Remember that Stripe changed its RSU grant structure a year or so ago, so this won’t negatively affect newer employees. Stripe gives out a fixed amount of $$ value of stock each year now. The typical recent senior hire will get around $200k a year in stock. Now that the valuation is lower, they’ll be granted more stock units than before, which is good. Getting granted fewer stock units at a ‘fake’ higher valuation would have been frustrating.
Personally, I don't see what the hubbub is about. A 409a is a standard instrument used to price options, a standard approach to a 409A valuation is the base the value of a company on its comparables, including public comparables.
If I were conducting this valuation, I haven't done this myself, but I most definitely read our 409A valuations closely. I'd imagine that the outside firm hired to conduct the analysis on Fintech would use data like:
BLOCK (down 49% in last 6 months)
PAYPAL (down 60% in last 6 months)
COINBASE (down 75% in last 6 months)
INTUIT (down 30% in last 6 months)
VISA (down 5% in last 6 months)
SHOPIFY (down 70% in last 6 months)
Everyone at these fintechs, has seen the valuation of their company drop significantly (with the exceptions of VISA in the last 6 months. It's possible that stripe's performance is closer to VISA than to SHOPIFY, but only dropping 30% is likely pretty generous given the broader market.
Anyone with options at any of these public companies is dealing with the same challenges.
There was a big shift over the last decade towards late stage startups and public companies issuing RSUs instead of options. Blonk stopped issuing options in like 2014. Coinbase is all RSU. Shopify is all RSU. The others I don't have personal knowledge of. It's possible someone is still vesting options from years ago but if so they're most certainly not underwater.
Shouldn't going public on an unrealistic market cap would cause more issues than benefits? Sure, a healthy exit is ok but later pressure to recover the market cap in the short term can cause heavy structural damages inside any org.
I think that's a more complicated explanation than necessary. If their private valuation is higher than their public valuation it means they can raise money more cheaply while private.
The restriction of not being able to liquidate their shares on the public market because of Stripe staying private for an unusually long time (Block (formerly Square), the other double-digit billion-dollar Silicon Valley payments company founded in 2009, went public in 2015). I imagine most Stripe employees that joined in 2019 and earlier expected Stripe to have gone public by now.
That they continue working at Stripe, instead of pursuing other life goals.
Or to phrase parent's point differently: by not IPO'ing, Stripe forfeited the premium public markets would have been willing to pay Stripe employees for their stock.
I'm not too sure about this. Stripe has double trigger RSUs with a 6 or 7mo lock up.
Let's say they went public in '21 instead of raising money in June of that year. The market would've already turned by the end of the lockup period. By delaying the IPO there is still some chance that the shares can be sold on the public market for more than the grant price -- I would note that this really benefits Stripe hired post-2020 but at this point that's like 75% of the company.
I doubt that last year was a good time to go public. At the stock market, the shares would likely have fallen by more than 28%. Plus, you can't sell RSUs right away, and watching them sit there and lose value is a pretty frustrating experience too...
The market caps of other Silicon Valley payments companies like Block (formerly Square) and PayPal peaked in Q1-Q3 2021 before declining in Q4. So if Stripe went public before Q2 2021 (to account for 6 month lockup period), their stock-holding employees should have been able to enjoy the opportunity to profit very nicely on their RSUs.
The whole stock market is crashing, it really makes sense for Stripe to adjust their own private valuation accordingly. As far as I can see, this is just the rules of the game when you accept stock options as compensation, and it would be unwise for Stripe to pretend their company is different and their valuation can “only go up” forever.
I'm genuinely curious why you say this. Could you please elaborate? I've only worked at publicly traded companies.
I don't understand how this wouldn't be the exact situation you'd want to be in. my understanding is this:
1. If you're granted options at price X, and the new share price is lower than X, you're under no obligation to exercise your options. So no real financial loss or cost to you.
2. If you're granted options at price X, and the new share price is higher than X, you're still under no obligation to exercise your options. So it's up to you now.
3. You've exercised options at price X and now it's less than that. Well that sucks. No significant different from publicly traded shares being bought and suffering a price drop. Granted, it's easier to sell your public shares at a loss for reducing tax liability on other capital gains.
4. If you exercised options at price X and it went up then yay, you're winning.
5. If you are ensured to have been given $X worth of options, and your options have dropped to $Y, and now you'll be granted options to cover the difference of $X and $Y, these latest options will be granted at a lower price, $Z, and therefore will be better priced overall. Which would mean you could now exercise the options granted at the higher price or the ones granted at the lower price. Doesn't seem like it really matters or affects anything since the net gain is the same for the year.
It's designed to screw employees out of upside and they sell it pretending it's employee favorable.
If you reprice equity comp each year then you lose most of the upside.
