Jun 10, 2024 - Business

Rippling bans share sales by ex-employees who now work for rivals

Illustration of a pile of money surrounded by a red velvet rope

Illustration: Sarah Grillo/Axios

Rippling, the Silicon Valley onboarding juggernaut founded by Parker Conrad, has banned ex-employees from participating in a large stock tender offer if they currently work for any of eight rival companies.

The stakes: The tender is for $590 million of shares at a $13.5 billion valuation.

  • A source says that there was over $2 billion in sell-side demand. This is despite the aforementioned ban, plus unrelated restrictions on RSU holders, company co-founders, and post-Series B investors.
  • The decision was first reported by TechCrunch, confirmed by Axios, and heavily debated on social media over the weekend.

The big picture: Privately held companies like Rippling are not obligated to launch shareholder tender offers. And, if they do launch one, they're under no obligation to offer shares to ex-employees (some companies do, more companies don't).

  • In fact, the only legal responsibility that tendering companies have is to provide financials and material disclosures to potential participants, all of whom receive them under NDA.
  • It's these disclosures that Rippling used to justify its ban on ex-employees at rival companies, arguing that providing such information would put it at a competitive disadvantage.

Zoom in: Just because you don't have to do something doesn't mean that you shouldn't do something.

  • Ex-employees who vested stock options helped generate the value being recognized in a tender offer. Excluding them feels punitive in a tender with over half a billion dollars available. Current employees see how their former colleagues are being treated.
  • The disclosure concerns are understandable, but overstated. If large rivals to Rippling don't know the broad strokes of its financials, then they're not worthy rivals.
  • And if Rippling really thinks an NDA will stop dissemination of its data — despite sending it to hundreds of individuals and investors — then it's being unrealistic.

The bottom line: Startup stock tenders have become more prevalent and important as companies stay private longer. As such, they're also under more scrutiny.

  • What Rippling did was defensible, but the better case could be made for having done it differently.
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