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Comment by paxys | Hacker News Reader

Stripe missing the 2018-2021 tech IPO window is going to be seen as a historic business decision making failure. Everything was in their favor. They could have sleepwalked into a $120B+ market cap. All employees and investors could have had as much liquidity as they desired. But for whatever reason the founders stuck to their "we will stay private forever" stance, and the entire company is suffering because of it.

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They could have hit $120B market cap at one point, but all public tech stocks are significantly down since then. For example, their closest competitor Adyen hit $31, but is now at $14. So with this logic, Stripe's valuation would be almost exactly where it currently is.

Yes, a lot of former employees could have become liquid. But a lot also would have had money tied up exactly the same way it is now, except on a much more volatile public market where their every move would be much more scrutinized.

They're now providing liquidity to employees via this fundraise, too, which solves the only major drawback I can see with not going public earlier.

> They could have hit $120B market cap at one point, but all public tech stocks are significantly down since then

I think that's parent's point: investors and current stock holders could have transferred $120B from retail investors before the adjustment. Now they have to hold onto their own devalued stock like a bunch of rubes. /s

That isn't how it works. Going public at $120 bill valuation doesn't mean you raise $120 billion. They'd have raised something like they have here.

It is how it works, selling at inflated valuation, but a fraction of the $120B, not all of it.

The "fraction" part is key....

Ding ding ding

The employees would have had the option to sell the Stripe stock and invest in something significantly less volatile, such as an index or bond ETF.

Sure, some could. But between lock-up periods and vesting, almost everyone working at the company wouldn't be in the position to be able to do this.

Lockups are usually 90-180 days, and Stripe is old enough that lots of employees are fully vested. Maybe a significant number of employees wouldn't be in a position to because their growth means that most employees would've been hired relatively recently in that timeframe, but the people who were then since the early days and who have the most equity would all have been able to sell before the market turned down.

You can short sell or buy put options to protect downside in case of a crash.

Many company trading policies prohibit either of those transactions in company stock. (Some even prohibit entering into covered call transactions.) Every public company that I've worked for prohibited short selling and naked options contracts on our shares. All but one (Merrill Lynch) prohibited covered calls.

How could that be enforced, if one has some separate brokerage account (or one‘s wife).

Perhaps some hedging with similar stock is possible.

Merrill (and DEShaw before that) enforced it by forcing us to provide duplicate trade confirmations to the compliance department for all accounts held by people living at the same address. That’s fairly common in finance.

My current employer does not, so you’d only run into trouble if FINRA detected unusual profits and flagged it to the company securities counsel or the SEC made an inquiry.

My perspective is “if your company tells you they don’t want you to short shares or trade in options in the company, don’t try to find ‘one clever hack’ around the policy.”

The only exception I’d make is if you have a complete financial freedom amount of equity built up, at which point, I’d consider quitting the company, and only then entering into such a hedging transaction outside of a blackout window (and when you had no material, non-public information). That would likely pass any “valid purpose” tests and be considered clean by regulators. (It’s not really the company I’d worry about; they can only fire you and whistleblow on you. It’s the regulators that I’d worry about. The company policy is designed to protect them, but also help keep you out of the grey areas as well.)

Also see 12-15 in section III here: https://www.finra.org/rules-guidance/notices/19-18

There is a lot of automated review (post-trade) to find and flag possibly suspicious activity. I think the FINRA team spoke at one of the Re:invent sessions (maybe even in a keynote?) about how they detect possibly anomalous trades for manual review.

As sibling says, company trading policies usually prohibit shorting the company stock. Also, you have to exit any options during blackout windows. So: not really.

The problem employees have is that they cannot sell their shares because the company is private.

If Stripe was public, considering they would be a big player, buying and selling shares would be instant on your favourite platform/bank.

However you look at it, missing the previous favourable window for an IPO is a huge mistake.

Isn't there a secondary market for the shares?

Also, if/when a company has too many shareholders it has to release it's financials to the public, and at that point it might as well be public. Facebook faced this issue in 2012, although not sure if the law has changed since then.

> a secondary market for the shares

Only for Stripe’s investors, founders and early executives.

