BREAKING: Rippling v Deel, Tech Feud, Corporate Espionage Drama

0:00You're watching TBPN live. We are not live from the Temple of Technology today. We are broadcasting from the Temple of Technology because I am traveling. I'm in the nation's capital. Washington, D.C. It is a balmy 60 degrees outside. It's not cold at all. Jordy, where are you right now and how are you doing? I'm home in Malibu, the home of magnitude 4.0 earthquakes. There was an earthquake? There was an earthquake last night. It was like a 4.0 just as we were sort of going to bed. and the fascinating thing is that there's been a ton of earthquakes literally right on my neighborhood like if you look at the map there was an la times article last week i think it was monday about how this area of malibu has just had a bunch of earthquakes so we basically had two 4.0 earthquakes in the last week in the exact same spot and a bunch of others so um we're moving and shaking over here john uh love it and uh yeah all right so the the funny thing it doesn't seem like a size seismologists right like people that study it doesn't seem they describe their own craft as trying to read the tea leaves because they can't they actually aren't like they aren't able to make really accurate predictions other than we think a big one's coming yeah but they have no sense like you know there's been this massive uptick in activity over the last like six months they're not able to make any type of more accurate projections other than at some point there's going to be a big one um but uh but anyways we have some news shaking the timeline today uh there is a post i wanted to pull up um from a guy named anon he says uh about the story that we're going to cover this is an incredible tale of espionage and intrigue until you remember it's hr sass um but it's real it's real espionage and intrigue for our world and uh do you think it's do you think it's an accident that they that they did this on saint saint patty's day well just to set the just to set the tone uh if people haven't been following um today parker conrad the founder of rippling announced that they're suing deal for embedding a spy in rippling which is crazy in in the uh in the irish office in the irish office and yes it is saint patrick's day and so you know we got to put on the tinfoil hat and wonder what's really going on here is this some hibernian conspiracy going on uh are the are the irish lads uh up to something but but it feels like it's potentially irish on irish crime and we hate to see that especially on a day as important to me as an irishman uh as saint patty's day not wearing any green john uh i'm yeah you're wearing a decency to throw on a green where's my green i even thought about leveling it up and going double green with the bezel but um i'm gonna i'm gonna leave it off for now um well let's set the let's set the table uh there's actually a new article that just dropped in bloomberg that i think we should actually kind of pivot over to by because it's by matt levine uh over at uh at bloomberg spies in the sales slack i'll send this i'll send this over to the I'm pulling it up.

3:44Yeah. There's nothing like breaking news. Nothing like breaking news, yeah. And Matt Levine is a fantastic writer, and I think he'll break it down pretty well. So we'll read through this. We'll take you through some of the actual complaint, the PDF that's been shared. It's a 50-page document. I have some ideas of where the interesting stuff is, where the interesting anecdotes are. And then we'll go through a list of other corporate espionage just to give some history because it's a fascinating topic. We'll do too many deep dives there, but there's some fascinating ones in this list I put together.

4:19Somebody tried to steal a Coca-Cola formula at one point. The Chinese were stealing Google self-driving car stuff. There's been fascinating stories throughout the business history. Is the Coca-Cola formula, I don't know if you know offhand, is it still actually secret? I think so. they've they've found a way to to maintain that secret over a century plus i think so i think they i think they divide it up in in such a way that no one can get a full look at everything and so they've never been able to because it would be off patent by now and so someone would have copied it um but yeah uh highly guarded trade secrets including a new product sample and sell them to arch rival PepsiCo.

5:02Someone tried to steal it and sell it in 2006. This happened. Anyway, we'll go into that at the end of the show. We got to cover the breaking news first. So let's read about Matt Levine. He says, spies in the sales slack deal. I wonder how much corporate espionage there is. Like if you work in a high touch, high dollar sales business, enterprise software, investment banking, et cetera, much of your time will be spent pitching new customers who are choosing between you and your competitors or pitching customers who currently work with your competitors or trying to retain customers who are thinking about switching to your competitors.

5:36If you knew what your competitors were up to, that would help. If you knew a competitor was coming to your customer's office next week to try and steal them away from you, if you saw your competitor's pitch deck, you could take some actions. You could get to the customer first and offer a discount. You could see the arguments in the pitch deck and try to counter them. You could see what your competitor says about the features of its own product and try to build those features into your product. It's not a magic cheat code. You still need a competitive product and pricing and good salespeople and all that, but it surely helps.

