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After Zenefits, Will VCs Rein in Their Unicorns?

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

#51

Post by skewart »

pj_mukh wrote: post #34
phibit wrote: post #26

Earlier quoted context omitted.

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.

The problem is that they were getting the advantages of being licensed while not actually following proper procedure for licensing. They were effectively lying to everyone. Sure, it's a pretty harmless lie, but I can see how people in the industry would be pissed.

Lyft and Uber skirt similar kinds of regulation but they're completely up front about it. They don't pretend that their drivers are licensed or claim any benefit for having licensed drivers in any way. They're simply offering a different product than what taxis offer - getting a ride with a random unlicensed stranger. They're not trying to get the best of both worlds - the legitimacy of being licensed and the cost saving of not bothering with it.

Lyft and Uber, and Airbnb too, are simply offering a new product that doesn't come with any reassurance for consumers from regulatory compliance. They're betting that reputation systems (ratings, reviews, etc.) will provide assurance for consumers just as well if not better than government regulation. So far the market is showing they just might be right.

I suspect that if Zenefits had offered a platform where anyone can sell insurance to anyone from the beginning then people would be less pissed about it. Of course offering an unlicensed insurance brokerage product would probably be a lot harder to pull off than offering an unlicensed taxi product.

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

#52

Post by twright0 »

sandworm101 wrote: post #40
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…

> Successful startups all, and I mean ALL, have serious compliance issues.

This feels like a very hyperbolic claim. There are definitely high-profile examples of startups that had compliance issues and are struggling to bring them under control or remain in arguably grey areas (Zenefits is an example of the former, Airbnb the latter). But it's hard to imagine that it's a truly universal problem; many startups are in industries without heavy regulatory rules. Can you elaborate on what makes you believe this to be the case?

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

#53

Post by timv »

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.

I'll leave aside the question as to whether individuals faking their 52 hours is "ethically or morally wrong".

For Zenefits/Parker to facilitate and encourage their staff to do it is most certainly ethically wrong.

Telling your staff that they should cheat the rules, sign a false document and perjure themselves is completely unacceptable. Zenefits employees face the risk of jail time because they did what their CEO told them to do - that should never happen and Parker deserved to go for that reason alone.

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

#55

Post by chejazi »

rhino369 wrote: post #37
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.

Breaking the law is part of the "disruptive" entrepreneurship strategy for these companies. Incumbent companies tend to influence the law, not necessarily break it. For a disruptor to break the law, the company needs a lot of money to fight back.

Airbnb and Uber are managing to fight the regulatory hurdles with ~5x is ~13x the valuation of Zenefits, respectively. While Zenefits is ~5x the valuation of Aereo, it seems they have some catching up (read: fundraising) to do.

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

#56

Post by optimusclimb »

minimaxir wrote: post #25
pbreit wrote: post #17

I'm not sure there's a whole lot from this story to apply elsewhere. David Sacks is who you want to be running the show. He has 2 fairly epic successes under his belt (PayPal and Yammer), one of the keenest product minds in the business, nearly unlimited access to funding and talent, moral authority as a founder and lawyer and operator to clean up the mess, etc.

"Don't break the law" is arguably a good lesson many startups could learn.

Doesn't the YC application process ask you about clever times you've hacked the system or painted a little outside the lines?

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

#57

Post by tommynicholas »

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.

I work building compliance software, and the Zenefits situation stood out to me immediately as very different from other stories. Ben Thompson nailed the reasons why - the comparison doesn't hold:

https://stratechery.com/2016/zenefits-and-regulation/

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

#58

Post by timv »

pj_mukh wrote: post #34
phibit wrote: post #26

Earlier quoted context omitted.

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.

Has the "macro" hurt anybody yet?

The employees who used it and then signed a false declaration are at risk of jail.

That was their choice, but they were seemingly under pressure from their CEO, so it seems fairly evident (to me) that Parker created a real problem for his team, even if the customers are OK.

[Edit: Removed out-of-place "committed"]

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

#59

Post by sandworm101 »

twright0 wrote: post #52
sandworm101 wrote: post #40

Earlier quoted context omitted.

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…

> Successful startups all, and I mean ALL, have serious compliance issues. This feels like a very hyperbolic claim. There are definitely high-profile examples of startups that had compliance issues and are struggling to bring them under control or remain in arguably grey areas (Zenefits is an example of the former, Airbnb the latter). But it's hard to imagine that it's a truly universal problem; many startups are in…

A successful startup is one that has grown rapidly in recent years. No growth = not successful, and not recent = not a startup. Any tech company that grows quickly starts bumping up against any number of compliance issues, both legal (ie HIPAA) and private (ie PCI). Today's growth curves don't keep pace with many of these regulations. As you expand laterally into new markets you constantly run into new obligations. And as you expand vertically (increased sales) you trigger new expectations, especially the PCI DSS. The chances of anything rationally called a startup having accommodated these things is astronomically low.

Ask any tech lawyer to list all the laws applicable to a startup. Bring a lunch. Until a company has devoted resources (ie a full-time compliance team including lawyers) and has a decade or so of experience with the relevant rules, imho proper compliance is a pipe dream. At best you can hope to keep the wolves away long enough to get whatever they want ready asap.

Anyone here working at a startup, just have a look at the PCI DSS, specifically the SAQ you are meant to fill out every year (if you handle credit cards). And this is basic compliance 101 stuff, no lawyers required.

https://www.pcisecuritystandards.org/documents/SAQ_D_v3_Merc...

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

#60

Post by tommynicholas »

This is such nonsense. Zenefits allegedly broke the law under Conrad's leadership and he was ousted. This is not a sign of any macro changes - companies that break compliance regulations that could send their employees to jail have never been in fashion.

Read Ben Thompson's piece about how this differs from more "gray area" compliance breaches:

https://stratechery.com/2016/zenefits-and-regulation/

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