather than succumbing to discouragement, Conrad quickly rebounded. Within months of his departure from Zenefits in 2016, he established Rippling.

Initially focused on employee onboarding, Rippling has expanded its capabilities to encompass the complete management of employee data. This includes payroll, benefits, application access, and a device management system.

Securing Significant Funding for Continued Growth

Rippling’s expanding suite of services has attracted substantial investment. The company recently secured $250 million in new funding, led by Sequoia Capital Global Equities and Global Growth.

Existing investors, including Greenoaks, Kleiner Perkins, Founders Fund, Initialized, YC, and Threshold Ventures, also participated in this funding round.

A Valuation Surpassing its Predecessor

This latest funding brings Rippling’s total funding to $450 million. More importantly, it has resulted in a company valuation of $6.5 billion.

This valuation exceeds Zenefits’ peak valuation before it transferred a controlling interest to a private equity firm earlier this year.

Future Prospects and Potential Acquisition

Conrad anticipates substantial future growth for Rippling. When questioned about potential acquisition interest, particularly from companies like Microsoft, he suggests Microsoft represents a fitting comparison.

He believes Rippling’s growth trajectory will significantly surpass a simple doubling in size, potentially achieving a much larger multiple over time.

The "Compound" Model: A Key to Success

Conrad attributes Rippling’s success to its “compound” business model. Instead of concentrating on a single software niche, the company has simultaneously developed numerous interconnected business lines.

These lines share common components and are designed for seamless integration, fostering efficiency and scalability.

Attracting and Empowering Founder-Led Teams

Rippling actively recruits founders to lead its various business units. Currently, approximately 47 of Rippling’s 800 employees are former founders.

These individuals are offered both financial stability and the autonomy they value, operating in general manager roles.

Organic Growth Through Internal Development

Rippling prioritizes internal development of new business lines, eschewing acquisitions. This approach allows for greater control and alignment with the company’s overall strategy.

A Bundled System and Diversified Revenue

Rippling offers customers a comprehensive, bundled system of its offerings, typically priced on a per-seat basis. This model contributes to a more diversified revenue stream, appealing to investors like Sequoia.

Impressive Growth Metrics

According to Conrad, Rippling has more than doubled its customer base in the past year. Its annual recurring revenue (ARR) has increased 2.7 times over the same period.

However, he refrains from disclosing specific revenue figures, citing a previous experience at Zenefits where revenue projections were not met.

Investor Valuation and Market Dynamics

Conrad acknowledges his limited involvement in determining the $6.5 billion valuation. He notes that investors evaluate numerous deals weekly, while he participates in fundraising only every two years.

He prefers to focus on delivering strong performance and allows investors to assess the company’s value independently.

A Contrasting Foundation: Rippling vs. Zenefits

Conrad highlights the fundamental differences between Rippling’s foundation and that of Zenefits in its early stages. He describes them as “nearly exact opposites.”

Lessons Learned from Zenefits’ Early Success

A key mistake at Zenefits, according to Conrad, was the ease with which they acquired customers initially. This led to a fear of competition and a strategy of dominating the market quickly.

The company prioritized rapid scaling and planned to automate administrative processes later.

The Pitfalls of Premature Scaling

However, Conrad now recognizes that automating processes becomes more challenging after scaling them manually. This resulted in significant gross margin issues at Zenefits, contributing to its eventual difficulties.

Prioritizing Software Development at Rippling

Conrad was determined not to repeat these mistakes at Rippling. Currently, 40% of Rippling’s employees are engineers.

Rippling initially maintained a strict prohibition on manual in-house work, even delaying the implementation of customer support until substantial ARR was generated.

A Software-First Approach

For the first two years, Rippling consisted of Conrad and approximately 50 engineers. This focus on software development has resulted in a robust and reliable product.

Rippling continues to prioritize replacing operational functions with software, ensuring a sustainable and scalable business model.

“Ultimately,” Conrad concludes, “it’s a much more robust place to be from a product perspective.”