6:08So, you know, find a salesperson at a competitor and recruiter, not to quit your competitor and come work for you, but to stay at your competitor and spy for you. You give her quarterly bags of cash. She looks at your competitor's pipeline and keeps you up to date on who it is pitching and what it is saying. Obviously, this is not legal advice. It seems problematic in all sorts of ways, but surely people try it from time to time. The downside is that apparently if you get caught doing this, you will get a hilarious lawsuit. And there's a big quote here from kind of summarizing what's going on.

6:43Workplace software company, People Center Inc. I didn't know this is the real name of rippling that's their i guess rippling's just their dba people center link is suing its chief competitor over alleged corporate espionage both companies were valued in excess of 10 billion rippling in its complaint says deal cultivated a spy to systematically steal its competitors most sensitive business information and trade secrets in a deliberate attack that lasted for more than four months the alleged spy at rippling its ireland-based global Global Payroll Compliance Manager was identified after he was observed accessing Slack channels and documents with no legitimate reason to do so, the complaint says.

7:24Crazy. I know. I just want to go out and say that this 100 % is happening at other companies. Yep. And those people right now are shaking. And they deserve to be. This is deeply wrong. And you get into this situation because Deal and Rippling were able to grow extremely quickly, initially doing very different things. Rippling was distinctly focused on the US market. They allowed you to pay people internationally, but it wasn't a core focus. Deal focused on helping US corporates move internationally. And then both these businesses are sort of have been converging over the last, call it two years.

8:12And given the scale that they're at now, yes, there are companies running on legacy systems and other competitors and things like that. But for the big logo clients, you can imagine that they're almost always competing. You know, nobody is saying, hey, hey, I'm going to go sign up for, I want a new payroll provider and then not getting bids from deal and rippling, right? That would be like bad practice from the HR or finance team at any company, right? You should be getting competitive bids. So it's not at all surprising that like these companies have basically been in a blood feud. What is surprising is that they would go far enough to allegedly plant a spy.

8:58And I'm excited to get into the honeypot component because Rippling was really playing some 4D chess. I love 4D chess. Yeah. I mean, I made a whole documentary about Rippling. I used Parker's previous HR company in 2012, 2013, Zenefits. Worked great. interesting hack there where they'd give you the product for free and then act as your health insurance broker. And so they would take the brokerage fee. And that was when you sign a healthcare contract as a company, the healthcare broker gets a commission. And those commissions can be really, really high because you're committing to spending a lot over a long time and they're very low churn.

9:49And so it was a very interesting, it was a very interesting, like go to market hack. They grew extremely quickly. They were the fastest company to hit a billion dollars in, in sales in Silicon Valley or ARR, like ever they're multi-billion dollar company. Then of course there's all the drama with Parker and Sachs and they've been, that's been litigated and relitigated a million times. But when I talked to Parker, I was, I was asking him like okay so like you're basically building the same company twice like what how did you think about it and it seemed like much more focus on hris early on they wanted to do uh this vertical this uh he called it the compound startup model so they do multiple things he really looks like what microsoft does where they have excel and powerpoint they're not this pure play vertical sass company they're horizontal and on day one he wanted uh you know payroll benefits and it and so rippling's go-to-market was hey you have all these employees some of them are working from home you buy them laptops what happens when they quit or they get laid off well they got to send their laptops back it's a hassle you're probably not like refurbishing them properly and putting them back in the cycle we will just handle all that for you as a unique go-to-market grew a ton and then i asked him like hey like what's going on with international this seems like it hasn't been that much of a focus for you.

11:11And, you know, the subtext of the discussion was kind of like, what's going on with deal. And he wasn't really mincing words. It, you know, he's obviously sees them as like a very serious competitor, but also just, I think there was a little bit of acknowledgement that COVID caught him off guard and COVID really, really accelerated what deal was doing because deal was built for international super crazy remote work. And the fundamental and And anybody that's an entrepreneur or investor should go back and read the deals or starting that deal rippling series, a memo, like on the compound startup.