Compare the two following equity plans:
Example Year 1:
---
PLAN 1
FMV: $1
Strike: $1
Total #: 40k ISOs
Vesting: 4yrs
---
PLAN 2
FMV: $1
Strike: $1
Total #: 10k ISOs
Vesting: 1yr
---
In the second plan you get granted new equity per year targeting some total comp.
This means if the equity goes up in value a lot in the first year, when your new amount is recalculated it'll be way less than 10k.
Example Year 2:
---
PLAN 1
FMV: $2
Strike: $1
Total #: 40k ISOs (10k vesting in year 2)
Vesting: 1yr into 4yr period
---
PLAN 2
FMV: $2
Strike: $2 (new grant)
Total #: 5k ISOs (The 10k from the first year, and now half that # determined by new FMV for a cumulative total of 15k instead of 20k ISOs).
Vesting: 1yr on new grant
---
This lets the company keep the majority of the upside, taking it away from employees. It also hurts employees that stay longer or have a longer term interest in the company from capturing the value they helped create.
And the more the company goes up in value, the worse the trade off becomes.
Sure in the case of a crash you may get more stock (maybe assuming they don't reduce that given hard times, target comp is just a target after all - I don't think they commit to it). Typically companies regrant underwater equity in the case of a crash anyway (see peloton). Even in the best case, I'd guess it's unlikely the grants during a down year make up for being excluded from being able to get more at a lower price 5yrs out.
You’re thinking way too hard - they have talent they need to retain. Promise status quo for the foreseeable to common shares even in the “wild world.” When the exit comes, see how common vs debt/preferred are treated.
In the case of a crash, "typical" companies do not re-grant equity. Look at your typical big tech company, did they regrant equity? All of tech is down -- few tech companies have granted additional equity.
Depends on the crash and if employees are underwater or not.
In this case Stripe cut their validation by 28% and may give more stock based on that price. Assuming they do, will employees come out ahead when compared to if they had been able to lock in 5yrs of equity up front at whatever the price was when they started?
You can always negotiate for more if your locked equity becomes worth a lot less, it's a stronger position to be in as an employee. The equity is a bet on capturing value of large upside imo, their structure limits that.
I think 1 down year has more of an affect than your crediting, although it does depend on timing.
If you're given a 4 year grant for $X and during the first year, stock/options/whatever equity form drops 25%, then you now need to wait for the company to grow 33% to get back to your original target comp.
If that same situation happens except the drop happens in year 4 of a grant and you're above your target equity, then you'll be ahead only if the company has grown more than 33% since your initial grant date.
Now let's say you're granted an amount annually. And it drops 25% your first year and you plan to stay 4 years. Your equity portion of pay goes down for 1 year and then it goes back up. Now on year 2 you're given 1.33x the number of shares you were year 1. So let's say the company goes back up by year 4 to the original price and it steadily climbed back. If you sell at time of vesting, year 1 you took a 25% loss, year 2 you made some sort of gain. Year 3 you also made some sort of gain.
Let's say you held all vested stock and decided to sell at the end of year 4. Well your 1st year is flat but it's a loss due to opportunity cost and inflation. Year 2 has gone up 33%. Year 3 has gone up some amount as well. Year 4 probably has as well (assuming equity is priced at the beginning of the year).
I'd have to run real numbers to understand this, but again, I think people under estimate the affect a drop has. 4 year grants up front are just more risky and more of a gamble since you've basically bought 4 years worth of stock at a single price (e.g. you're timing the market).
Preferred shares, covenants, etc - there’s no way you can guarantee an employee static dollars without finessing the cap table. The things that keep the compensation static on paper are usually tested and stressed during an acquisition, and a public offering at a valuation lower than the highest priced round - additional terms begin at those points: clawbacks, earn outs, lockups, tips, first rights of refusal, and new things fresh mbas dream up…
I don't know how stripe does it , but employees want to know what his stock is worth and the company needs to know how much stock to give. Since we are private we just say "our internal best guess for our evaluation is $XXmillion therefore we will give you X number of shares worth $200k at this valuation. There is no finessing of the cap table. We have pre allocated a certain percentage of stock for employees, we issue out of that allocation.
I don't see an answer here for why reducing the unofficial internal valuation is bad except for the fact that they are saying we might not sell for as much anymore which affects all current stock holders if it ends up being true.
If they’re able to keep all things equal, with your example in mind, then they cushioned the employee pool at an earlier round and are burning through the shares faster than when the round closed. It’s a bandaid, the real hope hope is that the injury in terms of valuation is truly a scratch that won’t leave a scar.
> 1. If you're granted options at price X, and the new share price is lower than X, you're under no obligation to exercise your options. So no real financial loss or cost to you.
> 2. If you're granted options at price X, and the new share price is higher than X, you're still under no obligation to exercise your options. So it's up to you now.
The payout on a call option is min(exercise - strike, 0). If you are granted options and X and the new share price is lower than X your options are now worth 0[1]. If the price is higher than X, you have lost some function of the volatility, time to expiry and Price_new - Price_old.
