Public Markets Are Hot – Here’s Why Stripe Skips The Party

Over the past year, the stock market has been unleashed for new public fintech companies, welcoming them like Beatles fans in the late 1960s. In January 2021, Max Levchin’s buy now, pay later business Affirm is went public and shares nearly doubled, bringing the company’s value to $ 24 billion after being priced privately for $ 5 billion just four months earlier. Little-known North Carolina online banking firm Ncino went public last summer and its stock rose 195%, marking the biggest ‘IPO’ of an American tech company since August 2000.

Still, Stripe, the 11-year-old San Francisco-based company that lets businesses accept payments online, skips the party and stays home. It raised $ 600 million in new funds for a valuation of $ 95 billion, becoming America’s most beloved startup.

The simplest reason it stays private is because it’s more work to go public, say several industry investors. The “hamster wheel” of having to report quarterly financial results consumes management’s time and focus, and invites more accountability and scrutiny. Typically, start-up investors pressure companies to go public or acquire within a decade, as this allows VCs to sell their shares and distribute the proceeds to their own investors. But Stripe’s growth and size has given him more control to do what he wants. And it’s backed by investors like Sequoia, known for their unusual patience.

Stripe is so big that it doesn’t need $ 600 million in cash. Why fundraising? Dollars can help fuel acquisitions, say FinTech investors. Outside of payments, Stripe has created bank-as-a-service products like small business bank accounts, and may consider a related acquisition. In October 2020, Stripe bought Nigerian payments company Paystack for $ 200 million, showing a willingness to grow through acquisitions. A Stripe spokesperson said it will use the $ 600 million to invest in its “business” of larger customers and in European operations.

Another reason to raise funds: almost tripling your valuation in three years shows exceptional progress. It’s a marketing signal that Stripe can use to recruit talent, and it barely dilutes the value of the stocks founders and employees already own. Forbes estimates co-founders Patrick and John Collison are now worth $ 9.5 billion, up from $ 3.2 billion before the new fundraiser.

A big remaining question is what Stripe is doing to help employees with cash. Some staff probably want to sell their shares to buy a house or pay for their children’s college. Secondary market platforms such as SharesPost and EquityZen allow people to sell shares of private companies, and secondary market sales have become increasingly popular. But companies can restrict these sales and it is not easy to sell small holdings. On SharesPost, you must sell at least $ 100,000 in stock to use the platform. This is good for people who have worked at Stripe for a decade and have shares worth millions of dollars, but for the base engineer who has been there for four years, it might not be as useful. Stripe declined to comment on how it is helping workers resolve this issue.

Another interesting question is what the stock market will look like when Stripe finally decides to go public, perhaps within the next couple of years. With valuations at record highs and short sellers starting to bet against SPACs, Stripe may be able to avoid the next market correction before it goes public and begins to face all this scrutiny from the market. investors.