11:46Yep. Parker basically lays out the master plan. He even published the memo himself. Yep. Deal didn't have to, you know, steal that one. But, but, but he puts out this master plan of like, if you basically own the employee graph, you can launch every meaningful piece of workplace software. Yep. on top of that and something to be you know i think we covered this last week it's something like 70 plus percent of all like uh public companies are based in the u.s yep and uh what that means is that rippling should own the globe should dominate you know if they're going to come in the u.s and sort of dominate the american uh market here and then you know eventually expand into global payroll, then of course, they're going to eventually get to upselling.

12:35And so for deal to move into traditional payroll and HRIS, that's also something that's sort of critical for their long term viability. Like they're not going to basically dominate the global payroll market without also having a significant sort of foothold in the traditional HR tech market here in the US. yeah yeah it's uh yeah i mean the compound startup thing is fascinating uh it's funny because we we we're actually working on setting up payroll right now and so uh we we uh you know uh our decision is being informed by the war on the timeline whoever wins yeah we should just condense this down and and set up a zoom link between a deal rep a rippling rep a gusto rep a warp rep and just get them all on the same call and say, hey guys, let's build in public here.

13:28Let's keep it transparent. Yeah, come on the show and pitch us. Whoever pitches us the best, it'll be good content and we'll get a good payroll provider. It is fascinating that obviously there's this almost like the holy trinity of unicorn Silicon Valley companies and they're all funded by Founders Fund and Andreessen and Sequoia and stuff. and like all those serious VCs have piled into these like unicorn, Decacorn, payroll companies, Gusto, Rippling, and Deal. But if you look in the public markets, there's another three companies that are all in like the tens of billions, and they all have basically the exact same name.

14:08It's like Paycom, Paylocity, and there's another one with Pay. And then above that, there's higher end ones that are worth even more. So it's just a massive market. When you're taking a cut of just payroll, it's just so easy to justify, oh yeah, 50K a year, 50K a month. You can look at historically, I think the payroll market has always been, the narrative has been, this is not a winner-take-all market. Deal and Rippling and Gusto can all be worth tens of billions of dollars just by eating ADP, right? ADP today. Totally, yeah, ADP is the big one. ADP is at 120 billion today. There's no new companies signing up for ADP that I know of.

14:52Totally. It's just not happening. I never interacted with a startup in coming up 10 years in startups that was on ADP. I'm sure they reach out to companies, but they're just not winning any companies. So it's almost like a cable style business where it's just running. Or like the Oracle. It's like, you know, it's like a huge business, but like for older school companies and bigger companies and ADP, I'm sure is great. If you're Disney, I think, I think I was at Disney. They were on ADP and it was like, yeah, they have like the most insane enterprise compliance needs and ADP fills that probably pretty well, but it's probably so cumbersome if your startup and you're like, actually I have no need for 25 of these features.

15:36Yeah. Anyway, uh, let's continue with the Matt Levine article. uh so a deal spokesperson said rippling was attempting to deflect negative attention from itself weeks after rippling is accused of violating sanctions law in russia which we'll get into in the information article it's seeding falsehoods about deal rippling is trying to shift the narrative with these sensationalized claims the spokesperson said we deny all legal wrongdoing and look forward to asserting our counterclaims sorry but yes that absolutely works if you are ever accused of violating sanction laws please do bring a sensational spying lawsuit against to your competitor that will certainly distract me anyway so to be clear here this is a this is a good line from from deals uh pr team the thing that's sort of uh hurting them on this is that the alleged spy hid in the bathroom and then you read the complaint and you're like

16:31so this is the right line from from deal but um it's i don't know i think matt's seeing through it a little bit. Yeah. So he says, this is not legal or public relations advice. It's just an expression of my own interest. Anyway, here's Rippling's complaint, which refers to the alleged spy as DS for deal spy. The guy allegedly lurked in a bunch of Slack channels devoted to Rippling sales process so he could channel information back to deal. Guided by deal as his primary search term, DS surreptitiously accessed Rippling Slack channels replete with its sales and marketing trade secrets and proprietary and confidential information.

17:06The channels accessed by DS contain highly sensitive and confidential information about customers, prospective customers, including details such as customer name, contact information, revenue at issue, and current issues and problems the customer is facing, and details of sales and relationships, conversations between Rippling and its customers or prospective customers. All of these are details that a competitor such as Deal could exploit to convince such customers to purchase their products rather than Rippling products. It is not clear how much this actually helped deal, but there is at least one suggestive case here.

