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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.

> as a startup

According to crunchbase rippling has raised 1.2b total and has thousands of employees. I mean c’mon

There’s no universal agreed upon definition for a startup but if at all you want to think of one, use growth rate. They have 1000 employees and $1b in the bank now. They had 1000 employees and $500m 48 hours back. They had 500 employees and $250m a year ago. They had 250 employees and $100m 2 years ago and so on..

No “non-startup” can grow at that pace.

They had 800 people in 2021 (via trivial google search) so no - startup pass denied

I have to agree they’re not a startup. By the definition the parent comment provided, a lot of clearly-not-a-startup companies are startups.

How many new hires did Facebook add during the pandemic that are now being fired? Facebook is by no means a startup. It typically works the other way around: gawping headcount by thousands at a time requires the kind of organization that startups typically struggle with.

Isn't this what insurance is for?

totally agree. nice take.

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

Coud they have done any better?

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 ;)

Yes, you should be delighted. Normal work of operations is only guaranteed in normal circumstances. Any unusual castrophic situation is grey area, at best.

Not that long ago, Kronos, another time management and payroll company, faced a ransomware issue that caused a complete payroll outage for a month at some of their companies.

The fact that a bank failed in 24 hours and Rippling made changes to the system to route around that bank and raised capital to front customer payrolls on behalf of their employees is incredible. The default action would be to wait it out.

You really should be able to show appreciation in a situation like this. This is not “normal course of business” stuff.

I fully agree this is obviously (and should be!) out of the ordinary.

I’d be glad to do business with a company that cares. In my business, I walk away from prospective vendors that don’t demonstrative proactiveness or that just follow the pack.

I would absolutely expect them to be able to route around issues with a single bank in the same way I would expect Cloudflare to be able to route around issues facing a single data center. with that kind of business it doesn’t make sense to have a single point of failure with the money you manage. There should certainly be more than one bank in their portfolio, and the differences should be small enough to capitalize in an emergency.

If you’re not mitigating risks brought by your most important vendors, then you’re not mitigating your own risks. Any organization that’s serious about payroll will ask it’s payroll vendor about planning for various out-of-band failures.

I appreciate your take here, but frankly I think it ignores the absolutely enormous world of vendors and partners out there, and the challenges that startups face when navigating it.

Quite simply, there absolutely is neither enough time nor mental space to deeply evaluate and understand these types of risks for all of your vendors. Further, this is one of those risks that is abundantly clear in hindsight but a person without deep financial experience or one who hasn't gone through this exact problem would really have no reason to understand or ask about it.

In fact, a person without intimate knowledge in payroll software might have no reason to even understand that there is an intermediate bank account in which funds are parked en-route to employees. It's just extremely unrealistic to expect someone to be thinking about this when picking a payroll vendor. Just like it would be unrealistic for me to expect an employer to perform a deep analysis of an insurance company's historical MLR and books to ensure they're sufficiently liquid and solvent to fund an employee's medical emergency.

Like it or not, social proof is a fairly critical construct in the world, and without it we'd be stuck spending more time analyzing our decisions than we do living with them.

> 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.

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.

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.

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.

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.

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.

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.

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.

Used to work for a big payroll provider - eventually they bought their own bank.

Advocating that a company change payroll processors over this single incident seems like a drastic over-reaction.

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

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!

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.

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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.

You need a little cushion and it’s silicone valley, just round it up to a 5

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 ?

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.

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!

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.

So legitimate use do they have for the funds now?

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.

Rippling is great. Doing everything we need from HR with none of the usual jank. I hope it will scale.

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+.

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.

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)

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.

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.

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.

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.

All the numbers in HI are correct. Gusto shows the wrong thing.

Yup, but Gusto provides a payroll API, which the benefits provider (in this case, HI) is responsible for using in order to accurately set payroll deductions (and other data) at Gusto for particular employees.

Maybe someone who works at HI will see this and chime in—but HI should be able to fix this.

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.

Can you offer some specific examples? And what company size?

Currently using gusto but curious.

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.

Any other companies you'd recommend as part of the "startup stack"?

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.

Gusto is an alternative that works well for us.

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.

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.

>You can't just go invest your customers' funds

It's a bank then!

They pull the money out of their customers bank accounts first before disbursing it via payroll, so that $300M figure is really customer funds.

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.

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.

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.

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.

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…

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.

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.

The article seems to be at odds with Garry's assertion just 20 seconds in to this clip: https://www.cnbc.com/video/2023/03/10/y-combinators-garry-ta...

Rippling is awesome, no complaints as a founder. That said, does anyone know how much of this sale was Parker conrad’s own shares?

What do you mean by "sale"? The article reads to me like a normal funding round, i.e. issuing additional shares.

A shareholder selling shares wouldn‘t increase equity.

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...

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.

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?

For god sakes, why did they have to wire the money to themselves first, then to employees rather than run the payments from their customers’ accounts?

How would they initiate payments from their customers' accounts?

That would require a level of access that probably few companies would be comfortable with, to say nothing of dozens or hundreds of banking integrations, since I don‘t think there is a universally supported standard API for this type of thing in the US…

Thought the money was available guaranteed by fed by following monday

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.

Do they handle harassment? Or just financial sides of HR?

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.

He went too far with regulatory shenanigans - nearly a decade ago, and paid a big price (lost the company he built and loved, personally paid half a million in fines).

People do stupid/risky things when young/desperate, and most learn and grow. That seems to be the case here and is normal and healthy.

Not every case of wrongdoing is equivalent to the worst known/imaginable cases of wrongdoing.

> Rippling’s existing investors include Kleiner Perkins, Sequoia Capital, Coatue Management and Founders Fund.

Aah the good old squad.

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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.

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).

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.

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.

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.

I thought the FDIC bailed out SVB by imposing fees on other banks that will likely be passed on to consumers.

No, if FDIC ends up paying it will impose fees. They haven’t yet had to pay.