Zenefits is a canary in the coal mine for hypergrowth startups--or at least that's how the story of the company's skirting of regulations and subsequent resignations and layoffs is generally conveyed.

But 500 Startups CEO Dave McClure is a little more optimistic about the future of the human-relations startup. Speaking at the Launch Festival in San Francisco Thursday, the head of the Silicon Valley startup incubator suggested some of Zenefits' problems were being exaggerated.

"I think that's maybe not as troubled a story as it's being presented," he said, acknowledging that former CEO Parker Conrad was "pushing the envelope" with marketing and sales techniques.

Conrad resigned last month because of what new CEO David Sacks described in an email to employees as "inadequate" compliance. It was later revealed brokers at the company were faking their qualifications, and additional executives were fired.

Zenefits is still a promising company, said McClure, citing the hiring of Sacks as CEO as evidence. Sacks served as Zenefits' COO prior to stepping up as CEO. Before that, he served as COO of PayPal and founder of workplace collaboration tool Yammer, which ultimately sold to Microsoft.

McClure said if he had a chance to work with Sacks at a startup, "I'd jump on it."

In an email to staffers last month, Sacks announced the layoff of 250 employees but said he thinks Zenefits will fall outside the narrative of failed tech company turnarounds.

"During my years in Silicon Valley, I've seen a number of attempted tech turn-arounds. Frankly, they don't have a very good track record," he wrote. "But that's because those companies had become obsolete technologies; they had lost their product-market fit. That is not Zenefits. Zenefits has made mistakes but it never lost its product-market fit." 

McClure said Thursday, "I know the company definitely has customers and definitely has revenue."

Published on: Mar 3, 2016