17:40DS navigated to a mention of deal in a channel focused on a particular perspective customer who is considering both rippling and deal. This is known as prospect B. DS previewed the channel, which included details for a call scheduled with prospect B the next day and communications in which prospect B relayed to rippling specific concerns with the products and services offered by deal the channel also contained rippling sales team's internal pitch strategy discussion including confidential details about how rippling plan to highlight certain advantages of its products to address the prospects pain points with deals offering on february 20th 2025 this is like just weeks ago recent yeah the the day of the scheduled call between rippling and DDS previewed the B-related channel 66 times.

18:28Later that day, Prospect B abruptly canceled the scheduled call with Rippling in which Rippling was going to deliver its proposal and explained that they were doing so because they had decided to select a deal for the product they were interested in, even though Rippling believes that customer would have been better served by Rippling. And it's fascinating here. My takeaway is we are in a very new age of, especially with like the gong IOs and the sales recordings and stuff like, like if you're in an organization and you have access to the Slack, like there's more information than ever because you don't have to walk by filing cabinet and grab their notes off their desk.

19:09Like it's possible that like every single interaction with a customer is recorded verbatim and then also summarized. And then you see all the Slack channels that they're in. And some of them are like, it's literally just a ticker of like this company is about to sign for this much money. This company is worth this much. This company wants us to build this feature. And it's just like valuable data. To me this is just surfacing the reality of business which is that it's everybody in Silicon Valley has had this generalized you know competitive CEOs will talk to each other, they're friends it's sort of like hey we're eating you know we're eating these sort of legacy businesses like there's enough market cap for us to go around yep and so this type of story is basically surfacing what has been i'm sure happening in the background in a bunch of different ways right i was joking earlier that you know imagine a world where uh somebody bugged all the waymos and sf because there's no driver in them you could just like hire a jason bourne type to just like you know bug them and then calling waymos dropping like an air tag well yeah microphone yeah and you would just get this constant stream of of private conversations and this is why the ski lifts are so important i mean people are talking about bugging the ski lifts because that's where the capital allocators really exchange the proper alpha yeah yeah that too um but anyways uh you know i i think this is going to be a big wake-up call for the industry that again it's not all positive some yep we are competing for the same customers and you know we certainly um we have our own counter up counterintelligence operations lead against other podcasts right yes yes we know that that uh competing uh you know podcasts have tried to get moles into the system but um but yeah we're just embracing that head on.

21:10And I think every SaaS needs to have a counterintelligence operations lead yesterday. Definitely.

21:22Let's be clear here. If Rippling is coming for damages and they have this example here where it's very clear that Deal had insight into the sales process. It's up to Deal to prove whether this is real or not. But in this situation that Rippling is highlighting, Deal had direct insight into the sales process, down to the dates, down to the individual selling points. And they were able to leverage that information to get the prospect to drop out of the process completely with Rippling. And if this was happening at scale, there's totally a world where there was tens of millions of ARR that was on the line, especially if you look at collectively and Rippling's able to say, look, our average customer stays with us for seven years.

22:16You guys, you know, you know, we're had a sort of, you know, leverage these sort of trade secrets and corporate espionage. The settlement here could be well into the tens of millions of dollars or even who knows. Deal is going to be fine. Rippling is going to be fine, but this is not going to be an inexpensive blunder. Yeah. It gets to the nature of this particular business, which you talk to like the nuclear founders, the, you know, they were just literally all in that Jason Carmen documentary together. And they have a very positive, some mindset because for anyone in this like far out R and D heavy energy business, like they'll even let their, their lead VC invest in another nuclear company often because they're just like, look, like a, if we both succeed, it's really good for the industry and we're all just selling energy onto the grid like we're competitive with oil and gas more sure we are competitive with each other but it's much less zero sum at this point whereas uh with these with these hr and b2b sas products they're much more directly comparable and then the other thing is that i mean this is a very high margin business where the the pricing is super opaque and what the price that you're throwing at a customer is basically just an idea of how much value they're going to get from this maybe.

