Rippling's Parker Conrad on the company's new round, its new lease and its newest critic

This episode focuses on an interview with Parker Conrad, CEO of Rippling, discussing the company's latest funding round and strategic developments.

1. Rippling conducted an employee tender offer aimed at providing liquidity for early employees, which expanded due to investor interest.
2. Parker Conrad discusses Rippling's approach to building business software, which focuses on broad, deeply integrated product suites.
3. The company is preparing to launch a new cloud product area, marking a significant expansion beyond its current offerings.
4. Rippling's R&D spending is notably high compared to its peers, reflecting its strategic emphasis on innovation and development.
5. Conrad reflects on the stability of Rippling's executive team and the company's philosophy towards office work, preferring in-person collaboration.

1: Introduction

Connie Loizos and Alex Gove introduce the episode and briefly mention upcoming VC events. Connie Loizos: "Happy Friday, let's see what is going on a lot."

2: Interview with Parker Conrad

Discussion on why Rippling raised new funds and its impact. Parker Conrad: "It started out as just an employee tender."

3: Rippling's Business Strategy

Conrad explains Rippling's business model and future plans. Parker Conrad: "The way you build the best business software is you want to build a really broad product suite."

4: Future Plans and R&D Investments

Conrad details the upcoming product launches and the company's heavy investment in R&D. Parker Conrad: "Next year, Rippling is going to spend as much on R&D as three major competitors combined."

5: Closing Remarks

The hosts wrap up the episode and promote upcoming events. Alex Gove: "Don't forget to check out our upcoming strictly VC events."

1. Consider broad product suites for business software to enhance integration and functionality.
2. Focus on R&D to stay ahead in technology and innovation.
3. Utilize employee tender offers to provide liquidity and retain talent.
4. Emphasize the stability and commitment of the executive team to foster a strong company culture.
5. Leverage events and public appearances to enhance company visibility and networking opportunities.

Connie talks to Rippling CEO Parker Conrad about Rippling's new $200 million round that the company raised at a hefty $13.4 billion valuation.

People

Parker Conrad, Connie Loizos, Alex Gove

Companies

Rippling, Zenefits

Books

None

Guest Name(s):

Parker Conrad

Content Warnings:

None

Connie Loises

Hi, I'm Connie Loises and this is Alex Gove and this is strictly VC download.

Hello all. Happy Friday. Let's see what is going on a lot and I need to record this quickly. I'm just going to say it because our very patient podcast producer Maggie is about to lose her mind. I forgot to do this earlier.

Thank you Maggie for your patience. I did want to really just quickly thank everybody who made it to Techcrunch's early stage event. The event was a huge success, more than 1200 people on site, networking like mad, absorbing great content, including my colleague Ingrid's interview with Sequoia Capital partner Jess Lee. It was really great. The staff literally had to switch the lights on and off to get everyone out of the building.

They were so deeply embedded. It's always a good sign. Speaking of events, we have two more coming up in quick succession. These are strictly VC events powered by TechCrunch. First, we're co hosting a night in London with Saul Klein and his crew at the prominent venture firm local globe.

This one is sold out. I keep thinking I'm not positive, so if you want to come, it is on May 21, a Tuesday night. Just do a little bit of googling and you should find it. I do not have the URL at my fingertips. The second event coming up quickly is a strictly VC in Washington, DC on June 11.

This also happens to be a Tuesday night. I'm really excited about this because I have family in Washington and I just love Washington. But also we have a killer lineup, including AI researcher Helen Toner, the founders of the buzzy, and much maligned for now humane AI pin FTC chair Lena Khan, whose agency just this week banned non competes but is basically in motion at all times under her leadership. Also, Steve Case, who needs no explanation, and the founder of chainalysis, which is, I think, maybe the only crypto company that became more relevant during the downturn. Given that its mission is to sniff out criminals using the blockchain.