In both cases there is a real mark to market financial loss to you even if you haven't yet crystallized that loss by exercising (which of course you would never exercise if the value was zero).
[1] Actually very close to but not exactly zero because of the vol and the time to expiry. They could get above water again.
One, why would you ever want more of a growth company that is shrinking 13 years in with no exit in sight. Two, you miss out on 3 years of upside relative to a 4-year grant. It’s a terrible deal, but I see why they’d want to give it.
> One, why would you ever want more of a growth company that is shrinking 13 years in with no exit in sight.
Because if your given a fixed dollar amount of shares, and the overall evaluation goes down, you get a higher percentage of ownership.
Why would you want this? In the event that there is an exit, I presume the payout is better.
Public companies are also declining currently if you're using valuation to determine growth. And some of these are 20+ year old companies.
> Two, you miss out on 3 years of upside relative to a 4-year grant. It’s a terrible deal, but I see why they’d want to give it.
This only true assuming things keep going up. Which as we can see, is not true. It's not a "terrible deal". It's a more risk averse deal. If you started a new job at a company in the last 6-12 months and were granted 4 years of stock at a higher price, then stripes offering probably looks pretty good right now.
If the other posts are to be believed they don’t have options, they have RSU’s. Not the same thing. Still not great of course but it’s better in the long run if leadership levels with people.
A previous place I worked had this situation of employees in countries like Australia getting options because of the tax laws there. Company IPO’d at a price below the last 409a. By the time lockup was over, options going back several years were underwater.
Those employees’ equity was worthless while those on RSUs in the US (and many other countries) still got something.
RSUs are worth less than transferable stock. You can’t get liquidity for an RSU (or nontransferable stock) without using a forward, which may be illegal if you have less than a $10mm net worth. Options yield stock, however, which can be sold.
For Stripe’s VCs, on the other hand, employees accepting RSUs makes their stock special. That increases the value of their shares.
RSUs are great at public companies, as soon as they vest they turn into regular shares. At a private company, well, it seems pretty hard to sell any shares in those isn't it?
> still extremely expensive, slow and challenging to sell pre-IPO shares even in a major stock that has a lot of active liquidity
Sure. But "expensive, slow and challenging" liquidity beats no liquidity at all. Which is why few investors would agree to the lock-up terms of an RSU. (These terms make sense at companies which aren't going concerns, because they're young or going bust. They also make sense for executives at all stages. They don't make any sense for a multibillion dollar enterprise.)
Not exactly, but has huge valuation risk and is likely to end up being $50k all said and done. The trouble with equity is that it can fluctuate wildly in value and you only have yourself to blame (because the decision to sell is ultimately yours, and there can be a lot of anxiety and regret attached to it).
most of the startups that offered me stock options had completely exaggerated valuations, so...
my heart goes to engineers, who joined a startup on bold promises to make it, but never got to IPO, M&A or even worse - were forced to execute options to later sell them at loss
This happened to me as well. Ridiculous billions+ valuations for companies that have not much of a moat and questionable market sizes, plus competition. Consequently the stock grants were for laughably thin slices of the company for massively inflated "Fair" Market Values per share, not to mention below-average salary offers. Basically, many startups think employees are only too willing to assume inordinate amounts of risk to make founders and their cronies rich while putting their futures on the line, and expect employees to be grateful they are given such opportunities. F that.
So many startups never IPO, and their stock options are effectively $0. When they leave they have a small window to exercise them and pay capital gains tax (with inflate valuation, this could be $100k or more).
Anyone thinking of making money off stock options at pre-IPO startup are taking a get a) valuations are realistic b) startup will IPO. In this current environment, both are false.
For some shares, there is a private market, and typically the company has to approve of sales. If they do, and the market has willing buyers, no problem. If the company blocks every sale, it's worthless.
I assure you, you will have no trouble selling Stripe stock at what its worth. There is a big appetite for Stripe shares in the secondary markets even if the company never goes public.
Stripe has "double trigger" RSUs, meaning you don't actually own them until after IPO + lockup period. There are tax advantages to doing it this way, but it means that a senior hire "getting" $200k/year can't sell on the secondary markets, and may be getting shares that they will never be able to sell for their supposed value.
>"Stripe has "double trigger" RSUs, meaning you don't actually own them until after IPO + lockup period. There are tax advantages to doing it this way, ..."
Interesting. I've not heard of the term "double trigger RSUs" before. What are the tax advantage of this over regular options? Most companies have right of first refusal of secondary market sales of pre-IPO stock. If the goal was to prevent secondary market sales. What does "double trigger RSUs" provide that right of first refusal does not?
There are some benefits for employees. So long as the company goes public, RSUs are worth something unlike options which can be underwater. You don’t have to pay to exercise them. Tax is only due at IPO and treated as normal income. There are none of the rules around AMT. There’s not the risk as with options of paying out of pocket to exercise plus taxes then the stock drops or there’s no liquidity and you’re net negative.
