[HN Gopher] Rippling raises $500M in emergency funds after SVB f...
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Rippling raises $500M in emergency funds after SVB fails
Author : tosh
Score : 79 points
Date : 2023-03-17 23:41 UTC (23 hours ago)
(HTM) web link (www.bloomberg.com)
(TXT) w3m dump (www.bloomberg.com)
| [deleted]
| triyambakam wrote:
| Isn't it crazy to hold $300M just sitting in the bank? I have
| pennies for a net worth comparatively and I was taught to keep my
| money spread around, and not all of it just in cash in the bank.
| But also, I am ignorant to how a start up operates.
| sparker72678 wrote:
| Rippling processes payroll for many companies, so they often
| have substantial amounts of money (which came from those
| companies) sitting in the bank, about to be paid out to
| employees.
| ucm_edge wrote:
| You don't have to use a singular bank to this. You have can
| have numerous banks in and sweep the money around to control
| exposure to any one bank. A single bank is not the norm for
| this kind of setup. Sweep accounts are a thing for this very
| reason.
| x0x0 wrote:
| For long term holding, sure. For funds that move in and out
| in 48 hours? I doubt any bank wants money bouncing in and
| out like that. They probably pay svb, and now jpm, to be
| allowed to do that.
| makestuff wrote:
| Yeah my first thought was I am absolutely shocked that they
| used SVB exclusively until 9 months ago. Now they use JPM,
| but what if JPM has an issue? You would think a payroll
| company would integrate with at least 2-3 of the bulge
| bracket banks...
| dig1 wrote:
| Using sweep accounts is considered an investment (of client
| funds), which must be clearly stated in TOS. This also
| pulls tons of regulations for the company. There is also a
| higher chance that one of the sweep account investments
| goes badly than a bank collapses where you hold client
| funds.
| swyx wrote:
| most large companies with that kind of cash dont usually put it
| in the checking account like you or i are used to. they have
| treasury operations with actual traders who buy and sell short
| dated tbills and other extremely secure assets to improve the
| yield on their cash.
| awad wrote:
| They pull the money out of their customers bank accounts first
| before disbursing it via payroll, so that $300M figure is
| really customer funds.
| bastawhiz wrote:
| Most of that money was their customers' money (e.g., money for
| payroll). You can't just go invest your customers' funds. Well,
| I guess you could, but I expect there are tons of regulations.
| And you'd potentially end up in the same exact situation as
| SVB: not having enough liquidity to pay out your customers if
| they ask for their money. Or, your investments are underwater
| and you don't actually have enough assets to cover the funds
| your customers have entrusted you with. (Certainly, banks do
| this, but you're also usually not paying the bank to hold onto
| your money for you. Whether banks should be allowed to invest
| your funds at their discretion is another conversation)
|
| Should Rippling have spread those funds out over multiple
| banks? Maybe. But more moving parts means more room for error,
| more complicated accounting, and more operational overhead.
| There is (was?) a compelling argument that you're more likely
| to goof up juggling $300M than a bank like SVB is.
| nntwozz wrote:
| The Federal Deposit Insurance Corporation (FDIC) closed 465
| failed banks from 2008 to 2012. In contrast, in the five years
| prior to 2008, only 10 banks failed. Things could get much worse.
| ilrwbwrkhv wrote:
| He's also a big fan of Conrad's, who resigned from corporate
| software startup Zenefits amid accusations of skirting
| regulations and ultimately settled with the US Securities and
| Exchange Commission.
|
| "I would shout from the rooftop that this is a person who
| operates with high integrity," Mehta said.
|
| Lol. Seems like another Sequoia style fanboy in the making.
| simonebrunozzi wrote:
| > Rippling's existing investors include Kleiner Perkins,
| Sequoia Capital, Coatue Management and Founders Fund.
| jiveturkey wrote:
| So Rippling took on an extra 4% dilution, without an increase in
| valuation to show for it, because of SVB liquidity? Why didn't
| they just take an emergency loan?