Alex Gove

I hope to see some of you there. It's going to be an amazing night. Also, if you will forgive the clunky segue, I hope you will also enjoy this week's interview with Parker Conrad, who you may know is the founder of Rippling, a workforce management software company that is now worth $13.5 billion. Conrad is what you might call Silicon Valley Famous, having previously co founded and led a similar software startup, Zenefits, which ran into compliance problems and was later sold to Trinet. But rippling eclipsed benefits a long time ago, and Conrad is not looking back, and rippling's investors are certainly not looking back.

Connie Loises

I've had a few opportunities to talk with Conrad over the years. I've always enjoyed them. I hope you will enjoy our chat, too.

Alex Gove

So, first and foremost, why raise this money? You know, honestly, it started out as just an employee tender. We wanted to find a way to get some liquidity for early employees, and so we went to market looking really to do about $200 million for employees that wanted to sell some stock. And we actually, we got, you know, a lot of sort of investor interest. And so we expanded it, mostly as a solve, as a way to get more ownership for investors that were just looking to sort of buy more.

Parker Conrad

And then actually, beyond that, we ended up sort of expanding it to seed investors. So what does that say about your plans to eventually go public? It's a little bit in the distance, clearly. Well, I definitely think it's a little bit in the distance, but actually, I don't think it really says anything. It's not like a way of delaying it.

Or if anything, I think it's probably nice to. There are people that are eager to sort of get some money to buy a house or for life, because life happens great. To relieve some of that pressure before you go public so that you don't have tons of people, like, selling as soon as they can in the public markets. But there are some companies, you know, they have RSU issues and they gotta sort of organize things or, because they're not going public this year. That's not us.

We're not hitting any kind of RSU deadline. We're not. There's nothing like that that's causing us to do this instead of going public. Is this the first time employees have been able to sell some shares? It's not actually, we did something in, in 2021, but it was smaller.

And, I mean, the company was smaller and said, that was a long time ago. Can you tell me, I guess, what percentage of employees are taking or took money off the table? Well, we don't know yet, because there are all kinds of rules about it. You're not allowed to sort of, like, pull the audience to figure out who wants to do it until actually launches the tender. And so the tender will open in a few weeks, and then, you know, you sort of present a bunch of, you know, the same information to employees that investors were getting, and then employees make a decision about what they want to do, and they have two or three weeks to make a decision, and then only at the end of that, do, you know, what the volume is interesting.

Alex Gove

And this is open to all of your investors, your current investors. It's open to all current employees, all former employees, and it's going to be open to all seed investors, smaller seed investors. There's some threshold of ownership, but below a certain level, you know, the seed investors can participate as well. And how do you think about this? I mean, the obvious concern is there's a tipping point wherein, you know, employees maybe have so much money in their pockets because of the sale that they feel able to leave.

I'm just wondering if you think about what's reasonable and what's too much. You know, we have both. You can sell up to a certain percentage, and there's a cap on the dollar amount. And, you know, one of the things that we talked about internally when we launched it is we said, look, the first rule of an employee tender is that you don't talk about the tender like you don't talk about internally. It shouldn't be something that you really talk about publicly.

Parker Conrad

You don't want to see anyone, like, spiking the football or something that. And the second rule of the employee tender is. See, the first rule, you know, this is a very private, personal thing that I'm, like, thrilled for everyone that this makes a difference for you and in your life. That's great. But, you know, it's not.

It's not the destination. The game's not over. You know, we're all still here tomorrow to sort of continue building the company. And so it shouldn't, you know, let's not let it become a distraction. How do you feel about turnover generally?

Alex Gove

I mean, obviously, some people don't like to see it. Other managers think it's for the best. It seems like Elon Musk is a fan, given the rate at which he turns over his executive team in TEsla. I don't know. I mean, gosh.

Parker Conrad

I mean, the executive team of Rip Lane has been, like, remarkably stable for a long time. A lot of the people on the team are, like, people that I originally hired for those roles. Some of them are people I have long work histories with, like, even before this company. And every once in a while, there's, like, an early rippling employee that leaves the company. I find it always just emotionally, really sad when that happens, even if it's like they're going where the company's gonna be fine and they're going on.

They wanna do something else or, you know, in some cases, just kind of hang out. But on a personal level, that's always very difficult. For me, I like the idea that everyone's sort of there together through till the end kind of thing. Right. The whole adventure.

