20VC The Rippling Memo Bedrock's Geoff Lewis on The Conviction Building Process to Write a $200M Check and CoLead Rippling's Series D Why No Competitor Can Out Execute Rippling Uncapped SAFE's Why You Should Never Do Them and Why Geoff Broke The Ru



In this episode of "20 VC," host Harry Stebbings delves into the success of Ripling with Jeff Lewis, founder of Bedrock Capital. Jeff discusses his long-standing relationship with Ripling's founder, Parker Conrad, and how Parker's resilience and "power plant energy" make him a "narrative violation" and a driving force behind Ripling's growth. Jeff emphasizes Parker's determination to build one of the world's largest companies as a personal mission, and how Ripling's culture of former founders contributes to its relentless drive and execution. He also highlights the potential of Ripling's employee graph to revolutionize SaaS distribution, akin to "AdWords for SaaS." Despite macroeconomic uncertainties, Jeff is bullish on Ripling's ability to thrive by helping businesses do more with less, citing their impressive upgrade rates and cost-saving tools. Jeff's venture firm, Bedrock Capital, has significantly invested in Ripling, seeing it as one of the best growth-stage assets globally with a clear path to a tenfold return.

Summary Notes

Introduction to Ripling's Journey

  • Harry Stebbings introduces the topic of Ripling's journey and its founder, Parker Conrad.
  • Jeff Lewis, the Series D co-lead investor in Ripling and founder of Bedrock Capital, is the guest.
  • Bedrock Capital is known for seeking narrative violations in investment opportunities.
  • Jeff Lewis has a history with companies like Lyft, Newbank, and Versel, and has made early-stage investments in several others.

Welcome back to 20 vc the memo.

This week we are doing a deep.

Dive on the incredible journey of Ripling.

The podcast episode focuses on the company Ripling and its founder Parker Conrad.

Jeff Lewis's Background and Investment Philosophy

  • Jeff Lewis's investment focus is on narrative violations, which are essentially ideas or companies that go against the conventional wisdom of the market.
  • He has a history with Parker Conrad, having heard of him during his time as a VC and later interacting with him during the rise and fall of Zenefits, Parker's previous company.
  • Jeff Lewis founded Bedrock Capital after serving as a partner at Founders Fund.

And today we're joined by one of Ripling's largest investors, their series D Colead, and a close friend in the form of Jeff Lewis, founder and managing partner of Bedrock Capital, one of the breakout and new venture firms of the last decade. Famously in search I love this, of narrative violations, which we discuss in the show.

Jeff Lewis is introduced as a significant investor in Ripling and the founder of Bedrock Capital, which is known for looking for narrative violations.

  • Harry Stebbings discusses the importance of life insurance and recommends PolicyGenius for comparing life insurance quotes.
  • Gainsight's new offering, Gainsight Essentials, is promoted as a tool for companies to drive growth.
  • The Ark Venture fund on the Titan Investing app is introduced as an opportunity for both accredited and nonaccredited investors to invest in venture capital.

But before we dive into the show today, we all hope we never need life insurance. But for me, nothing is more important than my family and knowing they will be protected and looked after.

The host takes a moment to discuss the relevance of life insurance and introduces PolicyGenius as a recommended service for obtaining life insurance quotes.

Jeff Lewis's Relationship with Parker Conrad

  • Jeff first heard of Parker Conrad when considering an investment in SigFig, a company Parker co-founded but was fired from.
  • Jeff was impressed by Parker's energy and determination when they later met during Parker's time at Y Combinator with his new company, Rippling.
  • Despite initially passing on investing, Jeff felt a connection to Parker's entrepreneurial spirit and reached out to him during the troubles at Zenefits.

You know, it's a situation where I actually heard about Parker. I heard of him before I met him.

Jeff describes his first encounter with Parker Conrad's reputation before meeting him in person.

Parker Conrad as a Narrative Violation

  • Parker Conrad is seen as a narrative violation because he self-identifies as one and has a history of overcoming challenges.
  • Jeff Lewis views the combination of a life's work and a motivator like vengeance as a powerful driving force for entrepreneurs, citing historical examples like John D. Rockefeller and Steve Jobs.
  • Lewis believes that entrepreneurs who have been wronged and are driven by vengeance can be highly successful, which is why he chose to invest in Parker and Rippling.

Well, many reasons, I'd say. The first reason is it's always, how does an entrepreneur view themselves? And one of the things Parker has consistently said to us is, I am the ultimate narrative violation.

