Stripe has raised more than $6.5bn at about half the valuation it carried two years ago, sealing one of the largest private stock sales in US history and indicating that tech start-ups may have to accept big discounts if they want new funds.
The fresh cash to the payments processing company was provided by existing investors in the company including Peter Thiel’s Founders Fund, Josh Kushner’s Thrive Capital, and Andreessen Horowitz, and new backers including two Singaporean investors, state fund Temasek and sovereign wealth fund GIC.
In a tough funding environment, it provides the San Francisco- and Dublin-based group with enough new capital to meet billions of dollars of tax liabilities associated with employees’ stock units, but also leaves it with a new valuation of $50bn — far below its peak of $95bn in 2021.
Stripe was Silicon Valley’s most feted start-up as it rode bubbly private markets to investment from top venture funds. Having soared in the boom times, it is now regarded as an industry bellwether, with the extent of its valuation decline likely to set a marker for other start-ups.
“Stripe’s strategy is inherently indexed to secular trends that will only compound for decades to come: the growth of the internet economy and the trajectories of the world’s most innovative and forward-looking companies,” said Kushner, founder and chief executive of Thrive Capital.
But many of Stripe’s most prominent customers — including electronic vehicle company Rivian; buy now, pay later company Affirm; and software company GitLab — have suffered during the tech downturn.
Private companies have held on to relatively high valuations even as public tech stock have been hammered over the past year. But the near-halving of Stripe’s valuation brings it more closely in line with public rivals.
Shares in Stripe’s closest public competitor, Dutch payments company Adyen, are down 55 per cent from their 2021 peak, while PayPal is trading at less than a quarter of its 2021 level.
Stripe cast the net wide in its hunt for cash over the past seven weeks. As well as existing investors, it pitched the deal to wealthy clients of Goldman Sachs, which acted as the placement agent on the transaction.
The company also lowered its valuation target as it raced to get the deal over the line. Stripe had an internal valuation of about $60bn earlier this year. According to a presentation shared with prospective investors it was seeking to raise cash at an illustrative valuation of $55bn last month.
Alongside the fundraising, Stripe will trigger the vesting of stock units worth billions, which would otherwise have started expiring at the beginning of 2024. That will allow employees to sell stock to cancel out tax liabilities associated with the vesting. Workers will also be able to sell shares back to the company as part of a separate tender offer.
The deal comes against the backdrop of a severely depressed funding environment and the collapse last week of Silicon Valley Bank, which served as a banking partner for numerous start-ups and their venture backers. Stripe says it had no exposure to SVB.
In its pitch to investors, Stripe said it would be a beneficiary of the expected boom in artificial intelligence companies emerging from Silicon Valley. On Wednesday, it announced it was partnering with OpenAI, the creator of chatbot ChatGPT, to integrate AI into its payment processing.
Some investors, however, passed on the opportunity to invest even at a $50bn valuation. Three investors who were sent Stripe’s presentation said they were deterred by the use of adjusted metrics and what they said were overly-optimistic growth projections.