11 ms·

After Zenefits, Will VCs Rein in Their Unicorns?

108 points by jackgavigan 11y ago

minimaxir 11y ago
Note that this article has new information compared to the previous articles about the Zenefits incident. (namely, a16z's involvement as the catalyst for the ouster)
- jackgavigan 11y ago
  And also (I think) the fact that Parker created the Macro™.
  - exw 11y ago
    No, that information was already mentioned in the second BuzzFeed article: <<That was how executives discovered the macro, which Conrad had created based on a belief that 52 hours was too long to spend in training, the lawyer for Sacks said.>> http://www.buzzfeed.com/williamalden/zenefits-program-let-insurance-brokers-fake-training#.usg7PpaK6K http://www.buzzfeed.com/williamalden/zenefits-program-let-in...
    - jackgavigan 11y ago
      I stand corrected!
- rokhayakebe 11y ago
  This thing did not start and stop with Conrad. Many others at the executive and VC level could have been in on it.
rokhayakebe 11y ago
I don't buy this. I have no issues with Zenefits and I am actually happy they were able to see phenomenal growth. However I must say this whole situation of the CEO stepping down feels staged to me. It is as if everyone was in on it and this move was calculated by all of them a long time ago. Like when we ready and my stocks are safe and sound blame it on me.
- draw_down 11y ago
  Oh, you have no issues with Zenefits so the whole thing must be staged! Of course! As if it's so hard to believe a CEO would engage in unethical behavior. Sheesh.
  - rokhayakebe 11y ago
    I have no issue with them because I did not fully read a single article to form an opinion on whether or not they are guilty. However what I am sure of is there is absolutely no way this 4.5 Billion company was acting illegally and only one person , the CEO, knew about this for YEARS and is responsible for it end to end.
  - deleted 11y ago
    [deleted]
- minimaxir 11y ago
  Mel Brooks already showed us that doesn't work in The Producers. An exit scam with potential jailtime is not a wise idea.
- meritt 11y ago
  Stepping down? He was fired by the board. He did a damn good job growing the business but didn't bother with the necessary compliance, legal, and bureaucratic steps. The company needs a new type of leader to take them to IPO otherwise we'll have another disaster like we did with Groupon and Andrew Mason.
- jsprogrammer 11y ago
  The article claims the AH meeting occurred on the 1st, while the HR/PR announcent was a week later. Of course it was staged: you have a corporate guard change. What don't you "buy" about this story?
- pbreit 11y ago
  It did seem odd that Sacks would take a #2 role at the time and it was hard not to think that Conrad's days were numbered with that hire.
smaili 11y ago
It really is a pity we live in a world where a few can ruin the party for all. I'm sure there are worthy startups out there with a solid product, solid team, and solid practices but they may suddenly die out from VC capital because of the fear/panic triggered by the couple of bad ones.
- minimaxir 11y ago
  Presumably if they indeed have a solid product, they have a solid way to drive revenue and be self-sustaining in case of events such as this.
  - gautamnarula 11y ago
    One issue for these startups could be that their facing competition with deep, VC-lined pockets. I actually faced this to some extent with a bootstrapped startup I ran--we were sort of competing against a startup with millions in VC funding that was handing out promotions like there was no tomorrow, and is still chugging along despite an unsustainable business model. It wasn't the primary reason we shut down, but it certainly didn't help.
jsprogrammer 11y ago
$4.5 billion valuation on $60 million annual revenue from non-compliant activity? Anyone know the investment thesis on that?
- askafriend 11y ago
  I think the investment thesis is based on the classic economic theory that draws upon complex natural and psychological forces, sometimes referred to by the acronym "FOMO".
- wtvanhest 11y ago
  This is a great read: https://www.quora.com/What-are-revenue-multiples-for-technology-startups https://www.quora.com/What-are-revenue-multiples-for-technol... Also, it's a good idea to assume that the documents which established the valuation likely have many terms which make the published numbers not represent the economic reality of the investment/contract. Liquidation preferences make any comparison between private and public companies extremely difficult, if not impossible.
- pbreit 11y ago
  Fastest growing SaaS business ever? The non-compliant activity was not crucial for success and easily rectified. The service offered is core to pretty much every business on the planet and touches every single employee in the business.
  - jsprogrammer 11y ago
    Easily rectified? The top shareholder/exec got dumped; the entire business is under multiple states' investigations; employees may have purjured themselves at the behest of the business; and clients may have purchased critical business infrastructure from unlicensed agents (which may affect their coverage). Clearly someone bought in to the pitch, but what strategy would they believe would easily rectify this situation?
    - rhino369 11y ago
      A non start up would pay a law firm to do more investigation and then settle with the government for a pound of flesh but nothing crazy. In the scheme of things skipping a video won't kill a company. But start ups are all about momentum and PR. Plus they'll need money for investigations and settlements. VC capital is expensive.