Jeff Lewis explains why he views Parker Conrad as a narrative violation, highlighting Parker's self-perception and entrepreneurial drive.

The Role of Vengeance in Entrepreneurship

  • Jeff Lewis acknowledges the power of vengeance as a motivator in entrepreneurship.
  • He believes that having a life's work mission coupled with a sense of being wronged can push entrepreneurs to achieve great things.
  • Lewis himself has overcome feelings of vengeance and now finds motivation in the process of building and managing a team.

I try to anchor myself to ancient things, ancient beliefs about the world. They've helped me to really overcome feelings of vengeance that I had earlier on in my life and my career.

Jeff Lewis discusses his personal experience with vengeance and how he has moved past it to find other sources of motivation.## Growth and Motivation

  • Jeff Lewis reflects on his growth as an investor and how mentoring and growing his team has become his primary motivator.
  • Initially driven by a chip on his shoulder, he now focuses on helping others find their unique investing style.
  • The concept of vengeance is touched upon, but not as a current motivator for Jeff.

"And over the last few years with bedrock as we've really scaled things, and I've really grown a lot and feel motivated by the team, growing other people, helping them figure out their life's work and express their investing style in their own unique ways, that's become my North Star motivator early on."

Jeff Lewis discusses his evolution from being motivated by a chip on his shoulder to finding his North Star in mentoring his team and helping them grow in their careers.

Ripling's Business Model

  • Ripling is described as a "compound startup" aiming to be the employer of record across markets.
  • They have a high upgrade rate due to a suite of products that enable cross-selling.
  • Ripling's value proposition aligns with current economic times, offering cost reduction and increased administrative efficacy.

"It basically means that they are trying to become truly the employer of record. Not just SMBs, not just mid market, but upmarket as well."

Jeff Lewis explains that Ripling's goal is to become the main employer of record for businesses of all sizes and that their model involves offering multiple products that work in a synergistic manner.

Investment Excitement and Challenges

  • Skepticism about the profitability of payroll services, yet acknowledging Ripling's expansion beyond payroll.
  • Excitement about Ripling's potential in workforce management and owning the employee graph.
  • Ripling's vision to become the "Adwords for SaaS" is compelling due to the employee interactions they manage.

"What I'm most excited about with rippling, actually, I didn't learn. We didn't learn at bedrock until March of 2022."

Jeff Lewis expresses his enthusiasm for Ripling's vision and growth, particularly their potential to influence how business software is distributed through their employee graph.

Strategic Expansion Decisions

  • Discussion of the strategic choice between focusing on U.S. market dominance versus expansion into Europe.
  • Acknowledgment of the challenges of replicating Ripling's business model in Europe due to regulatory differences.
  • Personio is cited as a successful example of a European counterpart.

"The infrastructure, though, that you need to build out a ripling for Europe on a per country basis, given Europe's different regulatory provisions in each country, super hard."

The conversation touches on the complexities of expanding a business like Ripling into Europe, considering the varying regulatory environments across different countries.

Outcome Scenario Planning

  • Jeff Lewis discusses the importance of believing in a 10x return on investment and the rigorous analysis to support that belief.
  • Emphasis on the growth of the preferred equity stack in relation to revenue, favoring a linear or sublinear relationship.
  • Ripling's approach to product building and go-to-market strategy is believed to support a sustainable growth model.

"For us, the question always, is there a ten x from here?"

Jeff Lewis shares Bedrock's investment philosophy, focusing on the potential for significant returns and the importance of a company's ability to scale without excessive reliance on venture capital funding.

The Reality of Losing Money

  • Jeff Lewis comments on the low loss ratio at Bedrock and his personal experience with losses post-IPO.
  • Acknowledges that not all factors can be controlled, but emphasizes the importance of detailed underwriting of the micro opportunity.

"We at Bedrock have only lost a few million dollars. We've invested hundreds of millions of dollars over almost five years. At this point, I think our loss ratio is less than 50 basis points."

Jeff Lewis highlights Bedrock's successful track record and low rate of capital loss, attributing it to careful investment decisions and a focus on controllable factors.

Decision on Uncapped Notes

  • Jeff Lewis explains the internal discussions around committing to an uncapped note for Ripling, despite generally disliking them.
  • Describes Ripling's adeptness at fundraising and the impression left by their fundraising process.
  • The decision to invest in Ripling's uncapped note was influenced by their exceptional management of the fundraising process and the company's potential.