| m3kw9 wrote:
| Thought the money was available guaranteed by fed by following
| monday
| muzz wrote:
| The whole article appears to be about a few hours on Friday
|
| The entire SVB situation was made to be much ado about nothing
| by self-promoters. You didn't see veterans from Sequoia,
| Kleiner, etc, screaming on Friday.
| neonate wrote:
| https://archive.md/v4jnv
| matt3210 wrote:
| Do they handle harassment? Or just financial sides of HR?
| elijahbenizzy wrote:
| Rippling is awesome, no complaints as a founder. That said, does
| anyone know how much of this sale was Parker conrad's own shares?
| rvnx wrote:
| I don't get it, if all SVB clients recovered their funds "thanks"
| to the government intervention 0 (or 1) business day after the
| collapse, then how is their money needs related to the situation
| with SVB ?
| bagels wrote:
| I had the same question, which is answered in the article.
| These events took place before it was known that they would
| regain access to the funds.
| moralestapia wrote:
| Quite impressive to just go out and raise $500M "in a hurry".
|
| As other commenters said, it was probably under unfavorable
| for terms for them.
|
| That's bad but if I were an investor w/ them I would be fine
| with their actions, history could've been different and this
| same thing would've been an amazing feat. to keep Rippling
| afloat after "losing" $300M.
|
| Great leadership, I think they'll do well!
| rvnx wrote:
| Thanks :)
|
| I would take it as a bad news though, because if they raised
| in a rush, it means they had likely unfavourable conditions,
| but why not.
|
| And if it's money that they didn't need, it means they are
| paying interest for something they don't use.
| jgalt212 wrote:
| So legitimate use do they have for the funds now?
| Etheryte wrote:
| You're overlooking the minor fact that in the process, SVB as a
| company functionally ceased to exist. If you're a company and
| want to keep existing you don't want to end up in that
| situation.
| rvivek wrote:
| Wow, I'm surprised at the level of cynicism here. As a startup,
| the last thing on your mind is trying to optimize for a situation
| when a major bank collapses that too in a matter of days. There
| are many more urgent fires to put off. Sure, as a payroll
| company, you may wonder if this is indeed an edge case they need
| to take care of but the way the team, VCs harnessed in such a
| short period of time to delight customers is commendable. Think
| about all the things that needed to happen.
|
| --> Move the primary banking provider from SVB to JPMC.
|
| --> Get a set of engineers to have all-nighters to ensure the new
| payment system actually works. This is hundreds of millions of
| dollars worth of risk.
|
| --> Raise $500m(?!!) in 48 hours to fund the payroll without any
| assurance from FDIC whether depositors are going to get the money
| back or not.
|
| --> While doing all of this, respond to a massive influx of
| support tickets.
|
| What this really shows is they are willing to go to a crazy
| extent (raise $500m in 48 hours!) to delight customers.
|
| FWIW, I'm not affiliated with Rippling in any way but I do have a
| ton of respect for Parker for his ability to bounce back after
| the Zenefits debacle.
| fierro wrote:
| totally agree. nice take.
| voganmother42 wrote:
| As a customer, are you delighted if the outcome is effectively
| that they did not fail to provide service?
|
| Glorifying heroes and all nighters...more like celebrating a
| near miss/catastrophe
| rat9988 wrote:
| Coud they have done any better?
| voganmother42 wrote:
| is that your standard for delight?
|
| As a customer I am not sure I would even be delighted to
| not have to worry in the first place? Like great your
| business didn't fail and cause me more issues - do I get a
| discount now for all the stress?
|
| As James Acaster might say, I am too good for a free
| banana, and il reserve my delight for situations where I am
| actually delighted, not just delighted to not be up a creek
| ;)
| rat9988 wrote:
| Yes, you should be delighted. Normal work of operations
| is only guaranteed in normal circumstances. Any unusual
| castrophic situation is grey area, at best.
| 71a54xd wrote:
| VC's are licking their chops - SVB fallout even though most of
| the fire was put out is leading to many of these companies
| forfeiting more equity to raise quick cash.
