Six days after starting, Zenefits laid off another 430 people, about 45% of its workforce. In February 2017, Jay Fulcher was appointed the company's new CEO.
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In his note to employees, David mentioned the CEO position not being "a job sought" and how tired he was at the Z2 conference in October, where they revealed Zenefit's new software platform. In December 2016, David shared with the company that he would be stepping down as CEO while remaining onboard as Chairman to begin a search for a permanent CEO. In June of the same year, another 106 people, 9%, would be laid off by the company. The layoffs largely reduced the sales team, which we'll go into more detail about later in this piece, since they made up some of the top sales leaders in the world. In February 2016, David announced a layoff of 250 employees, roughly 17% of Zenefit's staff. Zenefits was already hemorrhaging money, reportedly burning over $100 million in 2015 and even more in 2014, and now had to deal with negative press, which impacted their brand and sales, and all the work and legal costs needed to settle with states. Parker Conrad, the CEO, and founder of Zenefits, stepped down immediately following the compliance failures, and David Sacks assumed the CEO position. A few months later, BuzzFeed News learned that Zenefits created a secret software tool to let California sales reps fake completing the required 52-hour-long online course for health insurance brokers. In some states, violating insurance licensing rules is a felony that carries up to 10 years of prison time and thousands of dollars in fines. In November 2015, a BuzzFeed News investigation revealed Zenefits allowed uninsured brokers to sell health insurance, and the company was under investigation by at least one regulator.
While everything looked perfect from the outside, trouble began brewing under the hood. That's when the story starts to take a turn for the worst. David Sacks, a member of the PayPal Mafia and the founder of Yammer, which sold to Amazon for $1.2 billion, even came out of retirement to join the company as its COO. Zenefits was the 1A startup in the Valley and attracted some of the most ambitious employees. A company that had just launched two years ago was already being labeled as the fastest growing SaaS company ever by Techcrunch, the hottest startup of 2014 by Forbes, and a startup to bet your career on by Business Insider. It would be modest in today's world of inflated tech valuations but unheard of back then. Its funding round in 2015 valued the company at a whopping $4.5 billion valuation. By 2015, the company had hired 1,000+ employees and raised $500 million+ from investors like Andreessen Horowitz, Founders Fund, Insight Venture Partners, and Khosla Ventures. The company continued to build until it had a complete payroll and health benefits suite of products to replace traditional Human Resources functions. In 2013, Parker Conrad and Laks Srini launched Zenefits to help startups and small businesses manage employee benefits and find insurance quotes. The Zenefits story isn't all roses - it's far from it.
Laks Srini (Left) and Parker Conrad (Right), the co-founders of Zenefits
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