Health insurance brokerage startup Zenefits‘ story has become something of a morality tale of the bad things that can happen when investors buy into a company’s idea and take their eyes off crucial elements. The result has been a company that’s managed to raise more than $580 million, but has gained more notoriety for skirting health insurance regulations than complying with them.
Even as the new CEO David Sacks tries to clean up shop, an embarrassing, slow drip of details of just how freewheeling the company culture has been are coming to light.
The latest wrinkle came from The Wall Street Journal, which reported that an email last June from the company’s director of real estate and workplace services requested staff to stop having sex in the stairwells. It read, in part:
When Investment Rhymes with Canada
Canada has a proud history of achievement in the areas of science and technology, and the field of biomanufacturing and life sciences is no exception.
“It has been brought to our attention by building management and Security that the stairwells are being used inappropriately….Cigarettes, plastic cups filled with beer, and several used condoms were found in the stairwell. Yes, you read that right. Do not use the stairwells to smoke, drink, eat, or have sex. Please respect building and company policy and use common sense…”
Among a list of admissions by the company with a valuation of $4.5 billion is a software program it developed so that sales reps could complete online training courses more quickly than legally required to obtain an insurance license. It also violated California law by failing to pay employees for unused paid-time off and for overtime, The Wall Street Journal reported.
A healthcare investor I spoke with (who is not invested in Zenefits) expressed exasperation with the company, but was bewildered by the apparent lack of interest by their backers to keep a closer watch on the business. Among Zenefits investors are Andreessen Horowitz, Khosla Ventures, Comcast Ventures, and Fidelity Investments.
The investor noted that entrepreneurs in the Silicon Valley tend to ask for forgiveness and not permission. That mindset might work for social networks, but that kind of mindset can be dangerous for healthcare.
Sacks’ leadership so far has tried to distance itself from the hubris that marked his predecessor. But it remains to be seen whether it will be enough to restore confidence in the company or if it’s too little, too late.
Photo: Flickr user Lóránt Szabó