draw_down 11y ago
Unless consequences affect the investors or members of the board, and not just the CEO, what is the incentive to change behavior?
rajacombinator 11y ago
A lot of the HN-cynic crowd is forgetting here that if anything, they were bypassing stupid sets of regulations. There is nothing ethically or morally wrong here.
- geofft 11y ago
  It is ethically and morally wrong for private companies to privately decide that regulations are stupid, without any checks or balances by the people. Today, they might decide that laws that are in fact objectively stupid are stupid. Tomorrow they may decide that laws that are very important to the protection of your rights are stupid. Or, at most, I will concede that it is not ethically and morally wrong if we concede that the United States is a plutocracy and not a democracy, and there's nothing ethically or morally wrong with a plutocracy. If these laws are in fact stupid, get them changed. You have tons of money and tons of happy users, right?
  - easong 11y ago
    We have a dysfunctional government that's clearly beholden to various powers, including ones whose business model relies on stupid laws not changing. (I'm not personally sure I would even call our government a plutocracy, since that implies some level of control or organization.) At this point the only way we are ever going to get change is if large numbers of people decide that stupid laws are stupid and ignore them. See, for instance, the multi-decade long campaign to decriminalize marijuana. More generally, I don't see a good way for our society to collectively figure out the cost/benefit ratio for many regulations other than experimentation (the institutions that should be doing so are permanently out to lunch). It's not ideal, but from my standpoint startup companies pushing boundaries is the best solution we've got for dealing with stagnated industries.
    - geofft 11y ago
      Sure, but there's still a difference between large numbers of people in semi-public, and a single company in private. If Zenefits asked even their own customers if they agreed that these federal regulations were stupid, I doubt they'd get many yes answers (partly because, at least in theory, the intent of the regulation is to protect those customers). I am pretty okay with even large numbers of companies, with different motivations and financial incentives, all deciding that the same law is stupid. (One case seems to be the export regulations on non-open-source crypto-using software, for instance.) Even if they're all companies, that is much more defensible on democracy and not plutocracy.
pbreit 11y ago
I'm not sure there's a whole lot from this story to apply elsewhere. David Sacks is who you want to be running the show. He has 2 fairly epic successes under his belt (PayPal and Yammer), one of the keenest product minds in the business, nearly unlimited access to funding and talent, moral authority as a founder and lawyer and operator to clean up the mess, etc.
- minimaxir 11y ago
  "Don't break the law" is arguably a good lesson many startups could learn.
  - optimusclimb 11y ago
    Doesn't the YC application process ask you about clever times you've hacked the system or painted a little outside the lines?
JonFish85 11y ago
Considering Airbnb and Uber, two of the largest and considered most-successful startups are carefully dodging the law, the upside is worth the risk. I disagree with it, but I think VCs don't care much about following legal frameworks until it's too late.
- phibit 11y ago
  Does anyone have any more information about the "52 hour online training program" that "the Macro" allowed them to skip? If that training program is any bit as useless as "online driving school", I can sort of understand how the Macro came to be...
  - rhizome 11y ago
    My impression is that it is, but that doesn't excuse them.
  - 467568985476 11y ago
    It is perhaps a silly requirement, considering that the salespeople still passed the required exam. But I see it as symptomatic of a cultural contempt for regulations. It seems like a conflict of interest for a company to wantonly decide which regulations are worth following and which aren't. Especially when the salespeople could be personally liable, and the catastrophic outcome is somebody finding out that their $1m surgery isn't covered by their insurance despite promises it would be from the salesperson.
    - ubernostrum 11y ago
      It is perhaps a silly requirement, considering that the salespeople still passed the required exam. Supposing that the exam is supposed to test the candidate's actual knowledge -- i.e., their ability to correctly represent things and act in compliance with the law while engaged in conversation with potential customers -- I certainly can see a risk of someone just saying "eh, I'll skip the material, take the exam with a reference open on my desk, pass it and be fine" and then getting into major trouble later when it turns out they did actually need to know a lot of that stuff off the top of their head in order to do their job.
mrshoe 11y ago
This story starts out reporting on a board ousting a CEO after a public scandal involving non-compliance with various laws, which incited multiple government investigations. It then takes an abrupt turn and starts repeating everyone's favorite Silicon Valley trope du jour: the unicorn bubble is bursting, the fundraising environment is tightening up, and the halcyon days of multi-billion dollar valuations for everyone are over. There's really no connection between the two.
