
Stripe raises $70M at $3.5B valuation, double that of January - andreyf
http://www.ft.com/cms/s/0/558a64e4-7a17-11e4-9b34-00144feabdc0.html
======
keithwinstein
It seems churlish to keep pointing this out, but (assuming the investment is
consistent with the typical Silicon Valley practice), it is just not true that
this investment, or any participant, has now valued the company at $3.5
billion.

Stripe has sold the investors a new round of senior preferred shares (again,
making assumptions). These shares carry various bells and whistles whose terms
we don't know -- but probably include some preference at an unknown rate.

The seniority and the bells and whistles make these shares particularly
valuable, compared with less-senior preferred shares, not to mention common
shares, not to mention something like an authorized stock option that will be
issued in-the-money at some future time.

The way you would get $3.5 billion (again, making the same assumptions) is by
imputing this per-share value to all of the equity units, as well as things
like authorized-but-not-yet-issued stock options.

That is not sensible. The investors in this round have not acted in a way that
suggests they believe the less-privileged shares are worth as much as these
new shares, and neither has anybody else. There is no basis for imputing the
same value to all equity units (and authorized options, irrespective of strike
price).

Here is a hypothetical cap table that is consistent with public reports:
[http://qr.ae/lc0ry](http://qr.ae/lc0ry)

Previously on HN:
[https://news.ycombinator.com/item?id=5798905](https://news.ycombinator.com/item?id=5798905)

~~~
pc
Some of your assumptions are off (e.g. our liquidation preferences are 1x non-
participating pari passu; there are no seniority games), but I really enjoyed
your Bayesian vs frequentist statistics lecture at 6.945 back in the day!

~~~
keithwinstein
Thanks, Patrick! (And thanks for posting Mosh on here and giving us a kick in
the butt to really release it...) If Stripe just has one class of preferred
stock, you're right that my assumptions are off, and I guess then it would be
reasonable to impute the value of the newly-issued preferred shares to all the
preferred shares. I would still disagree with imputing it to the common,
especially since you presumably have your own appraisal of the common at a
different price for tax purposes.

Do you think there's a practical path to getting some more realistic numbers
in these announcements? Does it matter? It seems like the people possibly
being misled by these "TechCrunch valuations" are the press (which is
enthusiastic anyway and loves to report the biggest number that can be
attributed to somebody) and prospective/current employees (which could be a
lot more serious, since people use these valuations to evaluate their own
equity packages).

~~~
nemanja
I think this is mostly a pedantic point for a late stage private convertible
preferred.

While private convertible preferreds typically have a dividend stream,
conversion option (typically at spot) and liquidation preference (1x and
presumably no participation feature in this case), they are theoretically more
valuable than common. However, since there is no public market for the common,
hedging that option wouldn't be efficient (if feasible at all) so I don't
think the valuation really reflects that additional value (if at all).
Investors develop a valuation view based on the metrics they would use for
common (growth, fundamentals, perhaps some real option value, etc.) and invest
based on that. All the preferred features are in the doc to provide some
protection in the downside, which I don't think is much of a consideration in
case of Stripe. You can see this pricing dynamic in S-1 filings of a few
precedents (Twitter comes to mind) where founders were able to tender some of
their common in the later rounds at the same valuation as preferred[1].

On the other hand, you are spot on when it comes to a public security (i.e.
post-IPO convertible preferred, mostly capital/ratings instrument and quite
uncommon in tech) - you would definitely bake-in the option value and dividend
stream into the security valuation which would result in some conversion
premium for the company and say 5-10 points in theoretical value above the par
for investors. The difference is that primary buyers of the public convertible
preferred security would be hedge funds who can short the common and
effectively monetize the option value embedded in the security.

If anything, the way I would look at this is that any credible bid for Stripe
would probably have to be in 4-5x of that valuation.

[1] See pgs. 139 (bottom, 2011 Third-Party Tender Offer) and II-3 (top) of
Twitter S-1 ([http://1.usa.gov/1cEqy0J](http://1.usa.gov/1cEqy0J)) for
difference of ~1%, likely due to fees, etc.

------
borat4prez
In my experience Stripe has very poor customer service. Hopefully they spend
some of this money in that department.

Trying to talk back and forth through e-mail because they won't give me a
number to call about sales trying to get a lower rate because my volume of
sales is greater than $80k+ monthly, waiting 24+ hours on average for a reply
and even 72+ hours on one occasion, finally gave up on them and went with
another payment processing company. This happened over the past month. Kind of
disappointed.