Connie Loises

I also wondered. We had written that founders fund could be writing its biggest single check into a company in this round. Is that what happened here? That's certainly so. Again, the issues, like, you don't know, it depends on who sells.

Parker Conrad

So if, like, no one sells, then it's not going to be their. Their biggest check ever. But certainly the commitment that they've signed up for is 310 million, which is the single largest commitment they've ever made and. And would be the largest check they've ever written. And I think previously it was stripe at 300.

Alex Gove

So workforce management software is very crowded. You're going up against a company that you famously co founded and ran initially, zenefits. You've got Paycor workday gusto just for people who aren't customers yet. Don't follow the company closely. How are you different?

Parker Conrad

You know, I think the weird thing is that Ripley is not actually an HCM company. The idea behind the company is that I think that we've been building business software wrong for 20 years, and everyone has been building business software, and everyone believes that the way to build business software is to build these extremely narrow, focused, deep products. And that's the way you build the best business software. And I think it's completely wrong. I think that actually, the way you build the best business software is you want to build a really broad product suite of deeply integrated and seamlessly interoperable products.

And that there are a number of, not just. And whenever I describe it this way, people mistakenly believe that what I mean is that you have these sales and marketing advantages of doing that. And the products are like, okay, enough. But that's actually not what I mean at all. I actually think that you build better products by building this way, because there are some very unique advantages for customers when you build software this way.

Like, one of them is you have a data layer. In our case, it's very focused on employee data, but you have data that all of these different products can interact with more than anything. I think that's really what rippling stands for, is more integrated products that are built with these very deep platform capabilities. Yes, we build in that system. We have a very strong HR and payroll suite, but we also have a suite of it and security products, and we have a spend management suite where we do things like corporate cards and bill pay and expense reimbursements.

And actually, interestingly, one of the things that we're using the primary capital that we raised in this round, the $200 million that we raised, we're using that to really fund the R and D efforts for a new fourth cloud that we intend to launch. And so a completely different area that we'll be announcing a little bit later this year or next year, but that's ongoing R and D effort in areas that are not hrs and payroll. Will this fourth prong materially change who your customer is? Absolutely. Yeah.

No. Different. Completely different buyers. The classic example of a company that builds software in this way is Microsoft. I've often called this compound software businesses.

Microsoft is the OG compound software business. And I think of Oracle and Salesforce and Servicenow as like other good examples of companies like that, that build software in this particular way, like with this particular approach. And I think rippling is a company that we sort of believe that software should be built in that way and that we can build better products for customers by building software in that way. And employee data is a really important underlying primitive because every piece of software that you use in your company is secretly reliant on information about employees and your even ones that you don't think of as needing that. It's like all of the policies in those systems depend on someone's job or role or function and things that need approval.

Like, well, that depends on who you are in the company and who needs to approve. It depends on sort of, you know, well, who's the vp of your department and who's your manager and who's your site lead or your HR business partner. Systems that really deeply understand employee data can build much better business software very, very broadly. Like much more broadly than just HR software on top of that sort of underlying primitive. You know, I have to ask, you.

Alex Gove

Brought up Microsoft, what is your AI strategy? We are a company that is relatively free of any AI products right now. There's some stuff that we're working on. But I am always sort of very skeptical of things that are like super trendy in Silicon Valley. And so I can tell you what it's not what I am super skeptical of, like these chat bots.

Parker Conrad

I don't think anyone wants to like chat with their HR software. I think there are some really interesting capabilities that you were doing some stuff around, but nothing that's launched quite yet. I also have to ask, Bill Gurley had a tweet that I thought was interesting and I wasn't sure how to interpret. And I wonder what you thought of it when he saw the news in TechCrunch. About your round that we scooped.

Alex Gove

He tweeted, antifocus ain't cheap. And I wasn't sure if that was laudatory or a dig, I assume, given. That it came from Bill, that it's a dig. But interestingly, I agree with him. So when he says anti focus, what he's referring to is what I've frequently called, like, compound software businesses to distinguish them from like these sort of focused companies.