- jmspring 11y ago
  One tangential connection...Startup makes progress flouting the law, they hit a wall they can't overcome (get persecuted for). Uber has run the same risk (more lax laws), but approach was basically the same.
- steele 11y ago
  Possibly due to word count incentive
- sandworm101 11y ago
  Successful startups all, and I mean ALL, have serious compliance issues. They probably do not not realize their problems. Some actively try to avoid knowing, such as by shunning legal advice that may inform them of inconvenient obligations. Part of the going public and/or being bought out process involves measuring the rate of non-compliance. A unicorn wants to go public, but that means first getting your compliance ducks in nice rows. The growing realization that unicorns are in fact very non-compliant pushes them towards the easier route of being acquired/merged. So there is a direct link between compliance and the very existence of unicorns.
  - twright0 11y ago
    > Successful startups all, and I mean ALL, have serious compliance issues. This feels like a very hyperbolic claim. There are definitely high-profile examples of startups that had compliance issues and are struggling to bring them under control or remain in arguably grey areas (Zenefits is an example of the former, Airbnb the latter). But it's hard to imagine that it's a truly universal problem; many startups are in industries without heavy regulatory rules. Can you elaborate on what makes you believe this to be the case?
tyre 11y ago
I'm skeptical of the source of this article. My guess is Zenefits spoke off the record to do damage control in Sacks' favor. I have no proof but will lay out why below. > In a Feb. 1 meeting at its blandly luxurious Sand Hill Road offices, venture firm Andreessen Horowitz urged the chief executive officer of one of its most prized and promising companies to resign. 1) The first sentence references a meeting that very few people would know the details of. Likely only those at a16z plus a few executives around Parker/Sacks. Unlikely Parker is talking to the press, given the legal issues swirling. > Days after Chief Operating Officer David Sacks gave that information to Lars Dalgaard, an Andreessen partner who sits on Zenefits’ board, Conrad was out, say three people familiar with the matter. At Conrad’s suggestion, they replaced him with Sacks 2) Sacks gave the information to a partner, then Conrad (basically blamed for fraud) suggested they replace him with Sacks. Which raises some questions: a) Why trust Conrad? He's fired + off the board + likely under legal investigation. b) As COO, no question as to whether Sacks knew anything or that they needed fresh blood? Also, he was suggested by the person who was just removed for fraud. Lastly, we get a picture that sounds a lot less like Conrad giving a voluntary recommendation: > At the meeting, Conrad tentatively agreed to resign, relinquish his board seat, and make Sacks CEO, say three people close to the company.
- deleted 11y ago
  [deleted]
dufalop 11y ago
I rather agree this article seemed to connect two related but definitely not connected things. That being said, it is interesting how many visible unicorns are either flaunting the law or outright frauds (i.e. zenefits, uber, airbnb, theranos). Happily or sadly (per your point of view) - it's seems still worth it. The Zenefits ex-CEO lost his job but he never ever needs to work again (and can afford the best of the best lawyers if needed)
tommynicholas 11y ago
This is such nonsense. Zenefits allegedly broke the law under Conrad's leadership and he was ousted. This is not a sign of any macro changes - companies that break compliance regulations that could send their employees to jail have never been in fashion. Read Ben Thompson's piece about how this differs from more "gray area" compliance breaches: https://stratechery.com/2016/zenefits-and-regulation/ https://stratechery.com/2016/zenefits-and-regulation/
skewart 11y ago
A number of commenters here have compared Zenefits' questionable compliance with Uber, Lyft, and Airbnb. What Zenefits was doing is fundamentally different, and much more problematic. Lyft and Uber skirt similar kinds of seemingly useless regulation but they're completely up front about it. They don't pretend that their drivers are licensed or get any benefit from having licensed drivers in any way. They're simply offering a different product than what taxis offer - getting a ride with a random unlicensed stranger. Lyft, Uber, and Airbnb are betting that reputation systems (ratings, reviews, etc.) will provide assurance for consumers just as well if not better than government regulation. So far the market is showing they just might be right. Zenefits seems to have been driven by a similar cultural distaste for onerous and probably out-dated regulation - who can blame them? But instead of letting the market decide how valuable that regulation actually is they simply cut corners when they hoped no one would find out. That deceptiveness, more so than the regulation dodging itself, is ultimately really bad for a B2B business.
- themagician 11y ago