No. Hardly any startup allows common employees to sell options on the secondary market

It's worked for me, and I know there was a pretty healthy secondary market for some of the big tech unicorns before they went public. I sold pre-market shares in a large education startup about a year before IPO, at about 50% of the IPO price, so it was a loser for me and a win for the investor in Cypress that bought the shares.

I think you were the exception though; I've never seen a start-up up close that allows you to trade or even pledge your equity for any purposes.

Yes; the idea is that the startup wants control for who will be on the cap table, so they don't hassle with written requests for info etcetera. Minority shareholders (especially for California businesses) have a fair number of information rights, and so companies tread cautiously in terms of who they allow to invest. This is in part why special purposes vehicles exist so that there's a point of contact for investment. (And then the company doesn't have to vet people that invest in that syndication as much...)

That's what this round is for - to allow employees to sell some of their shares.

At what price? Certainly not a market price. A contrived price in a private sale is usually going to screw the seller.

As opposed to holding a bunch of illiquid Monopoly money?

I work for a public company. I sell all of my RSUs and diversify when I vest. I wouldn’t use 30% of my cash compensation to buy my company’s stock, why would I hold on to 30% of my compensation in company stop?

If you haven’t checked lately, the public markets don’t exactly have the stomach for money losing companies.

The problem is that when you sell shares denominated in monopoly money (e.g. shares in a private company) you have no idea if you get a fair price. There is no market to provide the signals.

I would rather take my chances and not hold on to it. I know eventually the stock in the company i work for will go up. But I would much rather be diversified

they weren't going to be able to hold; they were at the 10 year expiration.

What's Stripe's incentive to do this? Is it just to keep employees happy?

Humans made the decision. Some humans like doing what they think is the right thing, otherwise they feel terrible. Feeling like a good human and not a bad one drives a decent amount of decision making.

I would err on the side that this benefits Stripe somehow. Corporate entities don't "do the right thing because it's the right thing to do". They do the right thing because it's strategically advantageous to them.

Humans run companies, humans made this decision.

Whether a human made it is pretty arbitrary. Someone came up with a strategy and multiple levels of Stripe decision making thought it was doable and a good idea. Executives, more often than not, will put share holders and company interest first.

In this case they didn't. In this case they had more control to make the decision they wanted too, since they control it.

That's not how a large company like Stripe works, even if you have majority shares. You still need coalitions.

Coalition of 2 in this case

Cynically, if they let the RSUs expire it would make it hard to hire people at competitive rates relative to FAANG compensation because the RSUs promised would have been shown to be worth zero, and the total promised compensation would then also have to have any equity marked down to zero.

I know there are bad corporations out there but if you work for a corporation that "don't do the right thing because it's the right thing to do", I'm sorry. Sounds abusive. It sucks to have been treated so poorly that you're that suspicious that doing the right thing has to have some ulterior motive and it can't just be because it's the right thing to do.

Your first sentence is likely the conversation that was had. The only thing I'm suspicious of is people claiming corporate benevolence, which is the way I read danielmarkbuce's comments. Corporations, for better or for worse, will always bias towards pragmatism. When you have distributed and varying levels of complicated power that's just how things shake out. There's no soul or real culture at the center of a corporation.

The cofounders also care about their reputation very much

Their reputation has literally had monetary impact on Stripe by bringing in talent more easily because people “like” the cofounders, and it also has turned the company into the default payment platform for many startups.

I wouldn’t be surprised if they had a professional PR consultancy for boosting their individual images

Retaining that rep and goodwill is probably literally considered worth a couple billion to Stripe

Also, Stripe isn’t spending any money on this.

It’s instead become an opportunity for investors to buy lots of Stripe equity (which the cofounders are usually very stingy with—see the percentage of the company they sold during past rounds) at potentially very cheap prices since the sellers don’t get to set the price!

Stripe’s incentive to keep the price high is that it becomes the price point that employees would expect future stock vests to be awarded at. Not sure how strong an incentive that is exactly though

Employee options have a 10 year limit, and given the age of the company some employees were going to lose their options if they don't exercise. But to exercise you need to pay, in cash, the strike price plus taxes. I believe this founding round is to cover this.

Yeah but what is the motivation for Stripe to do this? Especially when many stakeholders don’t even work there anymore.

