ZENEFITS

Founders: Parker Conrad, Laks Srini
Key people: Jay Fulcher (CEO)
Number of employees: ~1,000

Zenefits is a company based in the United States that offers cloud-based software as a service to companies for managing their human resources, with a particular focus on helping them with health insurance coverage.

Zenefits is headquartered in San Francisco, CA with offices in Tempe, AZ and Vancouver, Canada.

History

2013

Zenefits was started by its ex-CEO Parker Conrad and Laks Srini, Conrad’s colleague and a software engineer at Sigfig, to help startups and small businesses find insurance quotes and manage employee benefits in one place. It officially launched on February 18, 2013.

In 2013, Zenefits, which had been operational only in California and New York, announced that it was rolling out to the other 48 states in the United States, albeit only for businesses with more than 20 employees.

2014

In 2014, the company announced the addition of commuter spending, flexible spending, and 401(k) support in an attempt to replace the more mundane functions currently handled by companies’ human resources departments. The company also announced support for stock options in its cloud HR platform.

In November 2014, Zenefits opened an office in Arizona. The Wall Street Journal discussed the rapid growth in Zenefits’ own workforce as it scales to cope with a growing clientele.

2015

In May 2015, payroll provider ADP blocked Zenefits from accessing payroll information on behalf of Zenefits customer In a post on the company’s blog, Zenefits alleged ADP was spreading “fear, uncertainty and doubt” about Zenefits data security due to worries about increased competition. In June 2015, ADP filed a lawsuit accusing Zenefits of defamation.

In October, 2015, ADP dropped the defamation lawsuit. As of November 2016, Zenefits continues to offer ADP integration capabilities for its customers.

In November 2015, Zenefits announced a payroll product in limited release.

2016

In 2016 an internal legal investigation at Zenefits found the company’s licensing was out of compliance and that Parker Conrad, co-founder and former CEO had created a browser extension to skirt training requirements for selling insurance in California. After self-reporting these issues, Zenefits hired an independent third party to do an internal audit of its licensing controls and sent the report to all 50 states. The California Department of Insurance as well as the Massachusetts Division of Insurance began investigations of their own based on Zenefits’ report.

Parker Conrad resigned as CEO and director on February 8 and COO David O. Sacks was named as his replacement. Shortly after becoming CEO, Sacks issued a memo to employees in which he banned the consumption of alcohol in the Zenefits offices. “We operate in a highly regulated industry,” he wrote, “and it’s important to set the right tone in the office. The new policy helps to achieve this and communicate that we are committed to operating with integrity.” Days later, The Wall Street Journal dug up an old Zenefits facilities memo from a year previous telling employees that “Cigarettes, plastic cups filled with beer, and several used condoms” had been found in the stairwell of the building. Zenefits was quick to point out that they share this stairwell with dozens of other businesses. When asked about the incident at TechCrunch Disrupt SF, Sacks said “A lot of the stuff was obviously the media getting carried away. That was not something that happened. That story — there was no truth to it at all.”

On February 26, Zenefits laid off 17 percent of its employees, or 250 people. In June the company laid off another 9 percent (106 additional people) and offered existing employees a two-month severance package named “The Offer.” Employees were given two days to decide whether to accept “The Offer.” In a memo, CEO David Sacks told employees, “As you consider your options over the next two days, please know that the company isn’t making The Offer because we don’t want you. We do want you, but we want the best of you. We want you winning core value awards. We want you prototyping a great idea at Hackday. We want you staying late to help out on a project. We want you busting ass on Z2. The next few months are going to be an exciting time at Zenefits and we want everyone participating in that.” Reportedly, fewer than 10 percent of employees took Sacks’ offer.

In June 2016, in an effort to reconcile with investors, Sacks announced an agreement that increased the ownership of Series C investors from 11% to 25%, re v a luing the Series C to a $2 billion valuation from an original $4.5 billion valuation.Series A and B investors received a small adjustment to offset the dilution as well, while non-executive employees received a stock grant of up to 25% of their shares at the time (which would vest in 12 months) to ensure they were not “negatively impacted by [the] agreement.”

Shortly after, Zenefits reached its first state regulatory settlement with Tennessee in July 2016 for $62,500, four months after the company’s initial self-reporting of compliance issues to the states in which they had been operating. Settlements with Arizona, Delaware, Minnesota, New Jersey, and South Carolina followed in September. As of October 2016, Zenefits has also reached settlements with California, Washington, Virginia, and Texas, with more negotiations underway.

In October 2016 Zenefits gave a keynote address at Dreamforce, and announced it was making its Licensing + app free, which it built on top of Salesforce. Later in October, it launched Z2, the next generation of its platform, at the company’s first user conference.

On November 28, 2016, Zenefits was fined $7 million by California’s insurance regulator, marking the biggest penalty yet for the startup that has faced multiple investigations for flouting insurance laws.  California Insurance Commissioner Dave Jones said in a statement posted on the state insurance department’s website that Zenefits was charged with allowing unlicensed employees to sell insurance and circumventing education requirements for insurance agents. Zenefits will not have to pay the full $7 million to California up front. In recognition of the changes already made by Sacks, the insurance department said half of the fine will be waived if the company passes an exam of the company’s business practices scheduled for 2018.In addition to the $7 million fine, Zenefits must pay California $160,000 toward the costs of its investigation. California, Zenefits’ home state, was considered the most important resolution, and other states are expected to follow its lead.

2017

On February 6, 2017, Zenefits announced its appointment of Jay Fulcher as chief executive officer and chairman of the board, replacing David Sacks, who in early December said he would step down. Prior to joining Zenefits, Fulcher served as president and CEO of Ooyala, president and CEO of Agile Software Corporation, executive vice president at PeopleSoft and vice president at SAP.

On February 9, 2017, Zenefits announced it would be laying off 45% of its workforce as a way to “move toward an operating model that is sustainable and better reflects the needs of our current business” as noted by Fulcher in a memo sent to employees. “It is part of an overall turn-around program that began a year ago to correct regulatory compliance issues, reset our culture and values [and] increase operational efficiency,” Fulcher wrote. “Today’s action aligns our costs more closely to our business realities and gives us the runway we need to build the business properly for the long term.” A public statement released by Zenefits noted that the layoffs will help it centralize its operations in Arizona and that it also plans to build out product and engineering teams in Vancouver and Bangalore, in addition to its San Francisco team.