REGULATORY CLASHES HAVE become a badge of honor in Silicon Valley. If you’re making enough of an impact to piss off the powers that be, the idea goes, you’re probably doing something right. (Think Uber and Airbnb.)
By that measure, human resources software startup Zenefits is pretty much killing it. In just two short years, it’s faced opposition from insurance industry regulators in Washington, Texas, Wisconsin, and Utah. While Zenefits has come out on top in every case, founder and CEO Conrad Parker admits, “It’s just a matter of time before we run into an issue somewhere else.”
It’s a good thing for Zenefits, then, that it’s just raised $500 million (at a $4.5 billion valuation). To fight the political and legal battles ahead, it’s going to need it.
Companies like Zenefits are realizing that in politics, it might be easier—and cheaper—to turn on the charm.
The issue at hand is Zenefits’ crafty and unusual business model. Unlike most companies that sell HR software to small businesses, Zenefits gives its software away for free. Instead, the company collects a fee from insurance companies every time a customer buys insurance through Zenefits. It’s this piece that has enraged traditional insurance brokers. They argue that in giving away free software, Zenefits violates state rebate laws that forbid brokers from giving away free perks to entice people to buy insurance. Regulators in some states have taken up the call, forcing Conrad and his team to spent a substantial amount of time and money defending their position.
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