Parker Conrad

And, and sometimes when I describe that, I'll sort of call out Bill. Bill actually, as the purveyor of this idea, that businesses should focus very, very narrowly on one very thin product. And I think that bills just completely wrong about how software should be built. But he is not wrong that taking this opposite approach is expensive, and its expensive, particularly on the R and D side. When you look at rippling, if you look at rippling financially and when investors look at the company, the thing that really stands out about the business is how much R and D spend we have.

And so it makes us very different both from a lot of other software businesses. Like if you compare us to other HCM competitors. Cause you talked about the crowded HCM space companies like Paycor, Paycom, Paylocity, they spend an average of 10% of their revenue on R and D. Next year, rippling is going to spend as much on R and D as Paycom, paylocity and Paycor combined. All three of them added all up.

And we obviously have a much lower revenue footprint than the three of those companies combined. We spend, I think it's an, you know, the average SaaS company spends, you know, roughly 20% of revenue on R and D. Like, most of it goes to sales and marketing. Rippling spends, depending on how you look at it. If it just on a cash basis, spends, I think, close to 50% of revenue on R and D.

And then if you include stock based compensation, it's significantly higher than that. And so it is definitely true that there's a huge investment, and I think that there's really this upfront investment phase in building what we're building, that obviously, over time, as a percent of revenue should come down. But he's not wrong, and it is a very explicit part of our strategy to do that. And it is a big difference between us and most of our HCM competitors. Just one quick question, because I'm always very interested in the personalities in our business.

Connie Loises

Has he ever done business with you? No, I've never met Billy. He's sort of a constant low grade antagonist. But I've never actually met him. That's really fascinating.

Alex Gove

Well, I know he obviously doesn't get along very well with Mark Andreessen, but. I find these bill and I have that in common. So that's, you know, maybe we should meet up and grab a beer over. Let's talk about Mark. I love it, that particular thing.

So I did want to ask. So this. It's an interesting strategy. It also seems very high risk. It just in the sense that you're obviously delaying profitability as you build up your R and D capability.

And I'm assuming you can't really charge more because your customers ultimately don't care what you're doing on the back end. And they probably only are so interested in maybe your compound business theory. How does that work? I mean, I guess, how do you price your product? Is it very competitive?

Do you charge more because you are offering so much more? I think the pricing is usually extremely competitive. But what happens is that we capture more wallet share. The reason that I think a lot of what we call point SaaS software people fails is that you can only sell one thing. And so if you've got this one narrow product, what you've got to do is, first of all, you don't make that much money because the price point for that product say it's $5 per employee per month.

Parker Conrad

All you can do is sell that one thing for $5 per employee per month. And every customer that you talk with is a brand new customer. And those are always the hardest customers to convince or the ones that are new. Logo. What's really interesting about compound software businesses is that you can sell them a whole suite of products.

And so even if it's that same $5 price point, if you sell them seven things, ten things, suddenly your revenue is much larger. The customer is not spending any more or might even be saving a bunch of money because they're replacing a whole host of other things that they would purchase. And you get this benefit, which is that they might not sign up for everything upfront. That's okay. But what happens is when you come back to them later, it's a lot easier if they're like a happy, excited customer to sell them the next product, and much less costly will rippling start.

Alex Gove

Revealing some of its numbers. Sometimes, obviously, when companies are gearing up to become publicly traded, like, I guess Klarna, for example, they start messaging revenue and other things. Is that something that we might see? It's an interesting idea. I think that maybe that's something we should practice doing when there's an actual timeline or something like that.

Parker Conrad

We're preparing quarterly releases or something like that right now. I think the only thing that we've released is that our revenue is above $100 million in error. And that happened in the last year. I don't think we've talked about when that happened. Parker.

Alex Gove

Also, I did read that you just recently signed a big 123,000 square foot lease in San Francisco, which is great. You know, I had seen you at a dinner a couple of months ago, I guess, and I had a chance to talk to you for 2 seconds, and we were talking about commercial real estate, and you were saying how landlords were so stubbornly resistant to budge on price. I guess because these building owners don't want to see their real estate repriced. Was that your impression a couple of months ago? It's just shocking.