  Lyft, Uber, and Airbnb can't avoid regulation forever. They've just been lucky so far. Eventually there will be a high profile incident—someone important will get raped or murdered. The political response will be 1000x what their lobbyists can handle. It is inevitable. The reality is that this is how a lot of regulation starts. It doesn't always come from an anticompetitive place. We just forget that we actually asked for the regulation. Once we have, it's nice to always be able to blame the government or some regulator when something goes wrong. And then someone else can come in and "disrupt" the market by using a loophole of pretending like the regulation doesn't apply to them, when it's clearly intended to.
  - lifeisstillgood 11y ago
    Excellent point. I think it is worth noting regulations can be classified into acute and chronic. Acute taxi regulation would have been disallowing criminal records after a series of rapes or robberies. Chronic problems would be over charging - put it this way, the day before taxis were forced to charge a certain amount each mile, all taxis would have been free to charge different amounts as uber and lyft can. We do ask for regulation - and always in response to symptoms. Regulation is not pre planned rational thought ...
luckydata 11y ago
of course not.
jonesb6 11y ago
I don't think they included a safety switch on those things.
manishsharan 11y ago
Can someone tell me why is it such a big deal when person sells an insurance without having a proper license? Its not as if the insurance policy itself is fraudulent. The buyer is buying the insurance policy and not the credentials of the broker. Other wise it seems to me that is requirement is just as unnecessary as requiring cosmetology license for hair braiding ( see http://www.texastribune.org/2015/04/06/bill-would-untangle-messy-hair-care-regulations/ http://www.texastribune.org/2015/04/06/bill-would-untangle-m...)
- shanacarp 11y ago
  It is for a similar reason why buying from a broker stocks, bonds, futures, ect have to pass the series 7 and 63/65/66 from FINRA. Insurance is a financial product, letting someone buy the wrong insurance because they misunderstand it and you will make more money from that purchase is a form of fraud.
- jmount 11y ago
  I think the broker does make a number of attestations that if not properly done are fraud and render the policy void (as the insurance companies wrote the law).
- rosser 11y ago
  At a guess (and completely a guess), legal compliance. Insurance laws can vary widely, and subtly state-by-state. A licensed broker will understand the relevant intricacies and be able to sell you a policy that is compliant with them. If you buy a policy from an unlicensed broker, and it turns out not to be in compliance, the carrier probably isn't obligated to pay out, whether you're paid up on your premiums or not. The carrier doesn't want to be at fault for not having to pay out, so they offload that onto the broker, and "protect" the consumer (really, though, themselves) with a licensure regime. Insurance companies, being in the business of managing and mitigating risk, have all kinds of meticulous i-dotting and t-crossing procedure and regulation. This is — again, at a guess — just another example of that.
- ubernostrum 11y ago
  Because even for people who are actual high-level experts on it, correctly representing what a policy does and does not offer, and explaining that in a way that's factually correct, compliant with the local laws governing insurance, and understandable without being misleading to a potential customer, is incredibly difficult, to such a degree that your comparison of it to hair braiding should be prima facie evidence of lack of good faith on your part.
throwaway479384 11y ago
My company used Zenefits for a while, mainly because one of our execs is friends with one of theirs. We had many, many problems with payroll. When you have employees repeatedly coming to you because their paychecks are screwed up, you've got to do something. We ended up switching away, and now use ADP for payroll instead. We've had no problems since. (This was before the big public slap fight between Zenefits and ADP, which was made even more amusing given our experience.) I would not recommend anyone use Zenefits for any reason, regardless of whether it turns out they complied with legally-mandated training requirements or not. The fact that they were so incredibly sloppy is just inexcusable. You cannot mess around with people's pay like that. (Posted with a throwaway account for hopefully obvious reasons.)
- pinkunicorn 11y ago
  Honestly this looks like an advertisement to ADP.
- grahamburger 11y ago
  I'll bet your employees hate ADP. I know I do. Would it kill them to make a useable web interface? It's not like we've been doing this for 20 years or anything.
  - cmdrfred 11y ago
    I was thinking of doing a write up on ADP's workforce product recently, some things about the website I've noticed. The site uses cookies to determine if you have two windows open of the site. The problem is this doesn't work correctly and I often have to blow out my cookies to log in. On mobile I have to turn on screen rotation to be able to use the menu bar on the top of the screen, then I have to turn it back to be able to see the punch in buttons.
hoodoof 11y ago
"Will VCs Rein in Their Unicorns? " The language indicates that the VC's are the controlling owners of these companies.
tempodox 11y ago
Question: Is there any fixed definition of the term “unicorn”?
tempodox 11y ago
> ...valuations often became detached from the underlying fundamentals... The most valuable asset of a startup seems to be hot air.