| gnicholas wrote:
| From the TC article [1], which is a bit more detailed:
|
| > _Though Conrad might have tried backing out of the arrangement,
| instead, says Mehta, Conrad called him three minutes after the
| Federal Reserve made its statement on Sunday, reaffirming it._
|
| So he didn't end up needing the funding but knew it was the right
| thing to do to move forward with the investment (and the dilution
| it undoubtedly entailed). Good to see this sort of honorable
| behavior, even in the worst of times.
|
| 1: https://techcrunch.com/2023/03/17/a-500-million-term-
| sheet-i...
| PragmaticPulp wrote:
| > The deal came together in about 12 hours after Rippling went
| scrambling when it couldn't get $300 million that was frozen at
| SVB when it collapsed on Friday, according to Rippling co-founder
| Parker Conrad.
|
| Raising $500 million emergency cash after just because they lost
| access to $300 million doesn't quite add up.
|
| This feels more like another funding round that was maybe pushed
| forward due to SVB concerns.
| lowkey_ wrote:
| During the SVB crisis, Rippling was holding $300M in SVB, much
| of which was actually Rippling customers' money that had been
| stored by Rippling for March 15th payroll.
|
| I'm no lawyer, but when Rippling started emailing me "hey, your
| payroll money is actually with SVB and we need you to contact
| your bank to try and reverse the payment," my first thought was
| "isn't it your job to make sure my payroll safely reaches my
| employees?"
|
| I imagine they had to make sure all their customers were made
| whole and quickly even if SVB money wasn't able to be
| recovered, and then decided it would be a good plan to always
| have more than enough cash to cover the payroll they're holding
| for customers.
| ucm_edge wrote:
| At my company they still initially failed to make payroll.
| Eventually around 6 pm Pacific on the 15th the direct
| deposits started landing for most people. Although not
| everyone.
|
| I think they did it via some kind of one off point process
| since I didn't get an email and the Rippling web app didn't
| show me as paid until midday on the 16th. Normally those
| occur at the same time I see the direct deposit hit.
|
| Very unhappy with Rippling here and will advocate my company
| change processors. They initially acted as if they would cut
| over to JPMorgan and be fully up on Monday, but as time goes
| on it becomes clear they had to do a lot more than just
| change the account they staged payroll through.
|
| They also failed to have a secondary banking relationship in
| place, credit revolvers or other contingencies that let them
| handle this in house, etc. In 30 years of getting paid and
| working through times like 2008 when major disruption to
| banking and credit availability occurred, to me Rippling
| stands alone as the only company that failed to run payroll
| on time and it took a single point of failure to make them
| fall.
| RileyJames wrote:
| I mean, the bank failed on Friday. They managed to get
| payroll out delayed a few days. It was a fast moving
| situation for everyone involved.
|
| Being told that JPMorgan is taking over the deposit, and
| knowing your payroll payment automations are going to work
| a different things. I imagine they had to test, and likely
| rewrite them. Wiring $300M of pay checks as a "we'll do it
| live" scenario seems unwise.
|
| You've every right to be upset. But how long do you think
| it would take another payroll provider to recover after
| losing all funds due to their bank going under? 2-3 days
| seems pretty impressive.
| travisjungroth wrote:
| If it's the 16th that's 4 business days. But I agree,
| going through all the trouble of switching payment
| processors because you hope if the bank they're using
| fails they'll get back up and running in less than 4 days
| is a _horrible_ ROI.
| ucm_edge wrote:
| Most payroll process have relations with multiple banks.
| They have emergency credit revolvers in place. They are
| resilient to single point of failure. Rippling has shown
| it not.
| travisjungroth wrote:
| The bank died with payroll in flight. If they had
| alternates it would have been faster, but like Monday or
| Tuesday. 1-2 days instead of 4.
|
| No payroll processor could have made payroll on time in
| this situation. If you overnight a letter from SF to NYC
| and the plane crashes on landing, the replacement letter
| is definitely going to be late.
