
Zenefits (YC W13) Just Raised $500M at a $4.5B Valuation - carlchenet
http://techcrunch.com/2015/05/06/zenefits-rising-hrs-hottest-startup-just-raised-500-million-at-a-4-5-billion-valuation/
======
randall
One of my favorite displays of how little the tech press gets it is this stark
contrast. (I think Garry Tan is the one who pointed to me it originally but I
don't have that reference right now.)

PandoDaily in 2013:

"While I don’t have my Tarot cards handy, I don’t think there’s a big winner
in this bunch either."

[http://pando.com/2013/03/26/y-combinator-demo-
day-2013-still...](http://pando.com/2013/03/26/y-combinator-demo-
day-2013-still-looking-for-the-next-airbnb-or-dropbox/)

Startups are a function of markets and execution. Pick a big market and
execute well and you're golden. It's difficult beforehand when a company is
larval to tell who's picked the right market unless you're able to really
think through it.

~~~
colbyh
Journalists make terrible VCs as a general rule.

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vm
Michael Moritz, senior partner at Sequoia Capital and arguably the best VC
ever, started his career as a journalist. From his bio, it sounds like he
leveraged that to start his career at Sequoia.

[http://en.wikipedia.org/wiki/Michael_Moritz](http://en.wikipedia.org/wiki/Michael_Moritz)

~~~
austenallred
> as a general rule

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gkop
Zenefits: you are growing too fast! Scale up your customer service and improve
your customer satisfaction rates before making big customer acquisition
pushes, else you risk disappointing your existing customers. (Anecdote: I am a
disappointed existing customer)

~~~
parkerconrad
Our view of this is that growth is not inconsistent with improving the service
- and, actually, quite the opposite, our growth is what gives us the ability
to solve a lot of the challenges in this industry.

This is particularly relevant in your case (an installation error on Aetna's
end). One of the biggest problems with health insurance for companies < 1,000
employees is that everything is done via paper / pdf / fax machine. This is of
course a pain in the ass, but more importantly it's a source of large and
irreducible error. Insurance companies average about 10% to 20% error rates on
the stuff that we send them _even if Zenefits is 100% correct_. These errors
aren't unique to Zenefits -- any broker or other company doing this stuff
would have them -- and we spend a lot of time following up with carriers to
verify, etc....

Here's the important thing -- our growth means we can make insurance companies
build APIs for us, some of which are live right now, and many more of which
will be live in the coming months. Only with this full electronic integration
can these processing errors go away, for us and for everyone else. APIs ==
zero errors. Existing paper / pdf method can never fully eliminate errors b/c
we (zenefits) don't control the guy on Aetna's end who is keying information
into their system.

~~~
colbyh
This is a really bad answer to a concern about customer service, just a heads
up. We want to be reassured that you value your customers and will be working
to make things better no matter what, not given paragraphs on why it's
actually someone else's fault.

~~~
ddispaltro
I don't think so, basically the HN crew wants to see the nuts and bolts, and
he's giving a real reason why problems happen on the platform. I personally
find it refreshing when someone from a B2B company helps me understand their
internals, it helps me trust them more because either their sound or not.

~~~
colbyh
Sure, it's interesting to know (even if there's no way to verify what he's
saying is correct), but it starts to come off as passing the buck. I think
your perspective on the HN crowd might have been more valid 3-4 years ago but
let's not pretend like it's still the same group of people.

We use Zenefits and (AFAIK) have no issues with the service. Just throwing it
out there that a little reassurance goes a long way.

~~~
ddispaltro
Yeah I agree on both points. Nothing really substitutes knowing (and hearing)
someone is in your corner.

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sschueller
$4.5B Valuation for an SaaS business that doesn't charge for it's service and
makes money from commissions?

Did they invent something no one else can do? Why would insurance companies
not just scrap the middle man and build their own thing?

~~~
Goronmon
_Did they invent something no one else can do? Why would insurance companies
not just scrap the middle man and build their own thing?_

I once worked for a company that built smaller products for insurance
companies. No really big ones, but a decent representation of the market. We
would put together an update for what was an internal application, and
sometimes it would take 6-8 months or more for them to get around to deploying
the new version to their users, assuming they didn't decide to just hold off
for the next version for some reason or another.

These companies are pretty absurd in how slowly they move with anything,
especially anything technology related.

~~~
jccodez
I think there are some big players who do daily if not weekly releases. I
worked for one. It is all tenant shared and they push client specific changes
on a regular basis.

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tomblomfield
"If you think about it like we’re driving a car, we want to go extremely fast
at an extremely high speed, and go very far,” [CEO] Conrad said. “And if you
want to do that you’re gonna burn a lot of gasoline. So this round we had to
do the mother of all pit stops for gas and beef jerky, to continue building at
the speed that we’re going."

~~~
cylinder
Going extremely fast at an extremely high speed also frequently results in a
fatal accident.

~~~
austenallred
Yes it does. It also wins races. Conrad recognizes that risk and is taking it.

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kauffj
A fella named Kevin from Zenefits sent me email once asking about our human
resource needs.

I told Kevin that we have no need for human resources since our company was
run entirely by strong AI. I signed it, Yours in the Singularity.

Kevin never emailed me back.

~~~
chinathrow
So essentially, he spammed you?

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nolok
No no no, this is a funded startup, he used the power of social relationship
and communication medium to reach out and generate interest

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BinaryIdiot
We're using Zenefits at the current start-up I'm at. It's not half bad. I am
only a user so I can't speak for how the entire system works but from my
perspective it took all of the annoying HR, payroll and insurance paperwork
and put them into a single place where I can always access it, digitally sign
it and fill it out / update it. This is the first place where I didn't have to
manually sign up or print anything which was great.