From the company’s perspective, employees with RSUs are not actually shareholders until IPO. All those SEC and state rules about having to report like a public company once you have a certain number of employees are avoided. It essentially lets companies stay private much longer.
The (arguable) tax advantage is that the employee isn’t taxed until they are able to sell the RSUs for the same value they are taxed at (since company is public and lockup is past) so you avoid a tax burden on a non-liquid asset.
The “double” trigger is the ipo requirement plus the usual time-vesting for stock grants
If a Stripe employee has $100,000 worth of RSUs and leaves Stripe now, what happens to their RSUs?
Stripe has double-trigger RSUs which won't vest until after IPO.
Do they get to keep these RSUs until after the IPO + lockup period, even though they're not employed at Stripe anymore? (Is there another name for RSUs owned by someone not employed by a company anymore? e.g. unvested shares?)
Yes, the employee will still get the RSUs they earned once ipo + lockup happens, even if they’re no longer at stripe. Not sure what the term for that is, though.
Many companies actually prohibit employees from selling shares to third party investors (including investors on marketplaces like EquityZen) without board approval.
This is a really fair and important point - I appreciate you bringing it up.
I've seen a couple of Stripe secondaries before so I assume that some set of employees are able to transact on the secondary market.
However, important disclaimer that not all companies have the same terms - and the terms can change depending on when you were hired. Startup equity isn't absurdly complicated, but it very much is situation-specific which is where the confusion usually comes from.
Not a loss, per se, but if you were told you were receiving $200k in compensation as RSUs, and they drop in value to $50k, you could argue that's a $150k loss. It's absolutely a loss when you factor that in as compensation for the effort and labor your produced for them rather than co-onwership of the company, which RSUs decidedly do not represent.
If you are accepting stock or stock options as compensation, that's generally coming in lieu of cash. Maybe you had an offer somewhere else with $30k more in salary, but you took this offer instead because the projected value of the stock made the total compensation higher. If you sell your stock after 4 years for $50k, you have taken a $70k loss relative to the other offer.
I’d love to count profits and losses relative to the best possible outcome in hindsight rather than the difference between what was spent to obtain an asset vs. what I got for it, but generally that’s not how the IRS sees things. A loss is not relative like that.
I'm not quite sure what you're saying, but RSUs are only taxable at vesting, and are taxed based on their market value at vesting. If the companies stock is worth less per unit, then you are taxed less.
Might not be the case here but, generally speaking, it's unfortunately not uncommon for stock option agreements to _require_ the recipient to exercise them at a certain time- in particular, when they leave the company who is granting them.
I think he means sold for less than what it was on paper at the beginning. Like you start to work there and it’s valued at 200k but then time passes and now it’s at 30k.
What is an internal valuation, and does Stripe actually lose anything from lowering it? My cynical experience suggests that companies usually have more to gain by lowering their valuation than they do by inflating it.
Apologies if the article already described the possible negative impacts to Stripe caused by a decreased internal valuation. I’m unable to read it since it requires a subscription I cannot afford (due to inflation of course, nothing personal to the WSJ).
Ok, no one has given a good answer to this yet. The “internal valuation” is a 409a valuation and the primary use case is for the tax basis for options granted within 12 months of the grant date. Stripe gives double trigger RSUs so this won’t directly impact the large majority of employees getting RSUs, but they may choose to offer more equity for refreshers or new hire grants, this has little/nothing to do directly with 409a. 409a also is not used by investors to value shares, it has nothing to do with “mark to market” pricing of funds who own stripe equity communicating the value of their investment to LPs in the fund. There are 3 ways to calculate a 409a valuation, specified directly by the IRS, they’re all a very naive way to value companies, and once again the whole point is to have a tax basis for options grants. 409a vals are nearly always below the latest private financing valuation and it is generally in the employees interest to keep the 409a as low as possible for as long as possible to keep the tax basis as low for exercising options. The strike price in options directly comes from the 409a valuation, the basic idea is that (strike price) * (total number of outstanding shares) = 409a valuation. If you do this, the options the company gives you have no value according to the IRS so they are not counted as income. Thanks for coming to my TED talk.
Generally, "Internal valuation" is the valuation used by investors while the company is still private.
One way it can affect Stripe is that it makes stock options less valuable to current employees, and can influence the weight those options have in persuading new hires.
It only makes the options less valuable if they are actually offering a liquidity event, otherwise it is actually advantageous to employees as any new option grants (both new hire and refreshers) are delineated in dollars, so a lower valuation means they get more of them.
I get that this might not align with the perspective of their employees, especially if they skew young and their expectations were shaped by tech stock price dynamics of the 2010s. A lot of folks haven't yet come to terms with the new normal. From an ISO/RSU earning employee's perspective, it's better for prices to correct quickly and completely so you can start getting new grants at more reasonable valuation with real upside.