108 points by jackgavigan 11y ago

Note that this article has new information compared to the previous articles about the Zenefits incident. (namely, a16z's involvement as the catalyst for the ouster)

jackgavigan 11y ago
And also (I think) the fact that Parker created the Macro™.
- exw 11y ago
  No, that information was already mentioned in the second BuzzFeed article: <<That was how executives discovered the macro, which Conrad had created based on a belief that 52 hours was too long to spend in training, the lawyer for Sacks said.>> http://www.buzzfeed.com/williamalden/zenefits-program-let-insurance-brokers-fake-training#.usg7PpaK6K http://www.buzzfeed.com/williamalden/zenefits-program-let-in...
  - jackgavigan 11y ago
    I stand corrected!
rokhayakebe 11y ago
This thing did not start and stop with Conrad. Many others at the executive and VC level could have been in on it.

rokhayakebe 11y ago

I don't buy this. I have no issues with Zenefits and I am actually happy they were able to see phenomenal growth. However I must say this whole situation of the CEO stepping down feels staged to me. It is as if everyone was in on it and this move was calculated by all of them a long time ago. Like when we ready and my stocks are safe and sound blame it on me.

draw_down 11y ago
Oh, you have no issues with Zenefits so the whole thing must be staged! Of course! As if it's so hard to believe a CEO would engage in unethical behavior. Sheesh.
- rokhayakebe 11y ago
  I have no issue with them because I did not fully read a single article to form an opinion on whether or not they are guilty. However what I am sure of is there is absolutely no way this 4.5 Billion company was acting illegally and only one person , the CEO, knew about this for YEARS and is responsible for it end to end.
- deleted 11y ago
  [deleted]
minimaxir 11y ago
Mel Brooks already showed us that doesn't work in The Producers. An exit scam with potential jailtime is not a wise idea.
meritt 11y ago
Stepping down? He was fired by the board. He did a damn good job growing the business but didn't bother with the necessary compliance, legal, and bureaucratic steps. The company needs a new type of leader to take them to IPO otherwise we'll have another disaster like we did with Groupon and Andrew Mason.
jsprogrammer 11y ago
The article claims the AH meeting occurred on the 1st, while the HR/PR announcent was a week later. Of course it was staged: you have a corporate guard change. What don't you "buy" about this story?
pbreit 11y ago
It did seem odd that Sacks would take a #2 role at the time and it was hard not to think that Conrad's days were numbered with that hire.

smaili 11y ago

It really is a pity we live in a world where a few can ruin the party for all. I'm sure there are worthy startups out there with a solid product, solid team, and solid practices but they may suddenly die out from VC capital because of the fear/panic triggered by the couple of bad ones.

minimaxir 11y ago
Presumably if they indeed have a solid product, they have a solid way to drive revenue and be self-sustaining in case of events such as this.
- gautamnarula 11y ago
  One issue for these startups could be that their facing competition with deep, VC-lined pockets. I actually faced this to some extent with a bootstrapped startup I ran--we were sort of competing against a startup with millions in VC funding that was handing out promotions like there was no tomorrow, and is still chugging along despite an unsustainable business model. It wasn't the primary reason we shut down, but it certainly didn't help.

jsprogrammer 11y ago

$4.5 billion valuation on $60 million annual revenue from non-compliant activity? Anyone know the investment thesis on that?

askafriend 11y ago
I think the investment thesis is based on the classic economic theory that draws upon complex natural and psychological forces, sometimes referred to by the acronym "FOMO".
wtvanhest 11y ago
This is a great read: https://www.quora.com/What-are-revenue-multiples-for-technology-startups https://www.quora.com/What-are-revenue-multiples-for-technol... Also, it's a good idea to assume that the documents which established the valuation likely have many terms which make the published numbers not represent the economic reality of the investment/contract. Liquidation preferences make any comparison between private and public companies extremely difficult, if not impossible.
pbreit 11y ago
Fastest growing SaaS business ever? The non-compliant activity was not crucial for success and easily rectified. The service offered is core to pretty much every business on the planet and touches every single employee in the business.
- jsprogrammer 11y ago
  Easily rectified? The top shareholder/exec got dumped; the entire business is under multiple states' investigations; employees may have purjured themselves at the behest of the business; and clients may have purchased critical business infrastructure from unlicensed agents (which may affect their coverage). Clearly someone bought in to the pitch, but what strategy would they believe would easily rectify this situation?
  - rhino369 11y ago
    A non start up would pay a law firm to do more investigation and then settle with the government for a pound of flesh but nothing crazy. In the scheme of things skipping a video won't kill a company. But start ups are all about momentum and PR. Plus they'll need money for investigations and settlements. VC capital is expensive.