It's a valuable service in my opinion and I'm surprised there are not more
companies that make this stuff all together. $4.5 billion valuable though? I'm
not sure especially since I'm only seeing the user side, not the management
side.

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blairanderson
Seriously anyone working to create just a brokerage these days is pathetic in
comparison to zenefits.

Also, zenefits knows that they don't really have a moat. Anyone with a
brokerage license can come along and follow their model. They need to blow up
while nobody is chasing them.

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tvanantwerp
My company had considered to switching to Zenefits, but decided to stick with
the local middleman we've already got. The difference, according to HR, was
that he knew for certain that a phone call to the current rep would fix almost
any weird issue--with Zenefits, despite the convenience of doing things
online, he couldn't be sure that was the case.

~~~
eatbuckyballs
No to mention their platform is still far off from what i'd call user
friendly. I have to download excel sheets, edit them and upload? Really??

~~~
mgkimsal
depends on the user as to what's friendly...?

not used zenefits, but I've got several apps where I end up doing just that,
because the target audience is so used to excel, that anything short of excel
is a really bad experience for them. as I can't embed excel directly in,
down/uploading excel files is the next best thing (for now).

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pxlpshr
I'm the first tweet on their homepage expressing my profound love for
Zenefits. Great product, my praise is authentic.

Happy to see they've raised a boatload of capital. I look forward to more
product development and additional customer support resources. If I had the
means to invest at a $4.5B valuation, I would.

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gregorycarter
Does anyone know of a Zenefits like business that serves the UK?

I've not come across anything close and HR administration is just as big of
pain in the UK as the US. I recognise the business model (commissions on
health insurance) wouldn't work in the UK, but I'd be happy to pay. Our health
insurance costs are so much lower anyway....

~~~
cissou
YOU'd be happy to pay, but maybe not the rest of the UK companies (or not that
much, or not today, etc.). SO the growth of a UK-based Zenefits-clone will be
much, much slower, and maybe never reach profitability. So I wouldn't count on
that too much :/

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jccodez
I do not see it. I worked forMarsh & McLennan Companies, Inc. It has been
around for years, has billions in revenue, and owns Mercer HR Services with
customers like Toyota Motor Corp., Halliburton, American Airlines and many
many others. They have a platform, SASS model, and nothing much different that
what zenefits is doing. Even in the mid market they are extremely competitive.
I do not see this is worth 4.5 billion dollars.

~~~
joncalhoun
I suspect that if HN had been around when Google was raising we would have
read the same type of comments there.

Based on the numbers in the article, they could very well be in the billions
of rev within a few years if they can maintain the growth.

~~~
bane
The problem I have with valuations is that they're supposed to somehow reflect
what somebody might pay to buy the company. But because of the hamfisted way
they're calculated they seem to be so huge or so small (depending on the case)
that they're essentially meaningless.

For example, here's a company operating in an ultra-competitive space, from a
fairly interchangeable position (middle-man) that has a supposed value on the
market that's 225x what they expect to bring in in revenue during 2015. And
they're losing 5x their projected revenue in customer acquisition costs (yeah
yeah, growth stage and all that). "Valuation" as a term is clearly divorced
from actual business realities.

People who claim to be smarter than I will say "but the investors figure the
company's market position in through their N-round investment terms". So what
do I know?

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diminoten
Holy shit, now _that 's_ a slide deck I'd like to see.

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scurvy
I don't get the hubbub about Zenefits. They offer a commodity service for no
fee, but offer worse plans at higher rates? I've heard there's some merit to
using them when your company is really small. But our finance and HR teams
whines about them incessantly -- saying how they can't handle larger companies
well. I know their ADP payroll integration is terribad.

I just don't get the $4.5B valuation other than they don't make any money.

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phil248
We have Zenefits at my job and it really is amazing. All workers should be so
lucky to have that type of interface for their benefits.

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shah_s
What exactly are they spending the money on? Is it marketing? I assume their
overhead should actually be very low.

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ukd1
Congrats guys, this is awesome! :)

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redwood
$20M ARR... $5B Val?

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triangleman
jbob2000, you are hellbanned, that means every comment you've made for the
last few weeks has been hidden from this forum.

~~~
BinaryIdiot
Not to go off topic but this is a thing on HN? That's psychologically
terrifying (though I'm assuming deserved). How does it work, exactly? Is it
permanent? Just curious.

~~~
GFischer
I think it's permanent.

pg defended it here:

[https://news.ycombinator.com/item?id=6060954&utm_source=dlvr...](https://news.ycombinator.com/item?id=6060954&utm_source=dlvr.it&utm_medium=tumblr)

(I'm not a moderator here, though I was in another high-profile site) In
particular, jbob2000 made several low-quality or sarcastic comments, not very
in line with what HN wants.

The one that probably triggered the hellban:

[https://news.ycombinator.com/item?id=9382992](https://news.ycombinator.com/item?id=9382992)

was a sarcastic:

"Oh no! Giving something away for free! The travesty!"

but he had others like:

"Foursquare? What is this, 2009?"

which don't contribute that much.

~~~
BinaryIdiot
Ah thanks for the clarification. Today I learned.

~~~
dang
We're working on some major changes to how banning and flagged/dead comments
work, so please put a mental asterisk alongside all of this. Assuming our
changes hold up in testing, the community will soon be managing most of it.

~~~
BinaryIdiot
> the community will soon be managing most of it

I see this as an awesome thing and as a horrible thing at the same time. Color
me interested, ha.

~~~
dang
Note that word _most_. I'm hopeful we can find a good balance.