Parker Conrad

I mean, like our experience in this process was that most landlords in the city would rather things stay vacant than have rates go down. And so you have this weird market problem where landlords are perfectly willing to have their space be vacant. And the reason is that apparently many of them have covenants with their lenders where as soon as they lease out space at a price per square foot that's below some like unreasonably high threshold, they default on their lease and they have to give the space back to the bank. And so it's this game of chicken where the landlords eventually are going to default because they won't be able to make payments and things go back to the bank, and then it gets leased out at a more reasonable rate. For example, in the current building that we're in, we had a deal with another tenant to sublease some space from that tenant at a very reasonable rate, and the landlord nixed it because the landlord didn't want us to be able to lease from another tenant at a low rate.

And instead the landlord said, well, we have some space for you at like 80 plus dollars a square foot, something that was way above where the market is. So if you want to expand, like, you should lease from us instead of from this other subtenant. So we didn't. We left as a result. Well, it's interesting because you're asking your.

Alex Gove

Employees to come back three days a week. Why did you decide on this particular policy? You mean why not five, or why not remote, or why not? Yeah, why not zero? I think we just think that there's an enormous amount of value of people being in the office together.

Parker Conrad

You know, even during the pandemic, you know, we were never a company that was like, we're going remote. We were always like, we're coming back to the office as fast as we possibly can. And when we went remote temporarily during the pandemic, we said, this is for three weeks, and then we're going back to the office. And of course, it ended up being, you know, unfortunately for a lot longer than that. But we were back in the office as soon as we could be.

You know, I'm in the office five days a week. Most of the executive team is as well. Obviously, there are some companies that make it work. Being fully remote, it's never really worked for us. And I think you're sort of like, playing the game on hard mode.

I think it's a lot easier if people can get together in person. And you don't think it's created any sort of hiring or retention issues. Obviously, where you wouldn't have done this, it hasn't. There's always some stuff on the margins there. And when we moved back in person, I mean, there was a little bit of, you know, obviously it was an adjustment back, but I don't think we lost a very small number of people over it.

Most people are back in the office. And look, I think it's. It's hard doing companies like this, and I think it's a lot more fun if you can do it. There's a much more esprit de corps if you're kind of all in it, you know, like. And it's hard to build that.

Not impossible, but it's definitely. I've always found it to be harder. How many employees are in that San Francisco office? It's several hundred. And how many employees does Ripley have altogether?

We have about 2800. 2800, okay. And so do you have offices open elsewhere? We do. We have actually our largest offices in Bangalore.

We have a big office in New York. We have offices in London and Dublin and in Australia. And also, I should point out, we also have some remote employees. So we have some functions where we hire almost exclusively remotely, and then others where we try and really have everyone be in office, but in the offices. It'S the same policy worldwide, essentially.

Yeah, exactly. Parker, another sort of diversion. But I was reading just earlier today, I missed the news. But Neil Mehta, a venture investor who's one of your most ardent supporters and who's from Green Oaks, is a big investor in rippling, has been buying up real estate in his Pacific Heights neighborhood. I guess he bought some shops and an old theater on Fillmore Street.

Alex Gove

VC's tend to think alike. I was just wondering, are you aware. Of other VC's who are snapping up. Commercial real estate right now in San Francisco? I was wondering, is there like a take back our city movement of what?

Parker Conrad

Not, I mean, I don't, those are not conversations that I typically have with people, so it's possible that they are, but I wouldn't, I wouldn't necessarily know. I think it's cool. I think, you know, I don't know much about, I mean, I probably only know what you know about this, but it sounds like, you know, he wants to really reinvigorate some of these commercial corridors and that sounds really exciting. Well, congratulations again. Really nice to talk to you.

Alex Gove

I hope that I see you in person again in the not too distant future as well. Thanks, Connie.

Thanks very much for listening. We look forward to seeing you back here soon. In the meantime, dont forget to check out our upcoming strictly vc events in London in May and Washington, DC this June. You can find out more about all of these great events@techcrunch.com. Events have a great weekend and well see you back here soon.