After Zenefits, Will VCs Rein in Their Unicorns? • Hacker News Board

Re: After Zenefits, Will VCs Rein in Their Unicorns?

#31

Post by 467568985476 » Wed, Feb 17, 2016, 2:19 AM UTC

phibit wrote: post #26

JonFish85 wrote: post #18

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.

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...

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.

Re: After Zenefits, Will VCs Rein in Their Unicorns?

#32

Post by interesting_att » Wed, Feb 17, 2016, 2:20 AM UTC

jsprogrammer wrote: post #5

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

It's important to note that when the investment was made, enterprise tech companies (like Workday) like were getting a really high valuation, whereas consumer tech companies weren't doing so well. Investors like a16z probably wanted to invest as much as possible before the enterprise IPO market would go south. Moreover, I am sure investors probably had strong liquidation preferences, ensuring a profit in the case of an exit or IPO.

We're now seeing the downsides of their thesis. Workday's market cap has since cratered, down 33% in the past year, indicating a weakening interest in the enterprise IPO market. Zenefits itself has a number of growing concerns- regulatory and competition concerns (ADP is only getting better by the day).

Re: After Zenefits, Will VCs Rein in Their Unicorns?

#33

Post by jmspring » Wed, Feb 17, 2016, 2:24 AM UTC

mrshoe wrote: post #30

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…

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.

Re: After Zenefits, Will VCs Rein in Their Unicorns?

#34

Post by pj_mukh » Wed, Feb 17, 2016, 2:27 AM UTC

phibit wrote: post #26

JonFish85 wrote: post #18

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.

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...

If everyone agrees it is a "silly" requirement (especially because it was circumvented so "easily"), why are we so mad at Zenefits?

We certainly don't want giant companies influencing policy changes (though, that happens frequently). I think a good indicator of whether a policy can justifiably be circumvented is if it actually hurt anybody. Has the "macro" hurt anybody yet? The articles have been vague.

Re: After Zenefits, Will VCs Rein in Their Unicorns?

#35

Post by easong » Wed, Feb 17, 2016, 2:29 AM UTC

geofft wrote: post #23

rajacombinator wrote: post #15

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.

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 conce…

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.

Re: After Zenefits, Will VCs Rein in Their Unicorns?

#36

Post by steele » Wed, Feb 17, 2016, 2:30 AM UTC

mrshoe wrote: post #30

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…

Possibly due to word count incentive

Re: After Zenefits, Will VCs Rein in Their Unicorns?

#37

Post by rhino369 » Wed, Feb 17, 2016, 2:31 AM UTC

JonFish85 wrote: post #18

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.

Dodging the law is risky but can have upsides. Maybe you get Aereo'd or maybe you can pull an Uber. Both airbnb and Uber exploited holes in current regulation.

Just breaking the law is stupid.

Re: After Zenefits, Will VCs Rein in Their Unicorns?

#38

Post by tyre » Wed, Feb 17, 2016, 2:35 AM UTC

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.

Re: After Zenefits, Will VCs Rein in Their Unicorns?

#39

Post by dufalop » Wed, Feb 17, 2016, 2:35 AM UTC

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)

Re: After Zenefits, Will VCs Rein in Their Unicorns?

#40

Post by sandworm101 » Wed, Feb 17, 2016, 2:37 AM UTC

mrshoe wrote: post #30

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…

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.