~~~
pc
I'm very sorry about that! The support team has expanded a _lot_ this year;
we're working on it. Feel free to email me directly if I can ever help --
patrick@stripe.com.

~~~
kawsper
Please be more active on IRC. Right now it is a guy called 'markin' that is
doing all the support, and he isn't even hired by you.

He says he is happy with the t-shirts and stuff that he have received, but it
would be nice with a more direct route to actual employees.

~~~
matthewarkin
I've spoken to some Stripes about it, getting on top of IRC is definitely
something they're working on and some hints of that are showing with the new
developer support position.

I'm always happy to help out, Stripe's a fun and easy platform to develop
upon, and its always fun to see what other people are building, see how
they're using Stripe, etc. I definitely think I've learned as much helping as
I've taught.

I will take an invite to the infamous Taco Tuesday though :p

~~~
joshdotsmith
Seriously, thank you for all the help you've given to those of us who've
freely taken it on IRC. I wish you were a Stripe employee, in all honesty.

------
ankushio
Please don't submit articles which are behind paywalls. Usually ft.com,
wsj.com can be accessed freely by using Google Webcache. Here is the link to
the cached article :

[http://webcache.googleusercontent.com/search?q=cache:3i5Cv6t...](http://webcache.googleusercontent.com/search?q=cache:3i5Cv6tTUvgJ:www.ft.com/cms/s/0/558a64e4-7a17-11e4-9b34-00144feabdc0.html+&cd=1&hl=en&ct=clnk&gl=us#axzz3KlrL4HOY)

Edit : You can use cachedpages.com to get links to Google Webcache et al.

~~~
minimax
_Please don 't submit articles which are behind paywalls._

I'm pretty sure if that's what the moderators wanted, they could just block
wsj.com and ft.com directly. Personally I would rather see more payed content
because I think it tends to be of higher quality, especially when it comes to
business/finance journalism.

~~~
nhayden
The issue is the same information is available from other sources without a
paywall and the difference in information or insight is negligible for
articles like this.

~~~
cdcarter
Then, if anything, we should be promoting higher quality sources, not pushing
people to post ways to circumvent paid content.

~~~
nhayden
Agreed

------
NDizzle
Hopefully they take some of that money and try processing payments other than
credit cards. I really wanted to use them, but I have old school customers who
want to pay me with a physical check sometimes.

~~~
pc
Yup, we're working on a number of other payment methods. (We have ACH charges
in beta -- let me know if you'd like access. patrick@stripe.com.)

~~~
canvia
Bitcoin?

~~~
zrail
Bitcoin has been in beta for awhile
[https://stripe.com/bitcoin](https://stripe.com/bitcoin)

~~~
foldor
Money handling software and beta don't mesh well with me.

~~~
epa
Nothing will ever get built then.

------
downandout
Good for Stripe. Many companies are receiving frothy valuations in this
environment. IMO a small fraction of them have even a remote possibility of
growing into those valuations. Stripe is one of those few.

Disrupting the payments industry, with its labyrinth of regulatory issues,
entrenched gatekeepers and competitors, and massive risk management issues, is
a Herculian task. Pc and the rest of his team at Stripe have successfully
confronted all of these challenges, and I can't wait to see where things go
from here.

------
zlotty
Would anyone else stuck with a bunch of subscriptions on Authorize.net like to
see Stripe come up with an easy way to transition over? That would be
incredible.

------
pc86
Any idea what they plan on using this money for? Having just raised $80M in
January what could they need another $70M for?

~~~
ChuckMcM
Since we don't know, we can speculate.

One, they are expecting that it will become difficult to raise money in the
future and they are not yet profitable.

That implies they do _not_ see an IPO in their future.

Two, they have been doing this a long time and some of their early
investors/execs want a bit of liquidity, and since they haven't (or can't)
offer shares to the public, they are using a private markets to provide that
liquidity.

Three, they are planning an IPO and some banker convinced them to do "one more
round" in order to fill their coffers with some stock outside the stock they
could buy as part of the deal to bring them to market. This is a hedge against
a 'soft' IPO like Facebook's where the IPO shares available to the bankers
were not able to be sold at a profit given the lack of a 'bump.' The hedge
would work by them using that stock to sell into the IPO (at say $5B
valuation) and thus 'lock in' their payoff without relying on the stock going
up at all at the IPO.

Take your pick.

