Stripe raises $70M at $3.5B valuation, double that of January
ft.com
ft.com
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
Previously on HN: https://news.ycombinator.com/item?id=5798905
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).
Holy hell, I didn't know that was you!
I use mosh every single day and I know a lot of other programmers at work and on IRC that use it daily as well!
Thank you so much for releasing it :D
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) for difference of ~1%, likely due to fees, etc.
Well, you need to unpack what "worth" means in that above sentence. If you're using some kind of probability distribution over expected future outcomes (say, using some present value future discounted cashflow model with a probability distribution of possible future cashflows), you can see that there are all these possible future worlds that Stripe can inhabit. In some of these, Stripe is making lots of money, and so the stock is "worth" a lot. In some of these, Stripe is crashing and burning. In those worlds, common stock is worthless. But the preferred stock isn't as badly off due to the 1x (or higher) liquidation preference, and the other terms. So the expected value of the preferred stock across all these worlds is higher than that of common, and imputing its value over common doesn't quite make sense.
Stripe is simply one of the SV's greatest hits and has a ton of upside and real option value. Any investor who got in today understands that and would have no good reason to sell for anything less than a really nice premium to where they got in.
Simply put, in the current market their IPO would literally fly off the shelf, they would get great institutional public investors and have a ton of good growth financing options available to them down the road (follow-ons, converts, heck even straight debt soon). Every investor in the deal understands that very well. Having said that, the investor roster doesn't look like a pre-IPO round (I suspect they would have likes of Templeton otherwise), so they will probably grow the company quite a bit more before they hit the public markets (needless to say - a smart move).
At any rate, I completely agree that pointing out that the preferred is more valuable than common is red herring. Theoretically yes - but in this case and in the case of every great late-stage private company, I would argue that the price of the common >= price of the latest preferred round.
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.
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.
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
The last e-mail we sent was November 25th at 5:50pm and didn't get a reply until November 30th at 5:03pm with "Thanks for clarifying, and I apologize for a delayed response on my end." ..by that time we already found an alternative, got it set up and installed in less than an hour.
In fact, once an employee out of the blue sent me a mockup showing me how I might use a whole new feature, completely integrated into my sites js and html structure.
http://webcache.googleusercontent.com/search?q=cache:3i5Cv6t...
Edit : You can use cachedpages.com to get links to Google Webcache et al.
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.
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.
"The company is still sitting on much of what it raised in January, but it wanted to "err on the side of being really well-capitalised" in case markets cool down, Mr Collison said."
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.
[1] http://www.vox.com/2014/6/26/5837638/the-ipo-is-dying-marc-a...
http://venturebeat.com/2014/11/04/2014-q3-shows-tech-deals-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.
[1] http://cdn.ientry.com/sites/webpronews/article_pics/tech_ipo...
[2] http://www.nytimes.com/interactive/2012/05/17/business/dealb...
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.
:-)
That said, we've generally erred towards raising less rather than more -- most companies raise much more money than this in multi-billion valuation dollar rounds.
I'm not aware of their financials, but I would imagine a good portion of that 80M is still left from their last round. So with this additional 70M they buy themselves some time with their current burn rate, and more cash on hand for things like acquisitions.
Best of luck to Stripe!