A $500M Termsheet in 12 Hours: How Rippling Made a Deal as SVB Collapsed

Photo credit: Haje Kamps / TechCrunch

As a serial entrepreneur who’s known to have had some ups and downs, Parker Conrad thought he’d seen it all. Still, he never imagined there would be a run on Silicon Valley Bank that would turn Rippling, his six-year-old workforce management company, on its head, a run so severe that Rippling lost $130 million would liquidate money market funds that its clients needed for their payslips.

Nor did he think that within 12 hours Rippling would be able to secure $500 million in new funding to protect his company if markets got even more out of control.

However, both happened in a short amount of time, allowing Rippling to avert disaster and potentially change the 1,800-person company forever. Now a week later, Conrad suggests he’s still processing it all, saying it wasn’t really time to panic; there was too much to do.

Everything everywhere at once

As with so many of the 40-year-old bank’s customers, Conrad first heard there were problems last Thursday morning, March 9. Conrad got a call from a founding friend around 10 a.m. and asked, ‘Hey, what are you guys about SBB?’ Conrad recalls today. “I thought, ‘What are you talking about?’ and he said they received a call from an investor at Valor Equity Partners telling them to withdraw their money from the SVB.”

Conrad’s first reaction was, “That seems crazy; I haven’t heard of that.” He then started looking more closely at his laptop, where on Twitter withdrawing money from the bank had all of a sudden become the talk of the startup world.

When text messages from Rippling’s own investors surfaced on his phone, Conrad quickly opened a Slack channel titled “SVB Risk” and invited the company’s finance team, but hesitated briefly before inviting the company’s CTO, Albert Strasheim, and called in other engineers. Conrad says, “I didn’t want to panic anyone or create a crisis internally until we were sure there was a problem.”

At 11:30 a.m. it was clear; There was a problem. When longtime Silicon Valley Bank CEO Greg Becker launched a Zoom call to provide context on an 8-K submitted by the bank the previous day, a growing percentage of Rippling’s engineering team from various parts joined forces of the country joined the Slack conversation to exchange views on a way to move the company’s banking and payments lanes from SVB to JPMorgan.

The good news for Rippling, which manages a range of services for its clients from payroll to device management to corporate cards, was that it had already moved some of its banking operations to JPMorgan nine months earlier. “It wasn’t a particular concern of the SVB,” says Conrad. It just seemed prudent to create some redundancies in the infrastructure, he says. Also, Rippling had launched a global payroll product in October, and JPMorgan appeared to have “a lot more global capabilities,” he says.

Still, the team figured they could move their payroll business, which processes around $2 billion in payments each month, away from SVB “in about two weeks” if push came to shove. Well the window was, well, out the window.

“Even then, we didn’t really think that the SVB would fail or that the payments would not go out,” says Conrad. The team thought more likely scenarios were that another bank would buy SVB, or that its risk profile could inevitably change, or that Rippling could suffer a PR setback if it remained linked to a troubled bank. As of Thursday night, “we figured we had at least a week to move, even in the worst-case scenario.”


Most people don’t think about how their paychecks get from their employer to their bank, but it’s not a straight shot. Rippling debits its customers’ accounts early in each week, allowing ample time for funds to settle or clear. SVB has historically received Rippling’s instructions to disburse these funds to employees and then forwarded these payments to the Federal Reserve, which then routes the funds to the various employees’ banks as part of the broad interbank system called ACH. Yet funds withdrawn early last week, which appeared to have been sent overnight last Thursday night, never made it to the Federal Reserve.

Conrad woke up at 5:30 a.m. Friday morning to the bad news. He jumped out of bed, walked down the stairs to the kitchen with his laptop open, cleared away Legos on the kitchen table, and sat down while members of the Silicon Valley Bank “ops team” grappled with the cables and payments a backup described bank processed at the same time.

There is no liquidity problem, they reiterated. The payments would run out.

Conrad was still sitting in his kitchen at 9 a.m. when he realized they wouldn’t.

That’s when the announcement came out: The FDIC had seized the Silicon Valley bank, which meant Rippling had to figure out quickly how to access funds and get them to people who needed those paychecks. Notably, Rippling needed $130 million to pay around 50,000 employees. In addition to setting up some interim payment lanes at JPMorgan, it also had capital in money market funds at the bank. It began to liquidate them.

