Home Business Zenefits Burning Through $200M A Year, CEO To Step Down

Zenefits Burning Through $200M A Year, CEO To Step Down

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The last couple of years have been a rollercoaster for HR software provider Zenefits. As recently as last September, the company was a darling of Silicon Valley, having graduated from the prestigious accelerator Y Combinator and raising millions in venture capital from top firms. It achieved unicorn status at the height of the classification’s coolness, securing a $500 million+ Series C last May at a whopping $4.5 billion valuation.

Zenefits

Then, sparked by a BuzzFeed report last November, its empire began to crumble. Will Alden of the online media company discovered that more than a handful of Zenefits employees were operating as insurance brokers without the proper licensing. In a follow-up article, Alden reported the company had also developed software that allowed salespeople to cheat state certification processes, essentially enabling widespread fraud. From there, the bad PR piled on; one of the more widely spread articles purported the company had a drinking-centric culture, similar to a fraternity.

This all led to February, when then-CEO Parker Conrad stepped down and was replaced by then-COO David Sacks, who quickly took action to repair the company’s image, as well as worrisome internal processes and culture. While the action was swift, it’s been difficult to reverse months of negative coverage. That said, 2016 has seen a cultural revamp for Zenefits, which seemingly is very focused on moving on from its problematic past.

Although the negative PR has subsided to some degree, it appears the company still has some work to do in regards to moving toward profitability. A new Buzzfeed report reveals that the company lost over $200 million in its fiscal year ending in January. While one could argue that was in the past and perhaps the company has fixed its finances along with its culture, that would be premature speculation. Per the same Buzzfeed report, Zenefits is on track to record a similar loss this fiscal year.

Massive losses aren’t all that uncommon in the startup world, which over the past few years has valued user growth over revenue growth. Uber, one of the most well-known startups in the industry, recorded losses of $2 billion on $1.4 billion in revenue through a fiscal year ending September 2015, according to the Financial Times. More recently, Bloomberg reported the ridesharing company lost $1.2 billion just in the first half of this year.

That said, there has been a movement in the tech industry as of late for companies to put more emphasis on the sustainability of their businesses versus growth at all costs, as it was before. Zenefits, under the new leadership of Sacks, seems to have taken that approach and has been growing revenue at a higher clip than costs. Revenue growth in the six months between February and July would account for a 62% increase from last year when annualized, while costs would increase by just 12%, per Buzzfeed.

Here’s a look at some of Zenefits’ financials, via Buzzfeed.

Zenefits

Update 12/3: Buzzfeed now reports that David Sacks will be stepping down as CEO, with potential plans to take a role in President-elect Donald Trump’s administration. Sacks, who was CEO for just over 11 months, is sometimes known for being part of the “Paypal Mafia,” having served as COO of the online payment service between 1999 and 2002.

Through a series of tweets, Sacks paints an optimistic picture of where Zenefits is now, as opposed to where it was when he took on the role of CEO in February. He points out that he never was planning to be a permanent CEO for the company, but rather was asked by the board to step into the role to assist with the crisis then at hand. Zenefits has now started the search for a new CEO, with Sacks planning on staying involved as chairman, focusing on product and strategy.

Article by Mikey Tom, PitchBook

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