Because if Stripe let millions of dollars in compensation expire, no one would want to work there. Also it's the right thing to do.

> Because if Stripe let millions of dollars in compensation expire

I suppose they're still paying salaries, people will still want to work there. Maybe not the people who now only target the high comps provided by share options and related stuff, that's true.

ISOs may have a 10 year limit, but that's only for their ISO tax treatment status... they don't (necessarily) need to expire. They can convert to NSO by way of an extension. https://www.esofund.com/blog/nso-extension

They've raised this round to provide liquidity to former and current employees.

Years too late and diluting their valuation even further

There shouldn't be any dilution. All new shares being sold to investors are 1:1 with stock from the employee pool

That doesn't account for the new shares being (presumably) preferred while the purchased stock are common stock.

If there are no new shares, it's hard to prefer them.

You can have no net new shares while still swapping common for preferred. I don’t know if that’s what’s happening here.

When you do a private tender offer like this, either the company or the new investors purchase common stock from employees. It's possible Stripe is issuing some preferred shares to investors as part of the transaction, but that is being offset by it acquiring common stock from employees (eg: issue 100 preferred, buy back 100 common. Net result: 0 dilution to the cap table).

If they are swapping common out for preferred, and I don’t know that they are, the functional result is dilution even if the number of shares stays the same.

That's not true. Dilution is based on the number of shares, not the price.

Common vs preferred stock only matters in the event of same or liquidation if a company - preferred is paid out first. At IPO, both kinds of shares convert into the same public class of stock (with the rare exception of founders creating a special class of shares for increased voting power).

They do both typically convert to the same class at IPO, but preferred often has a conversion ratio — that is, it isn’t always 1:1, the way common is.

Functionally dilution should be considered in the full context of the financial outcome unless we are talking about voting rights and I wasn’t. For small shareholders the only real value of stock is money. If it is worth less money then its value has been diluted.

Yes -- after the general peak of tech stocks about a year ago.

If you are a smaller Stripe equity holder, you're feeling "Wow, I would've sold last year and made a killing compared to the prices I'm getting now!", and it's not unreasonable that this same liquidity event would've commanded higher prices a year ago.

Of course, in reality, it's not a given that any individual would've timed the market perfectly. But because nobody had the opportunity to try, everyone feels like they would've been rich(er) if only they had been allowed to sell.

Stripe made a tender offer to equity holders in 2021 at the $95B valuation. Maybe not as high as it could have traded up on the stock market at the same time but not chump change.

And forced to sell at a 50% discount because of it.

No one has to sell. That part is optional. This allows employees and former employees to receive shares and to pay the taxes due on receipt. Paying taxes at low valuation is a win.

> Forced to sell at a 50% discount (if they want liquidity)

Obviously no one is literally forced to sell. Is this really that hard to understand? This entire thread is about how by not going IPO, the employees were unable to sell. I'm sure they would have preferred to sell a few years ago instead of paying less taxes now.

It also seems that some employees' options are expiring, so while they aren't literally forced to sell, in reality, they are.

They're forced to execute their options, not sell their shares.

That's true but the reality for many will be selling at least the amount of shares to cover the cost of executing their options. And because the next window to sell could be undetermined (possibly many years in the future), many employees will find it prudent to get liquidity that would cover their cash needs for the next fair-number-of-years. (Based on their understanding of what their stake is worth now. Of course they're going to have that number in mind even if it wasn't able to be realized until now...)

(Genuine question, not being argumentative)

Why isn’t it possible for someone to sell their shares privately?

I don't know for Stripe specifically, but I have been partner at some companies and can share some reasons from my experience:

- There are often limitations to who you can sell to, often in the form of requiring board approval before a sale. This is to ensure ownership of the company does not diverge too much from stakeholders.

- There are also often PUTs and CALLs in the shareholders agreement (e.g. the company can exercise a call on your shares if you leave, often with a discount if you're dismissed with reason, and you can exercise a put with some vesting scheme), along with a matching valuation formula. This often acts as a range for the sale of (often very illiquid) shares. Effectively, that formula is often really not interesting for pre-benefits startups, as its often some variation of "the average of the latest two previous years of dividends annualized for the next 5 years".