Still, it needed to generate a payment file that it could send to JPMorgan by 12:30 p.m., and it needed the paths the team created to continue working reliably the following week, as more people expected payments on Monday.

Meanwhile, customers were understandably getting angrier. One disgruntled small business owner wrote on Twitter: “@Rippling where are our direct payroll deposits? Nobody got paid today! They took it from our account, so you have our money. #rippling #shady #missingmoney #SVBBank.” Another customer told the San Francisco Chronicle of Rippling on Friday, “Your response and transparency was appalling.”

Conrad apologized to the client’s employees and promised to reimburse the overdraft fees involved. He posted updates on Twitter when he found out about them. He checked in every 60 seconds with the 50 or so Rippling engineers tasked with sending the final payment file to JPMorgan in a timely manner.

He also thought about the next steps. Even if Rippling were able to pay these employees, what would happen next week? In the worst case, Rippling would have to spend $300 million more. Ripping could Perhaps secure a line of credit; Another alternative was to sell more Rippling. He texted his board members; most of them were in the same boat as Rippling, they wrote back to him. Your money was locked up at the Silicon Valley Bank.

He reached out to Greenoaks’ Neil Mehta, another early and lingering investor in Rippling who had no money at Silicon Valley Bank. In fact, Mehta had written to his portfolio companies back in November, warning them that Silicon Valley Bank was in a precarious position because it was invested in too many long-term, soft loans.

From morning to night

Says Parker now, “We’re still in a position where there are a number of investors who seem very interested in owning more of Rippling and have been trying to buy more in a variety of ways.” He believed not that raising money would be a problem, but it would be far from standard in almost every way. As he told Mehta: “I want to raise some money but I would like to tell you in advance that the main condition here is that we have to close over the weekend and you have to be able to transfer the full amount first thing Monday morning . And what you need to understand is that we will send it right out the door to cover client’s payroll. That is the intention.”

Mehta, as Conrad puts it, said, “Let’s do it. And we negotiated the terms, and I signed a term sheet before 9 p.m. Friday night. The entire fundraising process took almost 12 hours from the first phone call at 9:30 a.m. to the signing of the term sheet. Then the rest of the weekend was just a Herculean effort to draft documents and we signed everything early Monday morning. Then they transferred the money.”

Of course, a lot happened in between. Becker and Silicon Valley Bank CFO Daniel Beck were sent home.

Rippling engineers were able to submit this file to JPMorgan in a timely manner last Friday afternoon. (They were 21 minutes late, but the bank apparently waited.)

The Federal Reserve also announced around 3pm PST last Sunday that Silicon Valley bank depositors, both insured and uninsured, would receive assistance in a manner that would “fully protect them,” it said in a statement.

We asked Rippling what the deal with Mehta was as he was forced into it and agreed so quickly. A spokesman for Rippling describes it as a “lightweight structure – prioritized over other shareholders.”

We asked Mehta if he also received warrants as part of the emergency package and he says Greenoaks did not. Instead, he talks about Rippling’s “incredible ambition” and calls Conrad a “man of integrity.” Although Conrad may have tried to back out of the agreement, Mehta said Conrad instead called him three minutes after the Federal Reserve’s statement Sunday and reinforced it.

Conrad says of the episode, “There was no way we wouldn’t go ahead with the deal. One of the very important things in the entire venture ecosystem is the nature of the sanctity of a term sheet and achieving a handshake on a term sheet. I know that if the FDIC hadn’t supported depositors, there might have been a bunch of other bank failures Monday.” Greenoaks wouldn’t have cared, Conrad insists. “I know Neil would have wired me his last dollar Monday morning even when the world ended based on the pledge he made on Friday.”

Rippling has now raised a total of $1.2 billion. The $500 million Series E values ​​the company at $11.25 billion, the same valuation it was assigned when it closed a $250 million Series D funding in May. (It also buys Greenoaks about another 4% of the company.)

Other past supporters of the company include Kleiner Perkins, Sequoia Capital, Coatue Management and Founders Fund.


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