It really depends. A lower valuation also means raising money will be at lower valuations, which means investors get more of the company, which means more share dilution.
There are typically two valuations of private companies. The "internal valuation" is usually the valuation of the common shares (ie, those that are granted to employees) whereas the "external valuation" is the value of the "preferred" shares that investors purchase. The external/preferred valuation is usually higher because the preferred shares have more attractive terms (such as that you get your money back first before other equity holders are paid out).
From the article: "A 409A valuation is an independent estimate of a startup’s fair market value often used to price stock options to employees."
I don't think it's as nefarious as that. What people are calling the "public" position here is the value of preferred stock sold in a financing, and the "internal" valuation is the value of common stock. They're different things - the preferred stock has downside protection and other special rights that make it more valuable than the common stock so it should have a different price. These internal valuation reports pretty explicitly calculate the value of the common stock as a discount applied to the preferred stock price, due to the rights and liquidation preferrence and the fact that the common is not freely tradable.
I don't think so. If more equity is raised at a lower valuation then isn't it the definition of a "down round", where existing investors take a haircut? Of course, employees bear the brunt of the down rounds because their meagre holdings can turn out to be worthless after a down round.
Yeah and also lots of new competitors will join making it even more difficult for Stripe to compete. Lots of banks already have their own credit card payment processors. They simply aren’t dealing with small clients at the moment because it’s more hassle than it’s worth. Consumer fintech is due for a huge disruption and there are already a lot of startups waiting on the sideline to compete with Stripe.
I don't know if I agree. Adyen is worth $45 billion euros (so $45 billion :) .) From their last annual reports, Adyen '21 GPV: $561B +70% YoY; Stripe '21 GPV: $640B +60% YoY but Stripe has ~2x take rate on Adyen because they are more PLG versus Adyen has many more enterprise customers.
So $74b is probably about right or maybe even low?
> So $74b is probably about right or maybe even low?
Of course you are assuming that Adyen is somewhat fairly valued :) . That's the problem with comparative valuations IMO. If company A valuation = company B valuation and company A itself is overvalued, it doesn't mean they are both fairly valued,no?
Totally agree. Just something to watch out for. If the market is giving a multiple of 25 today and it drops to 10 in a year , one needs to be aware that’s all
The current market so far. Interest rates will rise and CC transactions will migrate over time to less costly rails starting in the next 12-18 months (although Radar, Identity, and other value add products are likely to see continued use and rev growth). Imho, Stripe should've IPO'd at the top ~12+_ months ago.
EDIT: @pbriet (HN throttling, can't reply directly to your comment)
In the US, Zelle does $490B worth of volume annually (2021), all CC networks combined do about $1.9T (2021). That's significant volume for a real time payment system, and it's not even fully baked within the US financial ecosystem. FedNow [1] [2] [3] rails go live next year with instant settlement, moving up to $500k in value for 5 cents (what the bank partner charges the banking customer is up to them). I expect that to move the needle, considering merchants can charge a CC surcharge per SCOTUS' Expressions Hair Design v. Schneiderman (No. 15-1391) ruling. If you compare India's UPI implementation to CC volume, the open platform is fairly successful [4], hence my thesis (and this pattern is repeated, you'll find, across other economies where a low cost real time payment system is present).
CC companies are raising their rates because their margin is soon to be compressed. Ignore BNPL, that's a feature/product masquerading as a business (see: Klarna's down round, Affirms' decline in share price, etc) and regulators are coming for it [5].
TLDR A new fintech product from the Fed is likely to shift higher cost transactions from legacy payment rails to a utility product.
"CC transactions will migrate over time to less costly rails starting in the next 12-18 months"
People have been saying that for decades. And in fact the opposite is happening. Visa/MC raising rates. PayPal raising rates. Volume shifting to more expensive BNPL.
You wrote --- > "People have been saying that for decades. And in fact the opposite is happening. Visa/MC raising rates. PayPal raising rates. Volume shifting to more expensive BNPL."
He wrote--- > "CC companies are raising their rates because their margin is soon to be compressed."
He's talking about fees for transactions. Not rates. They are raising rates to make up for the lost fees.
BNPL is a feature for large companies to implement themselves or platforms like Shopify, but if you’re not a large company and either not on a platform with BNPL, or like a third party BNPL’s terms better, you’re definitely a target customer for third-party BNPL. So I think third-party BNPL is a legit business though the individual companies have risks of being outmaneuvered or over-reliance on single customers.
In Australia we've had free real time bank payments for four years now. I am still yet to make a bank transfer as a payment for a regular consumer purchase and have never seen it so much as offered as an option.
Would you know enough about the different systems to talk about why ours hasn't touched b2c but you expect the US one to upend the cc industry?
