Investor Marc Andreessen: We never threatened to sue Zenefits
Just hours ago on Thursday evening, Zenefits' current CEO, David Sacks, publicly announced a stunning deal with its investors that gives some of them a bigger chunk of the company in exchange for their agreement not to sue (and slashes the value of the company from $4.5 billion to $2 billion).
This comes after the company admitted it was selling insurance without being properly licensed in some states, and that its founder CEO had written a computer program that helped some employees circumvent a license training requirement.
Zenefits replaced the founder CEO, Parker Conrad, with David Sacks in February. Sacks was an investor and also serving as COO at the time. Sacks says that since he's been CEO, he's cleaned up the company's regulatory issues, made management changes, and is otherwise righting the ship.
This new deal for investors was unprecedented move by a startup to appease investors.
Andreessen described it as "a unique situation; we've never seen it before, and we don't expect to see it again."
Sacks had been talking with investors for months, since he took over as CEO.
Apparently, some of the Series C investors were pushing Sacks, unhappy that they had invested in a company with serious compliance and growth problems. They questioned if the company had properly disclosed its issues to them, particularly the use of that computer program. The ring leader of unhappy investors was reportedly TPG, who led last year's round alongside Fidelity, Forbes Brian Solomon reported,
That Series C round pumped a jaw-dropping $500 million into the company for an 11% stake, valuing Zenefits at $4.5 billion. Zenefits was only two years old at the time.
After Sacks announced the new deal for investors, Andreessen tweeted his support for Sacks and for Zenefits. He said that A16z "did not threaten to sue nor did we have any intention of suing."
He also said that as part of the deal, A16z took a "haircut" in its ownership of Zenefits.
It was Dalgaard who brought Sacks into Zenefits management as COO, in the first place, Conrad said.
Sacks is also an investor himself, pouring millions of his own money into Zenefits. As part of this new deal with investors, he also took a cut of ownership.
As for how unique a situation this will wind up being, we'll see.
Zenefits was certainly a perfect storm but there are plenty of other startups that run into trouble after they raise a lot of money on promises of big growth, then spiral out of control in "hyper growth" mode and are tempted to take shortcuts.