That’s a pity. As an investor I’d love to buy shares of Stripe, Epic, and other unlisted companies.

One of the nice things about being a public company is that you can give employees RSUs for a public company's stock that they can sell whenever they want, rather than options which are very limited.

If they had gone public they could give their employees a much more flexible stock compensation.

> So with this logic, Stripe's valuation would be almost exactly where it currently is.

Right, but that's fine. Because investors and employees would have already had the opportunity to offload some (or even all) of their equity at a high price that they may not see again for years, if ever.

It would have been good to at least that opportunity! Yes, the company would then be subject to more scrutiny as a public company, and the inevitable stock price drop would be a problem. But... that's fine too?

Rivian IPO’d at like $180B

with no sales

that’s how insane the 2021 market was

Going public isn't for paying employees... They had a chance to raise at 3-4x what they're worth now and blew it for the foreseeable future

They took 50% valuation cut raising this.

The valuation cut happened regardless of raising this. They raised at a time when the valuation was down 50%. Raising it just made the valuation be an agreed upon, public number.

They were holding out for a $500bn valuation.

> but all public tech stocks are significantly down since then

But they would have raised that money.

As long as they didn't need to raise again; the current stock price only matters to shareholders (including employees that may miss the window)

An IPO during that time would certainly help stock holders get liquid but it wouldn't help the business given that Banks/Firms were making a killing on the IPOs of that era by disastrously mispricing the businesses. There's a lot of business that still needs to happen after an IPO and an IPO in and of itself is not the goal. If you're running a solid business like Stripe during turbulent times keeping your options open is a good idea. We haven't seen how the IPO fest of 2020-2021 is going to work out for some of those companies if they get cash strapped.

The IPOs were overpriced, which is great for sellers.

Which won't be the employees for 180 days.

Even counting the lock up, prices were still higher then than now.

Stripe likely would have gone direct listing which would have no lock up.

If Stripe went public via IPO between Sep 2020 and March 2021 (like so many other pre-IPO tech companies of a similar maturity as Stripe such as Snowflake, DoorDash, Airbnb, Unity, Roblox, Palantir, etc), their employees would still presumably be able to sell their RSUs at a $100B+ market cap after the 180-day lockup period as tech companies in the payments space like Adyen and Square only started to see their shares plummet from their peak in November 2021.

And if Stripe went public via direct listing like Slack and Coinbase, their employees wouldn't have a lockup period.

Is Stripe running a solid business? I was under the impression they are not profitable.

> Stripe does not need this capital to run its business.

Suffering? Raising $6.5b when you don’t need to, but because it helps your longest running employees, is suffering?

Their last raise was at a $95B valuation, so this is a massive down round. It isn't a case of raising extra unneeded money just because market conditions are favorable. Quite the opposite in fact. If they didn't critically need this money they wouldn't have taken the hit at all.

Was a great decision - should stay private forever.

You think the IPO window was “missed”, they aren’t short sighted about their company.

Yeah I think the question is "great for who". I think it could be great for the founders (who can achieve liquidity in a variety of ways at any point really, that regular employees don't have access to. I'm not critical of this -- makes sense to me -- just pointing that out.)

It wasn't so good for employees who would've wanted to sell and diversify when the valuation was, conservatively, about 2x what it is now. And maybe even 2.5x plus if you extrapolate what Stripe could've been worth at the height of the market.

For the long term company, it still could be a good, because if they can raise capital privately like they were just able to do, then they get the upside of access to money without the downside of share price fluctuations, scrutiny, more bureaucracy etcetera.

>It wasn't so good for employees who would've wanted to sell and diversify when the valuation was, conservatively, about 2x what it is now.

Again I will point out that the "good" argument is one-sided.

Had the employees sold at 2x the valuation, then some person (or pension) bought at 2x the valuation and lost a lot of money. What is that "good"? Because the SV crew "got theirs"?

Yeah, but it’s like;

1) Sacrifice the entire companies long term existence to let a small number of people sell at 2.5X the share price one time during a macroeconomic peak

2) Allow almost everyone, including new employees, a longer-term path to wealth, by ignoring that bubble peak and focusing on long term value generation outside of the public markets (which notoriously destroy companies)

IMO, it’s such a base layer of internet businesses, they should keep it private forever; otherwise it’ll be PayPal in 10 years.