23:53And if you have the ability to come in and quote just a little bit under, you're going to win those deals again and again. Because you just have to throw out a number and you kind of get an idea from, you can take the temperature of people, well, what are you paying for ADP? Maybe they'll tell you. And think about how many people at Rippling, it seems like there's enough proof out there already that if the alleged spy is hiding and all this stuff, then it seems like there's enough proof to know that some information would be passed to deal somehow. Think about how angry if you're the rippling exec team, if you are, that one's obvious.

24:32Parker being livid is obvious. The sales team, right, where they're losing deals because people are basically just have, you know, this sort of information advantage. If you're the engineering team, who's like in the product team that's trying to compete on features, and you're spending all this time to build the best possible product, but then you're losing out on revenue and, you know, growth, because again, this sort of unfair advantage, I can see why they took it this route versus just, you know this is sort of beyond just putting up an x thread and being sort of totally being angry right yeah uh let's continue with this matt levine article uh if you had your competitor's pitch deck for a potential customer you both wanted that wouldn't guarantee you a win but it would help anyway most of the fun in the lawsuit is the trade craft rippling apparently discovered the alleged spy not because he was snooping on their sales information uh but because an investigative reporter at the information contacted rippling about a forthcoming article concerning deals russia-related sanctions activity and asked rippling about its dealings with russia the reporter included internal rippling slack messages in his email and rippling investigated who might have accessed those messages and quickly identified the alleged spy wow crazy right wait i I didn't even see anything about this yet.

26:05Yeah. And so we can go over to that information article. But the possible lesson here is that tech companies are much more sensitive about leaks to journalists than they are about sharing sales information with competitors. So if you're doing corporate espionage, don't blow up your spot by trying to plant negative stories, not any sort of advice. Having identified the spy, Rippling then tried to prove that he was working for Deal. This is a quote from the complaint. The smoking gun came earlier this month when Rippling set forth a test of what is known by security professionals as a honeypot to confirm Deel's involvement.

26:46Rippling's general counsel sent a legal letter to Deal's senior leadership identifying a recently established Slack channel called D-Defectors, in which the letter implied Rippling employees were discussing information that Deal would find embarrassing if made public. It's such a weird thing to send. Just be like, hey, yeah, we're talking trash about you in our Slack. I know, but it's just too. And it's like, I don't know why you would share that with your competitor, but it just apparently didn't matter. Yeah, I guess it just didn't matter because they fell for it. Well, and here's the thing.

27:24So we're not picking sides here. If anything, I've been incredibly impressed with Rippling's growth and Deals growth. They're both tremendous examples of what's possible in Silicon Valley. Many people almost couldn't believe how quickly Deal was growing. But Deal hasn't been without its own sort of crises because these companies are moving huge amounts of money around the world all the time. And anytime you're in that business, it's somewhat crisis prone because let's say some sort of account manager doesn't catch that, oh, this entity set up a deal account and they're using our product to pay out people that are doing prop trading, right?

28:10So they have this sort of crisis around prop trading. I think it was probably a year and a half ago. I can't quite remember. And then on the other hand, you have Rippling who's, hey, you didn't notice this, but you've been paying out a sanctioned entity in Europe, right? I'm just making up an example. I have no knowledge of this specific instance. But yeah, you can imagine this is a war at the feature level. It's a war at the sales level. It's a war at the capital markets level. It's a war at the narrative PR level. It is so funny to compare it to war because when I made the rippling video, I wanted to make it as dramatic as possible basically.

28:54And I was like, what is the hardest moment in your career here? what's been the hard moment to talk about. And they gave me a pretty interesting anecdote about early on, something happened with one of their customers had a weird character in the name of the company, and it completely messed up the entire payroll file. So payroll just didn't run. And they were on the phone with some of their clients. A lot of the tech companies are like, oh, okay, the payroll is going to go out on Monday instead of Friday. All of our employees will be fine with that. We'll just deal with that. But one of the companies was like running like trucking and he was calling the team being like, guys are going to like lose their mortgage over this.

29:36Like this is this is like bad. Like you need to help that. And so the entire rippling team had to go to ATMs, get cash, go to Western Union and like wire individual amounts to people. And they just like and it was like super dramatic. But it's so funny because it's like it is dramatic. But at the same time, like we're talking payroll software here. it's not really life or death but it is actually very important and and the stakes are high with like sanctioned entities and even i mean the abuse that can happen just moving money any system that moves money whether it's venmo or paypal or stripe like it can be abused it can be hacked and by definition there's a lot of money at stake and so uh it is it is serious business even though you know we we like to joke like oh it's b2b sass like it's it's so easy it's so like you know not It's not as world historically important as everything else, but there is stuff here that's pretty important.