draw_down 11y ago

Unless consequences affect the investors or members of the board, and not just the CEO, what is the incentive to change behavior?

rajacombinator 11y ago

A lot of the HN-cynic crowd is forgetting here that if anything, they were bypassing stupid sets of regulations. There is nothing ethically or morally wrong here.

geofft 11y ago
It is ethically and morally wrong for private companies to privately decide that regulations are stupid, without any checks or balances by the people. Today, they might decide that laws that are in fact objectively stupid are stupid. Tomorrow they may decide that laws that are very important to the protection of your rights are stupid. Or, at most, I will concede that it is not ethically and morally wrong if we concede that the United States is a plutocracy and not a democracy, and there's nothing ethically or morally wrong with a plutocracy. If these laws are in fact stupid, get them changed. You have tons of money and tons of happy users, right?
- easong 11y ago
  We have a dysfunctional government that's clearly beholden to various powers, including ones whose business model relies on stupid laws not changing. (I'm not personally sure I would even call our government a plutocracy, since that implies some level of control or organization.) At this point the only way we are ever going to get change is if large numbers of people decide that stupid laws are stupid and ignore them. See, for instance, the multi-decade long campaign to decriminalize marijuana. More generally, I don't see a good way for our society to collectively figure out the cost/benefit ratio for many regulations other than experimentation (the institutions that should be doing so are permanently out to lunch). It's not ideal, but from my standpoint startup companies pushing boundaries is the best solution we've got for dealing with stagnated industries.
  - geofft 11y ago
    Sure, but there's still a difference between large numbers of people in semi-public, and a single company in private. If Zenefits asked even their own customers if they agreed that these federal regulations were stupid, I doubt they'd get many yes answers (partly because, at least in theory, the intent of the regulation is to protect those customers). I am pretty okay with even large numbers of companies, with different motivations and financial incentives, all deciding that the same law is stupid. (One case seems to be the export regulations on non-open-source crypto-using software, for instance.) Even if they're all companies, that is much more defensible on democracy and not plutocracy.

pbreit 11y ago

I'm not sure there's a whole lot from this story to apply elsewhere. David Sacks is who you want to be running the show. He has 2 fairly epic successes under his belt (PayPal and Yammer), one of the keenest product minds in the business, nearly unlimited access to funding and talent, moral authority as a founder and lawyer and operator to clean up the mess, etc.

minimaxir 11y ago
"Don't break the law" is arguably a good lesson many startups could learn.
- optimusclimb 11y ago
  Doesn't the YC application process ask you about clever times you've hacked the system or painted a little outside the lines?

JonFish85 11y ago

Considering Airbnb and Uber, two of the largest and considered most-successful startups are carefully dodging the law, the upside is worth the risk. I disagree with it, but I think VCs don't care much about following legal frameworks until it's too late.

phibit 11y ago
Does anyone have any more information about the "52 hour online training program" that "the Macro" allowed them to skip? If that training program is any bit as useless as "online driving school", I can sort of understand how the Macro came to be...
- rhizome 11y ago
  My impression is that it is, but that doesn't excuse them.
- 467568985476 11y ago
  It is perhaps a silly requirement, considering that the salespeople still passed the required exam. But I see it as symptomatic of a cultural contempt for regulations. It seems like a conflict of interest for a company to wantonly decide which regulations are worth following and which aren't. Especially when the salespeople could be personally liable, and the catastrophic outcome is somebody finding out that their $1m surgery isn't covered by their insurance despite promises it would be from the salesperson.
  - ubernostrum 11y ago
    It is perhaps a silly requirement, considering that the salespeople still passed the required exam. Supposing that the exam is supposed to test the candidate's actual knowledge -- i.e., their ability to correctly represent things and act in compliance with the law while engaged in conversation with potential customers -- I certainly can see a risk of someone just saying "eh, I'll skip the material, take the exam with a reference open on my desk, pass it and be fine" and then getting into major trouble later when it turns out they did actually need to know a lot of that stuff off the top of their head in order to do their job.

mrshoe 11y ago

This story starts out reporting on a board ousting a CEO after a public scandal involving non-compliance with various laws, which incited multiple government investigations. It then takes an abrupt turn and starts repeating everyone's favorite Silicon Valley trope du jour: the unicorn bubble is bursting, the fundraising environment is tightening up, and the halcyon days of multi-billion dollar valuations for everyone are over. There's really no connection between the two.

