Zenefits joins Uber & AirBnB in regulatory battle as InsurTech grows up


The Zenefits innovation is brilliant. They give away software to manage employee benefits and then monetize via the leadflow to insurers. That led to a rocket ship growth that reads like a fairy tale until in February of this year we read about the CEO resigning after compliance issues with regulators.

Rocket Ship

The rocket ship story is revealed in the funding rounds:

  • Graduating from the Y Combinator Winter 2013 batch nets them $372,000 and a Seed Round with A List Silicon Valley investors.
  • January 2014 $15m Series A, just nine months after graduating from Y Combinator.
  • June 2014 $66.5 million Series B at a $500m valuation.
  • May 2015, $500m Series C at at $4.5 billion valuation.

Zenefit’s innovation led to the kind of hockey stick growth that you usually only get in fairy tales or naive entrepreneur pitches.

Then, last week on February 8th we get headlines like this in VentureBeat:

Zenefits CEO Parker Conrad resigns, COO David Sacks takes over

The oops moment is just that

To win big, you need to:

  1.  Innovate in a massive market. Zenefits = tick.
  1.  Have deep pockets. Zenefits = tick.
  1.  Execute flawlessly. Zenefits = oops.

At this moment, Eeyore is heard muttering “fairy tales never come true, I told you that this would end badly”. Today’s research note describes why the dramatic news this month is only an oops moment that signals that InsurTech is growing up.

For details on what Zenefits did wrong, go to this Buzzfeed article.

Betting on David Sacks

I read the headline about the CEO resigning rather differently because I saw that the COO turned CEO was David Sacks who had founded Yammer and led it to a successful exit. When I first spotted Yammer I misjudged it. When I learned about their traction I interviewed David Sacks to learn about what he had done. This gave me a deep respect for David Sacks as a business leader.

What Yammer did was build some unexceptional software and innovate brilliantly on the revenue model. It looks like David Sacks will be doing that again. Zenefits get their revenue from lead sourcing rather than subscriptions, but the base idea of innovating on the revenue model is the same.

Reacting to compliance issues

Insurance and Banking work in regulated industries. So do taxis and hotels, but the regulation and compliance in Insurance and Banking is tougher. Our thesis is that 2016 will see the Great Convergence between Fintech/InsurTech and Banking/Insurance which means that Fintech/InsurTech ventures that want to make a difference need to grow up and address compliance properly.

The Zenefits story is the story of InsurTech growing up.

Zenefits is moving fast to address their compliance issue; this is textbook crisis management. They will get past this. The regulator is no longer all-powerful. Regulators get their orders from politicians who get their orders from consumers/voters. If small business and their employers get better/cheaper products (taxis, accommodation, insurance) they will tell politicians what they think and then the innovators (Uber, AirBnB, Zenefits) will have some negotiating leverage. They cannot ignore the rules. Nor do they have to accept everything without question. Regulations do change. That is why it is a negotiation.

Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech. Bernard Lunn is a Fintech thought-leader.


  1. While some regulation is deeply flawed and serves only as market entry barriers lobbied in by the incumbents, we should all remember that the original and core purpose of market regulation lies in consumer/citizen-, market- and environment-protection.
    It’s always easy to call regulation a barrier to innovation until something happens and, in the case of FinTech and Insurtech, people lose their money.

    • You are right. Getting that balance right is what makes being a regulator a tough job.

  2. […] We covered the dramatic rise and fall of Zenefits a few months ago. The takeaway is that agents/brokers need to have a reasonable understanding of what they are selling. These 4 ventures may be the tortoises that beat the hare story (not implying that they are growing slowly, only that every venture looks like a tortoise compared to Zenefits in it’s glory days). […]

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.