30:29Let's move on. So about this D defectors channel. In reality, the channel was not used by Rippling employees and contained no discussions at all. It had never been searched for or accessed by the spy. Would not have come up in any of the spy's previous searches, and the spy had no legitimate reason to access the channel. Crucially, this legal letter was only sent to three recipients, all associated with Deal. Deal's chairman, the chief financial officer, and the general counsel, Deal's head of U.S. legal. Which is the founder's dad. Oh, is that who that is? I know Boisies, it's like, it's got to be someone related to him.

31:06And Deal's outside counsel. Neither the letter nor the D defector's channel was known to anyone outside of Rippling's investigative team and the Deal recipients. Yet, just hours after Rippling sent the letter to Deals' executives and counsel, Deals' spy searched for and accessed the D-Defector's channel, proving beyond any doubt that Deals' top leadership or someone acting on their behalf had fed the information on the D-Defector's channel to Deals' spy inside Rippling. And then Natalie says, pretty good. Yeah, so pretty good. Good enough to get an Irish court order to seize the alleged spy's phone, at which point he also did trade crap.

31:44But here's the thing. This is in the days leading up to St. Patrick's Day. Can you imagine the evidence that you need to get something like this to happen coming up on St. Paddy's Day? I assume Ireland shuts down for the entire month of March. Yeah, it's what's the Chinese New Year, you know, in China. They sort of shut down a lot of factory operations. us Irishmen are known for for liking a bottle and uh and uh St. Paddy's Day is as good as good as an excuse of any so you know I certainly wouldn't be going to work if I was in Ireland in the high court this is this is the natural you know you know how in 2020 2021 there was this sort of like you could go on Reddit and there's people that have two jobs you know like they're a software engineer at like meta and google you know or sort of meta like some unknown this is the natural evolution of that and totally just work for work for all the expense management companies work for all just pass all the info back i mean that that is my real question here is like so this spy was clearly w2'd at rippling might even had might even have had stock options which is kind of hilarious to think about.

33:00But how was the spy getting comped by Deal? Was it literally like cash in a duffel bag or was there some sort of stock option? Deal makes a really good product for paying people globally. Oh, okay. I see where you're going. And so it's very possible that he was dogfooding the product. Yeah. Maybe the long-term here is like, okay, Rippling has the normal business, mid-market, startup market, enterprise market, and deal pivots to being like tradecraft payroll. So like when the CIA, like Palantir for payroll, that would be a good like rebrand. Be like, hey, there's a massive network of spies all over the world.

33:43We're not going to use the traditional payment rails anymore. But if you need a duffel bag of cash dropped to an ex-KGB member at the Kremlin, like we can get it done for you. Crazy. Crazy. I think that's a good, that's potentially a good like growth story out of this drama it completely repositions the company volunteer for payroll crazy uh we got to go through the actual like uh the bathroom scene do you already read this uh yeah yeah yeah this is your favorite part uh so deal spy initially told the independent solicitor that his cell phone was in a bag on another floor. The solicitor offered to have an associate retrieve the bag, but Dilspy insisted that he retrieve it himself.

34:28The solicitor informed DS that if he was lying, he would be breaching the court order. The solicitor accompanied DS downstairs and took possession of the bag, but in fact, DS had lied. The bag only contained a notebook. It held no mobile device. On information and belief, DS's cell phone was on his person the entire time after misdirecting the independent solicitor ds then went to a bathroom locking the door behind him and refusing to come out despite the independent solicitors repeated warnings that these actions were in violation of the court order rather than comply ds was heard doing something on his phone by the independent solicitor you can just do things doing something he's just playing candy crud probably the haptics are going crazy this is addicted to tiktok maybe uh it's just ice cream so good in the bathroom just watching a live stream suggesting that ds may have attempted to flush his phone down the toilet rather than provide it for inspection later that day rippling had the plumbing of its dublin offices inspected but did not locate any mobile devices while in the bathroom and continuing after leaving the bathroom ds was again told repeatedly that he was required to provide the device and he would be in violation of a court order.