"So look, we tried to lead the series a in 2019, and the post mortem from that was every round in ripling is going to just be priced to absolute perfection."

Jeff Lewis recounts Bedrock's decision-making process regarding the investment in Ripling's uncapped note and acknowledges Ripling's strategic fundraising expertise.## Valuation in Normal Markets

  • In normal markets, investment rounds are priced with absolute precision.
  • Deploying capital is the way to achieve lower prices, as opposed to engaging with uncapped notes.
  • Uncapped notes are not considered genuine investing because the price for the security is unknown.
  • The firm's policy is to avoid uncapped notes due to the lack of price transparency.

"My post mortem and our bedrock post mortem from that was every round in normal markets will be priced to absolute perfection."

This quote highlights the lesson learned about the importance of precise pricing in investment rounds during normal market conditions.

Investment Strategy and Competitive Financing

  • The firm's strategy is to catalyze investment rounds rather than compete in formal financing processes.
  • Once a company circulates a memo to multiple VC firms, the firm loses interest in competing.
  • This approach was adopted after experiences with Rippling's Series B and D rounds, which the firm catalyzed.

"By the time a company's in a formal financing process, it's kind of dead to us."

This quote explains the firm's stance on not engaging in competitive financing processes once a company is widely shopping its investment memo.

Analysis Paralysis and the Series B Screw Up

  • The firm experienced analysis paralysis during the potential Series B investment in Rippling.
  • Concerns about the impact of COVID-19 on small and medium-sized businesses (SMBs) led to hesitation.
  • The firm also considered the potential for limited partner (LP) defaults due to the economic climate.
  • A renegotiation attempt failed, but the relationship with Rippling was maintained.

"We talked ourselves out of it, but we did try to do it at a lower price."

This quote summarizes the firm's internal debate and decision-making process, which ultimately led to not proceeding with the investment at the initially agreed valuation.

Unique View on the Market and Rippling's Series D

  • The firm projected a significant market crash and a shift away from growth investments.
  • They predicted a run to early-stage investments, causing growth-stage valuations to drop.
  • The firm sought a growth-stage investment with high conviction and a potential tenfold return.
  • Rippling was identified as the best private growth-stage asset within the firm's portfolio.

"We wanted to back our truck up into the most resilient founder we knew, running the best growth stage company we could find."

This quote reflects the firm's conviction in Rippling's potential and their decision to invest heavily despite market conditions.

Growth Market Volatility and Pricing Uncertainty

  • There is widespread uncertainty about future growth market pricing.
  • The firm believes that growth investments are starting to recover.
  • Unique firm-specific considerations, such as cryptocurrency investments, influenced their investment strategy.
  • The firm prides itself on identifying resilient entrepreneurs and survivor companies.

"No one knows where these prices are going to land two years from now."

This quote encapsulates the uncertainty in the growth market and the difficulty in predicting future valuations.

Reserves Management vs. LP Distribution

  • The firm had to decide between distributing returns from cryptocurrency investments to LPs or reinvesting them.
  • After not receiving acknowledgment for previous distributions, the firm chose to maximize the fund's multiple through reinvestment.
  • The decision was made to trade out of an overvalued asset class and invest in a solid growth-stage company.

"We're going to do what's best for maximizing the multiple of the fund, because ultimately that's where our interests are aligned with our lps."

This quote explains the firm's rationale for prioritizing fund performance over immediate LP satisfaction through distributions.## Ripling's Market Environment Impact

  • Ripling's services are beneficial in the current economic climate as they enable clients to achieve more with less.
  • They provide tangible time and headcount savings, positioning Ripling as a cost-saving tool.
  • The upgrade volume is significant, indicating customer satisfaction and reliance on Ripling's services.
  • A severe recession with widespread layoffs would be detrimental to all enterprise SaaS companies, including Ripling.
  • However, the necessity for workforce management tools is expected to persist, regardless of economic downturns.

"I think it's great for Ripling. I mean, it's going to be challenging for Ripling's customer base. The reason that it's good for ripling is because they actually allow their clients to do more with less."

This quote emphasizes the advantage Ripling has in enabling clients to operate efficiently, which is particularly valuable in a challenging economic environment.

"If you save a company money when they're trying to save money by reducing administrative work, that benefits ripling."