Credit cards, compared to Zelle or even higher-dollar direct-transfer things, have a pretty big moat:
* for people who don't have the money up front, it covers "spending money that isn't in their account today" (for better or for worse). BNPL seems like worth paying attention to from this front, though.
* for people who do have the money up front, why move to something with more of an immediate hit to my bank account in case of fraud? For large stuff (car downpayments or above), the fee was already significant and a reason not to use them, but unless BestBuy is going to drop support for CCs, why would I move off?
Is high-dollar consumer goods what you expect to move away from CCs? Will US consumers let them?
I suppose we will need to see what happens when someone like Walmart or Amazon decides to prioritize instant payments over CCs in their checkout flows. The cost savings to them from avoiding merchant fees at their volume makes it inevitable they’ll test it. I can’t say if they’d start to pass along CC merchant fees, but I’m interested to find out. They can even offer BNPL
or credit directly to their customers without the customer needing a credit card, whether underwriting them by order history, credit underwriting, or a combination.
With regards to your fraud point, you assume a level of sophistication of your average financial services consumer that doesn’t exist in my experience. CC surcharges will allow consumers to self sort regarding whether they want the CC transaction benefits (and will pay for them) or not.
Gas stations do this widely in my area, I wonder what their take rate on debit vs credit is. I've never seen data on that, unfortunately.
Amazon/Target/Walmart etc are in an interesting situation re: who would blink first on implementing surcharges. They haven't yet in 5 years, but of course that doesn't mean they never will. Walmart is the one that would seem most likely in terms of targeting value-first customers, Amazon in terms of technical flexibility (e.g. you can already link your checking account if you want), but a lot of the other ones desire those sorts of more financially-sophisticated customers.
Local gas station said their CC payments were 2.5% while debit card payments were $0.25 per transaction. At one point they had a sign up encouraging debit card use
Online shops in Germany do that for a decade. Payment with direct bank transfer is free, and things like credit cards and PayPal may have an extra charge of 2%. If the free options offer the same level of convenience, I assume people prefer those.
I work in payments. Can you help me understand how fednow is a threat to credit card transactions? Who even benefits from credit card transactions outside of the credit card user and the network? So what is actually being threatened?
I work adjacent to payments in fintech. I’ve had conversations with largish merchants who have mentioned their intent to attempt to move payment flow to these new rails when available to reduce CC processing costs. Will they? I cannot say for sure, I speak the lens I see through. A real recent quote from a CFO: “why am I handing over 2% of my revenue just to take a payment if I can avoid it?”
I just did a very quick read-through of fednow. It'd be awesome for businesses if they could get their customers to pay via fednow over CC. Just the data requirements alone are less costly (e.g. no PCI DSS requirements for bank accounts).
The problem I think of is getting the customers to use this. If you can entice your customers to consistently use this rail, that's awesome. No idea how you'd do it other than increasing costs to pay via CC. It seems like it also targets digital payments and isn't too focused on in person transactions (e.g. grocery stores).
FedNow will allow instant bank transfers. That means that you can build a payment system on top of it similar to Windcave Account2Account (that we have here in Australia and New Zealand)
Windcave Account2Account is not a full replacement for debit/credit cards. It does not have PayWave (solvable). It has a clunky UX (solvable). It does not do credit transactions (not solvable).
It can be a minor headwind to VISA/Mastercard and slightly reduce their new signups and tx volume, but I cannot see it fully replacing credit/debit cards.
Wonder how FedNow's instant bank transfers will impact crypto; isn't "instant transfer" one of the advantages of i.e. bitcoin?
> FedNow payments will operate year-round for businesses and individuals. Since funds will transfer and settle instantly, all payments are final and cannot be reversed.
Recessions are a lagging indicator. You won’t know until a year after it starts. What we are seeing right now is nothing compared to 2008. This is a slowdown, not yet, a recession.
The "accepted definition of a recession"? Where are you getting this from?
I understand that some government/finance organizations in specific countries might have some sort of "definition" of the term recession, but in general parlance, "recession" is just when the economy is not doing well.
Some organizations do have indicators like "2 consecutive quarters of negative growth", but doesn't mean it's a universal "accepted definition".
Well it is pretty much the official definition. But no, recession does not mean the economy is not doing well, because economic health is not binary. What recession means is economic contraction, and usually people look for confirmation after one quarter of negative growth, hence the two quarter “rule”.
That is the common definition I used, we've had two consecutive quarters of widespread negative growth. Its fair that its just the Fed estimate for Q2 still, but Q1 and Q2 are negative this year.
This definition has changed to including higher unemployment rate like 5%. So from it we could never enter recession. Tho was introduced in NBER post 2009.
There is a separate board of economists at the NBER that meets up and takes a vote after taking into account various economic indicators. If they vote yes, then formally the economy is in a recession. This board is a bit conservative and their recession declarations are usually after the fact (once they have looked at the indicators). So technically we are not in a recession yet.