jmspring 11y ago
One tangential connection...Startup makes progress flouting the law, they hit a wall they can't overcome (get persecuted for). Uber has run the same risk (more lax laws), but approach was basically the same.
steele 11y ago
Possibly due to word count incentive
sandworm101 11y ago
Successful startups all, and I mean ALL, have serious compliance issues. They probably do not not realize their problems. Some actively try to avoid knowing, such as by shunning legal advice that may inform them of inconvenient obligations. Part of the going public and/or being bought out process involves measuring the rate of non-compliance. A unicorn wants to go public, but that means first getting your compliance ducks in nice rows. The growing realization that unicorns are in fact very non-compliant pushes them towards the easier route of being acquired/merged. So there is a direct link between compliance and the very existence of unicorns.
- twright0 11y ago
  > Successful startups all, and I mean ALL, have serious compliance issues. This feels like a very hyperbolic claim. There are definitely high-profile examples of startups that had compliance issues and are struggling to bring them under control or remain in arguably grey areas (Zenefits is an example of the former, Airbnb the latter). But it's hard to imagine that it's a truly universal problem; many startups are in industries without heavy regulatory rules. Can you elaborate on what makes you believe this to be the case?

tyre 11y ago

I'm skeptical of the source of this article. My guess is Zenefits spoke off the record to do damage control in Sacks' favor. I have no proof but will lay out why below. > In a Feb. 1 meeting at its blandly luxurious Sand Hill Road offices, venture firm Andreessen Horowitz urged the chief executive officer of one of its most prized and promising companies to resign. 1) The first sentence references a meeting that very few people would know the details of. Likely only those at a16z plus a few executives around Parker/Sacks. Unlikely Parker is talking to the press, given the legal issues swirling. > Days after Chief Operating Officer David Sacks gave that information to Lars Dalgaard, an Andreessen partner who sits on Zenefits’ board, Conrad was out, say three people familiar with the matter. At Conrad’s suggestion, they replaced him with Sacks 2) Sacks gave the information to a partner, then Conrad (basically blamed for fraud) suggested they replace him with Sacks. Which raises some questions: a) Why trust Conrad? He's fired + off the board + likely under legal investigation. b) As COO, no question as to whether Sacks knew anything or that they needed fresh blood? Also, he was suggested by the person who was just removed for fraud. Lastly, we get a picture that sounds a lot less like Conrad giving a voluntary recommendation: > At the meeting, Conrad tentatively agreed to resign, relinquish his board seat, and make Sacks CEO, say three people close to the company.

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dufalop 11y ago

I rather agree this article seemed to connect two related but definitely not connected things. That being said, it is interesting how many visible unicorns are either flaunting the law or outright frauds (i.e. zenefits, uber, airbnb, theranos). Happily or sadly (per your point of view) - it's seems still worth it. The Zenefits ex-CEO lost his job but he never ever needs to work again (and can afford the best of the best lawyers if needed)

tommynicholas 11y ago

This is such nonsense. Zenefits allegedly broke the law under Conrad's leadership and he was ousted. This is not a sign of any macro changes - companies that break compliance regulations that could send their employees to jail have never been in fashion. Read Ben Thompson's piece about how this differs from more "gray area" compliance breaches: https://stratechery.com/2016/zenefits-and-regulation/ https://stratechery.com/2016/zenefits-and-regulation/

skewart 11y ago

A number of commenters here have compared Zenefits' questionable compliance with Uber, Lyft, and Airbnb. What Zenefits was doing is fundamentally different, and much more problematic. Lyft and Uber skirt similar kinds of seemingly useless regulation but they're completely up front about it. They don't pretend that their drivers are licensed or get any benefit from having licensed drivers in any way. They're simply offering a different product than what taxis offer - getting a ride with a random unlicensed stranger. Lyft, Uber, and Airbnb are betting that reputation systems (ratings, reviews, etc.) will provide assurance for consumers just as well if not better than government regulation. So far the market is showing they just might be right. Zenefits seems to have been driven by a similar cultural distaste for onerous and probably out-dated regulation - who can blame them? But instead of letting the market decide how valuable that regulation actually is they simply cut corners when they hoped no one would find out. That deceptiveness, more so than the regulation dodging itself, is ultimately really bad for a B2B business.