The quote explains how Ripling's platform is positioned as a cost-saving solution, which is attractive to companies looking to cut expenses.

"I don't believe that's the future."

Jeff Lewis expresses his belief that despite economic challenges, the demand for workforce management solutions, like those offered by Ripling, will continue to be strong.

Venture Capitalist Optimism

  • Venture capitalists need to maintain a balance of optimism and realism.
  • Bedrock, the firm where Jeff Lewis is a partner, engages in intense internal debates and is not blindly optimistic.
  • Belief in entrepreneurs' ability to build extraordinary companies is essential for venture capitalists.
  • Positive outlook is tempered with a realistic understanding of potential challenges and setbacks.

"Well, that's definitely been true historically. The question is, is it going to be true in the future?"

Jeff Lewis acknowledges that optimism has historically been profitable in venture capital but questions if it will remain so.

"You have to be optimistic that people have agency and can do great things."

This quote highlights the importance of believing in entrepreneurs' capabilities as a venture capitalist.

Role of VCs in Late-stage Investments

  • Investors have minimal involvement in late-stage companies with strong management teams.
  • Jeff Lewis describes his role in Ripling's Series D as minimal, highlighting Parker Conrad's independence and leadership strength.
  • Relationships with early investors can be special and beneficial, as seen with Parker Conrad and Mamoon from Kleiner Perkins.
  • The dream scenario for a VC is to invest in a company with a strong likelihood of success without needing to be actively involved.

"Very little for me to do. It's an absolute dream."

Jeff Lewis expresses contentment with his limited role in Ripling's ongoing management due to the company's strong leadership.

"He doesn't need my help. If he wants my help, I'll give it to him."

This quote reflects the hands-off approach Jeff Lewis takes with Ripling, offering assistance only when requested by Parker Conrad.

Capital Concentration in Venture Returns

  • Bedrock has a significant percentage of its investments in Ripling, as well as in other companies like Flock Safety and Versailles.
  • Concentrating capital can be risky, but it aligns with the belief that these investments will yield substantial returns.
  • Jeff Lewis agrees with the sentiment that capital concentration limits can be the biggest enemy of venture returns, but Bedrock has chosen to concentrate its investments in a few companies.

"So, yes, we agree with him."

Jeff Lewis concurs with the statement about the dangers of capital concentration but notes that Bedrock has still chosen to concentrate its investments.

Ripling's Internal Scaling Challenges

  • Ripling's ambitious goals and rapid scaling pose internal risks.
  • The executive team's quality, including COO Matt McGinnis, is crucial for managing these challenges.
  • Jeff Lewis is confident in the company's ability to navigate growth due to its strong leadership.
  • The culture at Ripling, influenced by many former founders in the team, is one of resilience and determination.

"Every company is its own worst enemy."

Jeff Lewis points out that Ripling's biggest barrier to success is the potential for internal issues that can arise with fast growth.

"There's no other company that's going to be able to out execute this founder in their market."

The quote expresses Jeff Lewis's confidence in Parker Conrad's ability to lead Ripling to outperform competitors in their market.

Ripling's Culture and Execution

  • Ripling's culture is shaped by the presence of many former founders, fostering a resilient and ambitious environment.
  • This culture is seen as a key advantage, enabling the company to face and overcome challenges.
  • The team's experience as founders contributes to a shared understanding of the difficulties in building a business and a collective drive to succeed.

"Culture wise, it makes it a culture of people that have a chip off their shoulder and need the business to be massive in order to self actualize."

Jeff Lewis describes how Ripling's culture, influenced by former founders, is driven by a sense of purpose and the need to achieve significant success.

Underappreciated Aspects of Ripling

  • Owning the employee graph is a potentially massive opportunity for Ripling, likened to an AdWords for SaaS.
  • Parker Conrad's personal drive to build a large company is a unique asset that may be undervalued by outsiders.
  • Jeff Lewis believes that the potential of the employee graph and Parker Conrad's ambition are not fully appreciated by the market.

"I think owning the employee graph, the potential you have to become, the way SaaS gets distributed, could be just a huge incremental lift for the business."

This quote highlights the strategic opportunity Ripling has in owning the employee graph and its potential to transform SaaS distribution.

"This is a rare human who, to wholly self actualize, has to build one of the largest companies on the planet and he has the ability to do it."

Jeff Lewis expresses his belief in Parker Conrad's unique drive and capability to grow Ripling into one of the world's largest companies.

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