News: Startup hiccup: Zenefits hits a rough patch

Benefits & Rewards

Startup hiccup: Zenefits hits a rough patch

Fidelity Investments downgrades Zenefits value 50% from $4.5 billion
Startup hiccup: Zenefits hits a rough patch

Zenefits — the Silicon Valley startup that promised to overhaul the world of benefits management with its package of free, cloud-based HR tools — appears to have fallen on hard times.

The company’s troubles mirror those recently encountered by other startups that attracted major investments from big league venture capital funds. Fidelity also recently marked down the value of its investment in Snapchat by 25%, while other mutual fund investors downgraded their investment in Dropbox by 20%.

The Wall Street Journal reports that the company’s chief investors are losing confidence in its ability to meet the ambitious revenue goals it set. Given that it had only brought in $45 million in August, its $100 million target for the year looks like a long shot.

As a result, only several months after estimating Zenefits’ value at $4.5 billion, Fidelity Investments, a mutual fund that has provided much of Zenefits startup capital, downgraded its assessed value of the company by nearly 50%, to roughly $2.34 billion.

Sources tell the Journal the firm has frozen hiring and cut pay. A number of top executives have either left or been fired.Although Zenefits’ core services are free, it makes money when companies use it to buy health insurance.

The report from the Journal sheds light on troubles that hitherto have been out of the public eye. Publicly, Zenefits appeared to be doing well after triumphing in a legal dispute with ADP, massive payroll processing company that competes with Zenefits for corporate customers but also shares some.

ADP had blocked Zenefits from accessing payroll data for shared customers, alleging that the startup was rendering sensitive information, such as Social Security numbers, vulnerable to attack. After Zenefits criticized the move, ADP launched a defamation lawsuit, accusing Zenefits of engaging in a malicious public relations campaign to tarnish its reputation. ADP eventually decided to drop the suit, however, and a judge dismissed it with prejudice.

(Source: benefitspro.com)

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Topics: Benefits & Rewards, #Corporate, #HRIndustry

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