> the entire company is suffering because of it.

What are you proposing? That the company should have instead made a "predict the future" decisions optimized for short term gains?

What I'm suggesting didn't require some crazy foresight. It was the obvious move. Stripe was fully capable of going public at any point in that period, and analysts, investors, insiders were all calling for it to happen. Every other tech "unicorn" in its cohort – Uber, Lyft, Airbnb, Pinterest, Slack, Snowflake, Zoom, Palantir and like a hundred more – did just that. Stripe choosing to stay public was a deliberate decision by the founders, one that did not work out.

Very few people were confident enough to make a financial bet that tech valuations would tank by 50%. I'm not arguing whether it did or didn't work. I'm trying to point out that anyone who could have predicted this change in tech valuations stood to make a crap ton of money regardless of what Stripe did. You make it sound obvious--that's hindsight bias. It wasn't obvious.

Is there more available on the actual reasons why they didn't go public earlier?

>Uber, Lyft, Airbnb, Pinterest, Slack, Snowflake, Zoom, Palantir and like a hundred more – did just that. Stripe choosing to stay public was a deliberate decision by the founders, one that did not work out.

I guess that depends on what you mean by "worked out". For Stripe employees, maybe it didn't.

For the public at large, many of whom are underwater owning shares in the companies you mentioned, maybe it did?

Yes that's exactly what I mean

It feels like you are falling into Survivorship Bias fallacy.

probably not as bad as the wework botched ipo.... but your point remains

Wework had indefensible problems with their business model, hence sinking even in the frothiest of times. Stripes would have surely fared much better.

Wework's problem wasn't timing. They actually chose to go public under perfect market conditions, just that their underlying business was so out of touch with reality that not even the most optimistic institutional investors or bankers could digest it.

I have been reading Billion Dollar Loser by Reeves Wiedeman. That out of touch quality that seemed to permeate WeWork was seemingly there from the beginning, courtesy of Adam Neumann. To say that he comes off looking delusional is being kind.

And yet somehow whenever he sneezes he finds investors willing to throw millions upon millions of dollars at him. https://www.nytimes.com/2022/08/15/business/dealbook/adam-ne...

There is always a greater fool...

He is not delusional. He just started a Carbon business and raised money for it.

I don’t submit he’s delusional because of the business he started. My position is that he comes off as delusional because of some of the things he says in the context of business. To read and listen to some of the things he has said, he does come off as a bit of a cultist.

I do however think it’s delusional to slap a “tech” label on a real estate firm, treat it like it’s a tech company, and expect any different outcome.

Exactly right. If it was an IPO, the $6.5B would go into Stripe's bank account to grow the business instead of buying out shares from employees who have to sell. And sure maybe they didn't need that money, but it could have helped acquire companies and grow more.

This deal is basically the preamble to a direct listing. Which again would not help Stripe raise funds but instead merry go round shareholders.

> They could have sleepwalked into a $120B+ market cap payments market dramatically shifted with emergence of Device Pay (Google/Apple Pay), I think an IPO would've distracted them - staying private for now makes sense, they can focus on differentiating factors.

I don't agree at all.

The only 'suffering' going on here is issues with employee liquidity.

As long as the company can raise the money it needs on good terms, there's absolutely no reason otherwise to be a public company.

uh 2018-2020 was not a good window

it was pretty much very end of 2020 and early to mid 2021.

Valve and Ikea are doing great and I know of a bunch of companies that had successful IPOs that are now defunct.

Your comment is quite silly. No one can predict the future with certainty.

I think it’s more nuanced. The issue bigger than market cap is just being able to IPO at all and give your folks liquidity.

In fairness, who can time a market?

Well every single tech startup of the last decade managed to do it. It wasn't a case of needing to time the market, but just follow conventional wisdom.

And it's not even their fault that they are now in this predicament.

Or they dodged a bullet by not having their valuation artificially inflated by money printing?

And that is bad for employees, how?

Why is the entire company suffering? Do they need to raise funds?