I think it's extremely important to note here that June 2020-June 2022 is the bigger aberration for SQ/Block's share price than July 2022.
It's extremely painful to those who bought in, or got granted shares/options, at the super-inflated prices, but it's closer to a "return to normal" than an epic crash so far.
Hopefully that continues and also hopefully people recognize that, so that panic doesn't push things further down.
Having no knowledge of their financials between then and now, we either expect that the valuation is done wrong, or that really, their growth and fees last year are really that much better than Square's and PayPal, in relative terms.
For someone that has access to all the numbers, like whichever accountants they brought in to do this FMV calculation, it's not as if comparing the companies would be that difficult. So my personal guess is that yes, Stripe must have had an extremely good year. Seems more likely to me than trying to be sketchy at a time when it's not really all that helpful for them.
So is Square’s growth. When the entire sector you’re in takes a 50%+ dive you have to be pretty naive to think your own valuation shouldn’t do the same.
> I don't know why you think every tech stock has to move lockstep.
Maybe because of ETFs?
Maybe because of linked market psychology?
I'm sure a professional trader could think of several other factors which would cause shares of companies in the same market/sector/industry would move together.
That’s a good question. People in tech all know Stripe, but outside this circle, PayPal and even Square have far superior brand recognition. If you ask my family members what Stripe is, they would shrug.
I suppose you're technically correct (the best kind of correct ;) but I am not so sure that the brand-recognition metric is the best one to apply to Stripe.
PayPal and Square both have a strong B2C presence. PayPal has B2C offerings focused around sending/receiving money. Square, while they don't have a strong B2C product, does spend a lot of time sticking their logo in your face every time you go to a merchant that uses Square.
By contrast, Stripe is an infrastructure company. The best parallel I can think of might be a company like Maersk (one of the world's largest container-shipping companies). Sure, you may not recognize the name if you're not in the space, but odds are that they do affect your day-to-day life as a consumer.
> Square, while they don't have a strong B2C product
Huh? Block (formerly Square) has an incredibly strong B2C product (the #1 finance app on the iOS App Store and Google Play Store in the US) called Cash App (formerly Square Cash).
I would define Stripe as B2B2C. It’s not simply a B2B because they help business charge customers. Their value is convincing business to use their platform. Most businesses will choose payment gateways that their customers use. And by far the number 1 request from customers is usually PayPal. They might be invisible to the customer, but business will alway prefer to integrate with payment gateways that will get customers to say yes faster. It’s nuanced, but that has just been my experience. Logically you are correct though, on the surface, brand recognition should not matter.
> And by far the number 1 request from customers is usually PayPal.
Do you have any data on this? I'm genuinely curious. Not only do I have a long list of negative experiences with PayPal that skew my own take, but I also have no idea where to look for this kind of industry-wide data on B2B2C customer-demand.
I don’t. But I used to run a Yoga platform and used Stripe. None of my customers (Yoga instructors) knew about Stripe. They always requested PayPal or Square to the point, I realized using Stripe only made my life easier, but my customers didn’t care. It was a huge hassle to convince them a) to use my platform and b) to use Stripe. So it became 2x more difficult to onboard them. Same thing for their customers. Since I was a new platform, they ask their instructors why it wasn’t PayPal or Square. They trusted those brands to hand over their card.
If a Stripe employee has $100,000 worth of RSUs and leaves Stripe now, what happens to their RSUs?
Stripe has double-trigger RSUs which won't vest until after IPO.
Do they get to keep these RSUs until after the IPO + lockup period, even though they're not employed at Stripe anymore? (Is there another name for RSUs owned by someone not employed by a company anymore? e.g. unvested shares?)
Stripe did $12B in revenue last year. If the valuation of $95B dropped 28%, that is $68B. That seems like a fair, if not quite low valuation of a fast growing SaaS fintech company with an excellent product.
Block (Square) did over $17.6B revenue last year, an 85.95% increase from 2020. Their current market cap is below $40b and their stock is down around 70% from when Stripe raised their last round of funding.
There is a private market for certain shares, and in most cases, the firm needs to give its permission before the shares can be sold. If they do, and there are eager purchasers on the market, then there won't be a problem. It is pointless if the corporation prevents every sale from occurring.
Oh dear. Not even Stripe is safe from the market downturn and they are cutting their valuation by 28% - from $98B to $74B.
It's extremely early to write them off but perhaps they should have IPO'd in 2019. Since they didn't, they had to wait it out during 2020, 2021, etc. As long as they are profitable, then they will certainly survive this with ease.
But overall, no-one is safe from this and we will see how the market tests the weakest of companies that are not profitable and completely dependent on constantly raising money.
This. Companies that IPOd in 2019 were lucky. So many organizations had to and are going to have to wait out covid, the looming recession, etc...
The next few years will be interesting. I'm excited to see which domains are recession-proof. Something tells me enterprise software is going to be where the moola is made.
