Startup Health Broker Zenefits Cuts More Jobs; CEO Vows ‘Total Redesign’

By | June 15, 2016

Zenefits, a human resources software startup that has been beleaguered by compliance issues, is laying off more than 100 employees, as investors point to the company as a cautionary tale for startups that try to grow too quickly.

San Francisco-based Zenefits will lay off 106 people, or about 9 percent of the staff, according to an internal memo by Chief Executive Officer David Sacks seen by Reuters.

The company’s Arizona sales operation will be closed and many of the staff laid off.

In addition to the layoffs, Sacks is offering employees who voluntarily quit two months of severance and four months of health care benefits.

Zenefits provides software for businesses to automate aspects of their human resources services, including health care, stock options and vacation time. It offers software for free and makes money acting as a health insurance broker, working as the middleman between businesses and providers such as Anthem Blue Cross, and charging a broker fee.

Zenefits co-founder and former CEO Parker Conrad resigned in February amid revelations that the company had flouted insurance regulations.

Some Zenefits staff who sold insurance did not have the proper licenses to do so. Regulators in Washington state and California have launched investigations into the company’s practices.

In his memo, Sacks, who joined Zenefits more than a year ago as chief operating officer, said the company had repaired many of its problems, including its “licensing issues.”

He also outlined a “total redesign of Zenefits,” including changing how the company is organized, how it does business with customers and his expectations of employees.

BuzzFeed News first reported the layoffs on Tuesday and was first to report the compliance turmoil at Zenefits.

The company also cut 250 jobs in February.

Investors once touted Zenefits as the fastest growing software startup in Silicon Valley history. Today, some venture capitalists point to the company as a cautionary tale of startups who raise too much money and try to grow too quickly.

Since launching in early 2013, Zenefits has raised more than $500 million from investors, including two rounds of financing from venture firm Andreessen Horowitz within four months. In May 2015, it had a $4.5 billion valuation.

(Reporting by Heather Somerville in San Francisco; Editing by Cynthia Osterman)

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