Investor demand has been so strong for shares of hot HR startup Rippling – over $2 billion worth of term sheets, it says – that it is allowing former employees to also participate in its giant, tender offer sale, the company told TechCrunch.

But there is one big exception: it has banned former employees who work for a handful of competitors from selling their stock. A small group of ex employees has been trying to get the company to alter this policy, TechCrunch has learned, but so far, to no avail.

Rippling has also told employees who have previously sold shares, particularly if those sales were outside its previous tender offer, that they would not be authorized to sell as many shares this time around.

To recap: in April, TechCrunch broke the news that Rippling was doing a giant tender offer of up to $590 million for employees and existing investors, led by Coatue, along with a smaller $200 million Series F for the company. All told the deal valued HR software startup Rippling at $13.5 billion, the company said. 

This wasn’t the first-and-only sale that let employees and longtime investors cash out of some shares, but it’s by far the biggest and most profitable. Another smaller one took place in 2021, founder and CEO Parker Conrad told TechCrunch’s GM and EIC Connie Loizos.

The rules for this one, according to a summary of details seen by TechCrunch, were:

• the offer was open to both current and former employees 
• it involved options, not restricted stock units (the stock that employees had to buy, not the ones granted with restrictions as part of their comp packages) 
• employees were eligible to sell up to 25% of their vested equity but the company was including in that count any shares they sold in the previous tender offer 
• if an employee sold shares via any method outside of a company tender offer, the company warned it would double count those shares against the 25%
• former employees working for “competitors” were not eligible to participate

Rippling tells TechCrunch that the employees who work for the following companies are excluded: Workday, Paylocity, Gusto, Deel, Remote.com, Justworks, Hibob, Personio. Sources tell TechCrunch that employees at those companies received no information about the tender offer, but heard about their exclusion through the grapevine.

None of the former employees TechCrunch spoke to were surprised to hear one name on the list: Deel. Or, according to a post on Blind, “Everyone who has options is eligible, even former employees. Except if you went to Deel then you’re screwed lol.”

When some former employees realized they were being excluded from the sale, a few wrote a scathing letter to Conrad and Rippling’s top lawyer, Vanessa Wu, imploring Rippling to change its mind. Rippling refused to do so. 

Indeed there was quite a bit of internal drama involving the letter, as well as the equally scathing letters, seen by TechCrunch, that Rippling sent to some of them in response. The drama involved some people distancing themselves from the letter and many allegations of wrongdoing on both sides that TechCrunch could not independently verify. One person who was reportedly dragged into the letter drama told TechCrunch they wanted nothing more to do with any of it. 

Why is Rippling excluding ex-employees at competitors?

The company told TechCrunch it was omitting employees at competitors because it was concerned that the sensitive information “including detailed financial information and risk factors” disclosed in the offer paperwork could wind up shared with competitors.

“Rippling put together a tender offer for the benefit of its employees, ex-employees, and early investors. Rippling chose to be uncharacteristically broad in its approach to this tender offer (1) because Rippling wanted to be able to provide liquidity to its early employees and investors, and also, (2) because there was so much demand (received over $2B in term sheets),” Rippling VP of communications Bobby Whithorne told TechCrunch in an emailed statement.

“However, tender offer rules require companies to share significant sensitive information, including private company financials, which reasonably are not materials that any company would want in the hands of its competitors. As a result, while most companies exclude former employees entirely, Rippling took the more measured approach of excluding only those former employees who currently work at a list of eight competitors with ambitions to build global HR and payroll products,” Whithorne said.

To be sure, as a private company, Rippling certainly has the freedom to place restrictions on participation in its stock sales.

Rippling vs Deel, a competitive feud?

Several sources said that Deel is a particularly touchy subject at Rippling. Both companies play into the rivalry with marketing that touts their own tech stack is better than the other. 

Rippling’s hard-charging CEO Conrad is internally revered as a product genius but is also known as a competitive guy who thrives on rivalry, these sources said.

He built Rippling into a $13.5 billion HR tech success with a product that tightly integrates payroll, benefits, recruiting, and a whole bunch of other services. He also famously built a previous HR tech startup, Zenefits, into one of the fastest-growing startups of its time until it hit a world of trouble that ultimately led to his ouster. Then he founded Rippling, which has also grown like dandelions under his care. During his time at Zenefits, Conrad also had a very public spat with competitor ADP. 

Despite the rivalry, Deel was once a customer of Rippling, though it no longer is, sources tell us.

One other thing to note about excluding ex-Rippling employees working at competitors is that, it’s not only about making a profit on their stock. Stock options can be costly. In addition to the price of the stock, employees may face huge tax bills on options they exercise from the paper gains of the value of the stock. Sometimes selling a portion of their stake, if they can, is a way for them to offset such tax bills. 

When asked about this, Rippling’s Whithorne said that the company has “tried to issue Incentive Stock Options (ISOs) wherever possible (all US employees) which enable employees to defer tax obligations at the time of exercise.”

All employees, current or former, will be able to sell their stock one day, after a lockup period, after the company goes public. But it’s not clear when Rippling will stage an offering. The company isn’t likely in need of more capital at the moment. It just raised that new $200 million infusion, on top of the emergency $500 million it famously raised in 2023 as part of the whole SVB crisis.

For several of the people impacted by this decision, however, it’s not just the money. It’s also about hurt feelings that their former company believes they would do illegal or unethical things and so they are being preemptively left out of a lucrative deal.

“Your company doesn’t love you, or value you. They are always going to do what is in their best interest. So do what’s in your best interest,” one source said.

Got a tip about a startup culture you’ve experienced? Contact Julie Bort via email, X/Twitter, or Signal at 970-430-6112.