~~~
bachback
IPO certainly not - it's extremely unattractive in the current regulatory
regime (death of the IPO [1]). I wonder what their long-term strategy looks
like given their margins can't be very high as a front-end for credit card
companies.

[1] [http://www.vox.com/2014/6/26/5837638/the-ipo-is-dying-
marc-a...](http://www.vox.com/2014/6/26/5837638/the-ipo-is-dying-marc-
andreessen-explains-why)

~~~
nemanja
Nah, not quite. Public markets are red hot right now. Nasdaq is ~20% above all
time high of '99 madness. IPO always was and always will be the best financing
option down the road for great companies, Stripe included. Yes, there is a bit
more regulation with SoX and such, and yes it's a bit more painful than it
used to be back in the days, but some regulatory overhead makes not one iota
of difference to a great company. Sure, middle of the road companies in VC's
portfolios may not find IPOs as attractive as they were before and will exit
through M&A.

As you can see from CEO's post a few above, these guys are nowhere near done,
they have their work cut out for them in terms of expansion and accordingly a
ton of growth prospects ahead. From that standpoint and because private
funding is plentiful and attractive for a company of this profile, I agree -
IPO is probably not the best choice at the moment [but you can read above post
between the lines that they are heading there]. You see, in an IPO, they would
need to sell a bigger chunk of the company to have a decent liquidity in the
stock and private markets allow them to "right-size" the rounds. Also, the
whole IPO process is a lot of work and bit of a pain and could be distracting
from day-to-day business of running a rocket ship.

~~~
bachback
Yes, quite. Look at this chart[1] and animation [2]. You will find that there
are almost no IPO's below 1B$ in the 2010's. What used to be the default
option, became: stay private as long as you can. If Stripe is worth 3B$ now,
what stops them from going public? Same for AirBnb (13B$ est) and Dropbox(10B$
est).

[1]
[http://cdn.ientry.com/sites/webpronews/article_pics/tech_ipo...](http://cdn.ientry.com/sites/webpronews/article_pics/tech_ipo_chart3.jpg)

[2]
[http://www.nytimes.com/interactive/2012/05/17/business/dealb...](http://www.nytimes.com/interactive/2012/05/17/business/dealbook/how-
the-facebook-offering-compares.html?_r=0)

~~~
nemanja
When looking at those charts, I would disregard the relative density during
the IPO madness of '98-00, time when IPO was the default option for companies
that should have never been public, to great retail investor fanfare, massive
speculation, and ultimately untimely demise. Also, take out outliers (say
Facebook and Google), periods of recession, adjust for inflation and all of
the sudden, they don't look that much different (perhaps if you also squint a
little or close one eye).

These charts only include tech, but there are other industries, too. For
example, we had an explosion of IPOs in oil & gas LPs in the last couple of
years. How is it not burdensome for a $250mm oil and gas LP to go public but
it is for say $1bn tech company?

Make no mistake - there is nothing that would stop any of the companies you
listed from going public (and I am pretty sure they will all be public in due
time). For now, it is a matter of focus and choice. They all have access to
great terms in the private markets. Given access to capital, it has always
been more advantageous to stay private for as long as you can. For one, it
allows you to focus on metrics that are relevant to your business (say nights
booked or payments processed) and growth and not be distracted by GAAP
measures and what equity analysts think you should measure. Also, there is no
"stock ticker" distraction and a bunch of other reasons.

This all changes a bit when they get into the acquisition mode, as having
liquid acquisition currency in form of publicly traded stock helps make bigger
and bolder moves. It's also nice to give some liquidity to early employees as
well.

While this dynamic may suck for growth oriented retail investors and mutual
funds, I think it works well for the companies in question and at the end of
the day - that's what really matters.

------
modzilla
I am building a web app right now and am looking forward to when I can start
using Stripe to capture payments. Stripe's design (in terms of both usability
and visual appeal) is excellent for a tech company. The API documentation is
amazingly easy to read and understand. Also, I love your blog.

Best of luck to Stripe!

------
benatkin
This article is behind a registration wall.

~~~
andymcsherry
[http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd...](http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCAQqQIwAA&url=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F558a64e4-7a17-11e4-9b34-00144feabdc0.html&ei=gBB-
VPqZIcXNiALlnIG4Aw&usg=AFQjCNHoebXCa281YVR48D6JWRwg42qgDQ&bvm=bv.80642063,d.cGE)

------
wallyburger
I think that valuations right now are the tech VC equivalent of penis size.
You can structure a deal such that a valuation becomes pretty much anything
you want and it is more about bragging rights then anything else.