themagician 11y ago
Lyft, Uber, and Airbnb can't avoid regulation forever. They've just been lucky so far. Eventually there will be a high profile incident—someone important will get raped or murdered. The political response will be 1000x what their lobbyists can handle. It is inevitable. The reality is that this is how a lot of regulation starts. It doesn't always come from an anticompetitive place. We just forget that we actually asked for the regulation. Once we have, it's nice to always be able to blame the government or some regulator when something goes wrong. And then someone else can come in and "disrupt" the market by using a loophole of pretending like the regulation doesn't apply to them, when it's clearly intended to.
- lifeisstillgood 11y ago
  Excellent point. I think it is worth noting regulations can be classified into acute and chronic. Acute taxi regulation would have been disallowing criminal records after a series of rapes or robberies. Chronic problems would be over charging - put it this way, the day before taxis were forced to charge a certain amount each mile, all taxis would have been free to charge different amounts as uber and lyft can. We do ask for regulation - and always in response to symptoms. Regulation is not pre planned rational thought ...

luckydata 11y ago

of course not.

jonesb6 11y ago

I don't think they included a safety switch on those things.

manishsharan 11y ago

Can someone tell me why is it such a big deal when person sells an insurance without having a proper license? Its not as if the insurance policy itself is fraudulent. The buyer is buying the insurance policy and not the credentials of the broker. Other wise it seems to me that is requirement is just as unnecessary as requiring cosmetology license for hair braiding ( see http://www.texastribune.org/2015/04/06/bill-would-untangle-messy-hair-care-regulations/ http://www.texastribune.org/2015/04/06/bill-would-untangle-m...)

shanacarp 11y ago
It is for a similar reason why buying from a broker stocks, bonds, futures, ect have to pass the series 7 and 63/65/66 from FINRA. Insurance is a financial product, letting someone buy the wrong insurance because they misunderstand it and you will make more money from that purchase is a form of fraud.
jmount 11y ago
I think the broker does make a number of attestations that if not properly done are fraud and render the policy void (as the insurance companies wrote the law).
rosser 11y ago
At a guess (and completely a guess), legal compliance. Insurance laws can vary widely, and subtly state-by-state. A licensed broker will understand the relevant intricacies and be able to sell you a policy that is compliant with them. If you buy a policy from an unlicensed broker, and it turns out not to be in compliance, the carrier probably isn't obligated to pay out, whether you're paid up on your premiums or not. The carrier doesn't want to be at fault for not having to pay out, so they offload that onto the broker, and "protect" the consumer (really, though, themselves) with a licensure regime. Insurance companies, being in the business of managing and mitigating risk, have all kinds of meticulous i-dotting and t-crossing procedure and regulation. This is — again, at a guess — just another example of that.
ubernostrum 11y ago
Because even for people who are actual high-level experts on it, correctly representing what a policy does and does not offer, and explaining that in a way that's factually correct, compliant with the local laws governing insurance, and understandable without being misleading to a potential customer, is incredibly difficult, to such a degree that your comparison of it to hair braiding should be prima facie evidence of lack of good faith on your part.

throwaway479384 11y ago

My company used Zenefits for a while, mainly because one of our execs is friends with one of theirs. We had many, many problems with payroll. When you have employees repeatedly coming to you because their paychecks are screwed up, you've got to do something. We ended up switching away, and now use ADP for payroll instead. We've had no problems since. (This was before the big public slap fight between Zenefits and ADP, which was made even more amusing given our experience.) I would not recommend anyone use Zenefits for any reason, regardless of whether it turns out they complied with legally-mandated training requirements or not. The fact that they were so incredibly sloppy is just inexcusable. You cannot mess around with people's pay like that. (Posted with a throwaway account for hopefully obvious reasons.)

pinkunicorn 11y ago
Honestly this looks like an advertisement to ADP.
grahamburger 11y ago
I'll bet your employees hate ADP. I know I do. Would it kill them to make a useable web interface? It's not like we've been doing this for 20 years or anything.
- cmdrfred 11y ago
  I was thinking of doing a write up on ADP's workforce product recently, some things about the website I've noticed. The site uses cookies to determine if you have two windows open of the site. The problem is this doesn't work correctly and I often have to blow out my cookies to log in. On mobile I have to turn on screen rotation to be able to use the menu bar on the top of the screen, then I have to turn it back to be able to see the punch in buttons.

hoodoof 11y ago

"Will VCs Rein in Their Unicorns? " The language indicates that the VC's are the controlling owners of these companies.

tempodox 11y ago

Question: Is there any fixed definition of the term “unicorn”?

tempodox 11y ago

> ...valuations often became detached from the underlying fundamentals... The most valuable asset of a startup seems to be hot air.