This is not a clear-cut "hindsight is 20/20" case — what you are proposing is merely a hazy probability and not a "they could have done this to print money—it's equally likely if they IPO'ed that a downward trend and less value could have been the result.

This isn't right. Whether they give up ~5% or ~10% of the company for the capital raise is a rounding error in the grand scheme. For context, many stocks went down 5% today because some dude in europe said they won't put more money into credit suisse. Tomorrow they might go up 5% because Elon farts in a certain direction.

The article states they raised billions to allow employees to sell their (otherwise soon to expire) RSUs to investors to cover their tax bill. Stripe itself isn’t using the money.

Yes. But what is your point?

Their point is that this isn't a capital raise and Stripe isn't issuing new shares.

Also, if it were to be a capital raise: issuing new shares comprising 5% of a company is not the same as having the price of existing shares reduce by 5% (in many ways).

Your post is completely off-track.

It is a capital raise. It's right there in the announcement. They are raising new capital, issuing shares, then buying back different shares. The net result will be about the same share count.

But the series I investors are getting a little over 10% of the company for their 6.5B, instead of about 5% for their 6.5B (if the valuation was 120B as suggested). For the company as a whole, it's just not a big deal. And if you happen to be a RSU holder/employee, don't sell at this price if you don't want to (and you were going to lose about a 1/3 of it no matter what, so no the tax withholding doesn't change it materially).

Correct, it isn't the same thing - it's an analogy - the point was that in both cases it's a rounding error. The existing equity holders as a group are in a position which is about 5% different economically than it could have been if they'd snatched the very top and raised at that level. When you buy or sell shares, you are almost always off 5% v if you'd sold at some other slightly better time.

Following?

  > It is a capital raise. It's right there in the announcement. They are
  > raising new capital, issuing shares, then buying back different shares.

If the transaction completes with the company having the same amount of shares as before, and the same amount of money as before, then it's not a capital raise.

  > But the series I investors are getting a little over 10% of the company
  > for their 6.5B, instead of about 5% for their 6.5B (if the valuation was
  > 120B as suggested).

The valuation is independent of the ownership percentage. If 5% of the company is held by employees (with locked-up RSUs) and 5% held by institutions, then allowing employees to sell their shares to institutions does not change how many shares exist.

Even if the employees decide to sell all of their shares (leaving the external investors with 10%), whether this happens at a 50B or 95B or 120B valuation doesn't affect the percentages. It only affects how much money the employees receive for selling their ownership interest.

  > The existing equity holders as a group are in a position which is about
  > 5% different economically than it could have been

You're still confused about valuation, price, and share count. Issuing new shares directly affects the fair market value of a company, and can be additive (if sold above fair value) or dilutive (if sold below). In contrast, temporary price fluctuations (due to bubbles, panic, etc) do not affect the value of the shares except in very unusual circumstances.

I think we might have crossed paths at some point - happy to take it offline and explain.

That direction is West for increases in the Financial sector, East for decreases and South whenever he has a new Baby Momma. North is probably a bad lunch in Qatar when seeking funding for Twitter.

> All employees and investors could have had as much liquidity as they desired.

Not necessarily. Investors see employees as a cost, necessary evil, nuisance. There would be a strong push for layoffs and maximisation of profit. Some investors could even try for asset stripping and extract as much value as possible in the short term to fund their other investments.

It is very much universal, once company does IPO it basically turns into cr*p.

This is all down to greediness. Instead of IPO'ing in 2019 (Which was the optimal time to IPO and head to the exit as mentioned before [0]), not even $95BN is somehow enough?

A direct listing is probably a better option since it will be even more difficult for them to raise again for an IPO this year, given the current market turbulence.

To Downvoters: I will triple down. It is certainly greed. Here's why:

As far back as 2017 [1] and since then Stripe's founders just wanted more and missed the opportunity to IPO in 2019 and just almost forgot about it's own employees stock options expiring and becoming worthless.

They are now forced to delay plans for an IPO due to the market downturn and have to deal with a significant 50% down-round. They know they cannot raise anymore money this time otherwise it is another hit to their valuation.

[0] https://news.ycombinator.com/item?id=20993919

[1] https://techcrunch.com/2017/04/07/stripes-patrick-collison-s...

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