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Comment by jsprogrammer | Hacker News Reader

$4.5 billion valuation on $60 million annual revenue from non-compliant activity?

Anyone know the investment thesis on that?

Fastest growing SaaS business ever? The non-compliant activity was not crucial for success and easily rectified. The service offered is core to pretty much every business on the planet and touches every single employee in the business.

Easily rectified? The top shareholder/exec got dumped; the entire business is under multiple states' investigations; employees may have purjured themselves at the behest of the business; and clients may have purchased critical business infrastructure from unlicensed agents (which may affect their coverage).

Clearly someone bought in to the pitch, but what strategy would they believe would easily rectify this situation?

A non start up would pay a law firm to do more investigation and then settle with the government for a pound of flesh but nothing crazy. In the scheme of things skipping a video won't kill a company.

But start ups are all about momentum and PR.

Plus they'll need money for investigations and settlements. VC capital is expensive.

| In the scheme of things skipping a video won't kill a company.

Skipping the video is not in itself what could potentially kill the company. However if clients are able to claim that their insurance was mis-sold by Zenefits, it seems to me that could. Mis-selling of payment protection insurance in the UK has already resulted in settlements north of 5 billion GBP, and the issue is not fully resolved yet.

This is a great read: https://www.quora.com/What-are-revenue-multiples-for-technol...

Also, it's a good idea to assume that the documents which established the valuation likely have many terms which make the published numbers not represent the economic reality of the investment/contract. Liquidation preferences make any comparison between private and public companies extremely difficult, if not impossible.

It's important to note that when the investment was made, enterprise tech companies (like Workday) like were getting a really high valuation, whereas consumer tech companies weren't doing so well. Investors like a16z probably wanted to invest as much as possible before the enterprise IPO market would go south. Moreover, I am sure investors probably had strong liquidation preferences, ensuring a profit in the case of an exit or IPO.

We're now seeing the downsides of their thesis. Workday's market cap has since cratered, down 33% in the past year, indicating a weakening interest in the enterprise IPO market. Zenefits itself has a number of growing concerns- regulatory and competition concerns (ADP is only getting better by the day).

I think the investment thesis is based on the classic economic theory that draws upon complex natural and psychological forces, sometimes referred to by the acronym "FOMO".

Greater fool theory

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