| danenania wrote:
| Well, everyone supposedly has a plan until they get
| punched in the nose. I'm skeptical that any payroll
| provider would be fully resilient to their primary bank
| failing. They'd need to have a 100% reserve in a
| secondary account _and_ have instant failover logic in
| place to update payment flows for all customers. Doesn 't
| sound likely.
| borissk wrote:
| Used to work for a big payroll provider - eventually they
| bought their own bank.
| nrmitchi wrote:
| Advocating that a company change payroll processors over
| this single incident seems like a drastic over-reaction.
| ucm_edge wrote:
| I am advocating for the fact that Rippling was not
| transparent in their communication and was too complacent
| to have a Plan B in place despite having 300 million in
| play. It is not the single incident is the exposure of
| poor practices and dishonesty during their disaster
| recovery.
|
| To put it another way, I have been paid via direct
| deposit for over 30 years and multiple fiscal crises.
| There is only one company that ever failed to get full
| payroll out on time
| noisenotsignal wrote:
| This isn't necessarily a useful anecdote though. If your
| previous payment processors weren't using a bank that
| failed during that time, then you getting paid on time
| isn't a sign of redundancy; they were just fortunate!
|
| It might be fair to say that Rippling failed by choosing
| the wrong bank, but that's a very different argument than
| saying that Rippling didn't have a good backup plan. If
| all you're going by is that you've always gotten paid (vs
| say knowing who your payment processor banked with and
| what their Plan B in case of bank failure was), for all
| you know your previous payment processor had no backup
| plan either!
| yeahsure22 wrote:
| Yeah I think ADP has one account at the East Piscataway
| Chemical Savings and Loan. If that bank failed the same
| thing would have happened to ADP. Rippling definitely
| didn't expose themselves to excessive risk for no reason
| other than their inexperience.
| steve76 wrote:
| [dead]
| yowlingcat wrote:
| What you're advocating for could be cause unintended
| consequences, a case of potentially making for scar tissue
| worse than the initial wound. Rippling does a lot more
| things than just process payroll. Unbundling it would
| probably be a full time undertaking for your company's HR
| team depending on how large you are, and they may end up
| with a benefit and payroll stack that works a lot more
| poorly.
|
| With that said, I am sure a lot of executive teams are
| reconsidering usage of payroll processors who aren't ADP
| for the same reason a lot of folks have moved funds to JPM.
| Flight to security and all that. It's not an illogical
| reaction to have from your end.
| m3kw9 wrote:
| You need a little cushion and it's silicone valley, just round
| it up to a 5
| the_cat_kittles wrote:
| [flagged]
| [deleted]
| coding123 wrote:
| [flagged]
| [deleted]
| spawn_camp wrote:
| [flagged]
| gkoberger wrote:
| There was no "bailout". As of right now, the government hasn't
| spent a dollar on SVB. It might have to eventually, if SVB
| continues to see a run, but as of right now the government
| hasn't put any money into the bank.
| landemva wrote:
| FDIC has spent funds. Drawdowns in FDIC reserves will be
| caught up with future assessments on insured banks. Anyone
| with a bank account will pay, though silently.
|
| Edit: I am interested in seeing something published by FDIC
| which shows precise amounts, if anyone has that. I presume it
| could be ~ 250k * count(accounts).
| ivalm wrote:
| No, for now SVB assets are enough to pay for all of the
| drawdown. It is unclear if SVB will actually run out of
| assets.
| landemva wrote:
| For now the Fed's newly created bank funding term loan
| mechanism is plugging the hole by having the Fed take
| underwater bonds at face value.
|
| SVB was solvent two weeks ago with mark-to-maturity
| accounting of their underwater bond holdings. SVB, from a
| bank accounting perspective, became insolvent when they
| sold the long duration bonds for a loss. At market prices
| of the bonds, SVB could not continue within bank
| accounting regulations. I suspect they will recover
| 90%-some.