Strong agree. It feels like a different lifetime to think back to 2018 and 2019; back then, everyone in town was hyper-fixated on a whole raft of companies that kept teasing their IPOs.
I did some very quick and lazy Googling [1][2], and even I was surprised by just how long the full list of familiar names is, looking at 2018 and 2019 IPOs. Just to drop a few incredibly-familiar ones:
I personally know a bunch of people that spent months (or years) of their lives in suspense waiting for one of these. (I'm one of them, for what it's worth.) It's wild to think how different so many lives would have been if even one of these companies had decided to postpone their IPO for a year or two.
> I personally know a bunch of people that spent months (or years) of their lives in suspense waiting for one of these.
8 years for me. I was an early employee at a YC startup that is now pretty close to having an IPO. At least, I used to think that. Now I'm not sure how much longer I'll need to wait.
Companies that raised in 2019 or early 2020 and didn’t raise another round after that are in for a really tough time. Their coffers are running dry by now and its getting really, really hard to raise more now.
I suspect we’ll see the global list of unicorns shrink quite a bit by 2024
Why would they need to IPO? Is liquidity stopping them from building anything right now or growing? Why give up any amount of power for a strong private company? Stripe could stay private forever (or 20 years which is the avg lifespan I think of private companies)
They’ve hired 1000s of people with promises of an IPO and currently worthless RSUs. They would need to address that with a change in pay structure and likely some large bonuses up front. But otherwise agree with your reasoning.
TBF all those people who took those promises also knew they might never come to realization. In which case, small exodus and you replace them with people FTE's within a reasonable salary range. Happens all the time.
I dont think so. Were entering a recession. There are more programmers looking for work, good programmers or employees, that will accept the current terms.
This is a terrible way to do business and I am certain not how Stripe is thinking about it. Programmers are not commodities, especially ones that have been around your org for a while. It's also very expensive and difficult to hire new ones, even if you're hiring them at a cheaper salary than the last ones.
Stripe 100% wants to retain its employee base, just like any company would.
But usually, they are treated as such. American companies have a hard time treating most of their white collar workforce as anything but.
On the other hand, Stripe has been seemingly well managed up to this point - but they have only existed in happy times so far. Many companies change their tune when the chips are down.
> It's also very expensive and difficult to hire new ones, even if you're hiring them at a cheaper salary than the last ones.
This may be true - but the average tenure of a tech worker shows most firms are not able to do act on this.
> Stripe 100% wants to retain its employee base, just like any company would.
I wouldn't put it past Stripe, but "just like any company would" is pretty naive. Serious retention efforts are by far the exception in my observation. This also weakens your argument - is Stripe not actively working to retain talent or are they just like "any company?" If really the latter, then they are fucked.
Independent of the liquidity issues current rsu holders will have an expiry date. Stripe not going public by those expiry dates will have impact on their ability to recruit and keep staff.
No. They are double trigger RSU which are bog standard. Tax rules require them having a real chance to be forfeited so they have expirations. Every double trigger rsu contract I’ve seen includes them.
Please feel free to send any worthless Stripe RSUs my way. I've been looking for a way to pay someone for some of them for the better part of a decade at this point.
What does that have to do with the valuation getting lowered?
If a person had 1000 RSUs that were on paper worth 40k, now they are worth 30k. Either way they can’t be sold right now. And I don’t understand how 30k is “worthless”
I don’t envy Stripe’s position. I said as much on Twitter a few weeks ago.
They put off IPO (for some reason), carried a huge internal private valuation, and have 1000s of employees sitting on paper RSUs waiting that IPO. Now it’s going to be either impossible to do or, if they force it, will be at a significant reduction of their private valuation.
But usually there's a lock-up period anyway. If the public market decides it's worth 60b the IPO price might not matter.
But also, as an employee, wouldn't you rather have 600k in a public company than 1m in a promise that may or may not substantiate? And if you do believe that it's a 100b company you can just hold.
yes, of course. And being told you have $1mm and then later finding out you only have $600k is frustrating and problematic. You can say they should just be happy to have anything at all, and maybe you're right, but basic human psychology doesn't care about what's "right".
Especially as, very likely, a person choosing to work there likely believes in the business to some extent.
The counter argument would be: “the moment these get liquid I’m selling, then quitting to pursue XYZ thing” in which case the potentially lost half decade of time is a big non financial cost.
Sure did grab my eyeball, down round for a company that effectively was invincible--and I met the guy, I met pc (his username here)--but full on unblemished trajectory, totally monotonic. Never heard one bad thing about him, except in my inner monologue like biting the Fruit of the Tree of the Knowledge of Good and Evil, which I do for everyone, and just barely bad, not morally bad, just unfavorable for me in particular, meaningless.
Tells you how hardcore this depression is, more than anything. In particular worse for the companies than for the leaf-node employees.