| ivalm wrote:
| I suspect they will repay 100% as they will find a
| buyer/not have to actually liquidate. Remember, they had
| net positive interest, so as long as they can continue
| holding to maturity they are entirely solvent.
| [deleted]
| peanuty1 wrote:
| I thought the FDIC bailed out SVB by imposing fees on other
| banks that will likely be passed on to consumers.
| ivalm wrote:
| No, if FDIC ends up paying it will impose fees. They
| haven't yet had to pay.
| yuppie_scum wrote:
| Rippling is great. Doing everything we need from HR with none of
| the usual jank. I hope it will scale.
| starkparker wrote:
| Yeah, because all the "jank" is sent down the pipe to
| employees. Busted alerts, busted training automations, busted
| integrations with insurance providers, rounds of incorrect W2s.
| Maybe it's good for a 50-person company, but it sucks here at
| 500+.
| evntdrvn wrote:
| A previous employer used it, and it was dramatically better
| than any other system that I've used. It's one of those rare
| providers that I'm happy to promote, and even more remarkable
| since it's in a space that is traditionally awful.
| whitepoplar wrote:
| Are there any other companies that you would put in the same
| league as Rippling? (for any products, not just competitors
| in the same space)
| renewiltord wrote:
| Gusto is also pretty damn good. These companies handle edge
| cases poorly but otherwise are okay. For example, we
| restructured and had to move people to a different LLC and
| Gusto deleted everyone from GSuite (which had no reason to
| move).
|
| Their FSA administration is total junk.
|
| But otherwise it's been great.
| agrippanux wrote:
| Having used both extensively, I'd pick Rippling over
| Gusto any day of the week and twice on Sunday.
|
| This SVB debacle doesn't look good on them though.
| aroman wrote:
| Can you offer some specific examples? And what company
| size?
|
| Currently using gusto but curious.
| x0x0 wrote:
| Gusto's management of health insurance is awful. I had a
| very bad experience needing a document from my health
| insurer. Including their customer support being very
| slow, and when they finally replied, incompetent.
|
| For payroll they're a good experience, but I wouldn't use
| them for anything else.
| djbusby wrote:
| Gusto's integration with Human Interest (401k) is pretty
| crap too. Keeps marking the money in the wrong
| classification. Good job my accountant found it. Been
| working for months trying to get it corrected. Gusto
| can't even follow the thread and each contact I have to
| start over.
| jlund-molfese wrote:
| I actually lead the payroll integrations team at a
| competitor of Human Interest, and we just finished
| building out a Gusto integration using the Gusto API.
|
| You've tried reaching out to Human Interest, right? Your
| 401(k) provider should have direct access to Gusto
| engineers, but most likely, it's a problem on HI's side.
| cashsterling wrote:
| Overall, Rippling is a nice solution.
|
| There are some bugs with their authentication and IT hardware
| management software. Rippling routinely decided to not let
| employees into MS 365 at the worst times. I had to login to
| Rippling twice a day on my phone and my business computer...
| extremely annoying. Their remote management software bricked
| one of our computers. So... we stopped using Rippling for IT
| management and authentication.
|
| As just an HR platform, there are less expensive options that
| work fine. We ended up switching away from Rippling a little
| while ago.
| whitepoplar wrote:
| Any other companies you'd recommend as part of the "startup
| stack"?
| dgacmu wrote:
| We moved to Justworks recently and have been happy with them.
| We considered Gusto on the basis of strong recommendations
| from friends, but their insurance package for Pittsburgh
| didn't satisfy. (They're likely totally fine elsewhere or if
| your company has other needs.)
|
| We used to use TriNet. Moderate ugh - we spent two months
| with them trying to fix an incorrect 401k contribution and
| their flow is a bit ... Stale? It feels like using workday.
|
| We use ADP Canada since Justworks doesn't go there yet. Not
| as smooth as either Justworks or gusto.
|
| We use TravelBank for reimbursements. They're pretty good.
| dopeboy wrote:
| Gusto is an alternative that works well for us.
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