Alejandro Arrieche
Shortly after some internal chatter related to the firm’s intentions to go public within the next 12 months made it to the surface, a new report is pointing to the possibility that the digital payments platform could seek to raise up to $2 billion privately.
According to sources familiar with the matter who spoke with the Wall Street Journal last week, the company may raise the funds at a valuation ranging from $55 to $60 billion that would imply a 30% down-round for the Dublin-based tech firm.
These sources indicated that Stripe would not be using the funds for operating expenditures or strategic investments. Instead, the money will be used to pay for an unusually large tax bill – a relatively strange purpose for such a large sum.
Previous reports mentioned that the company was also looking for ways to provide liquidity to its shares as several employees were facing the expiration of their stock awards. This situation would result in the evaporation of millions of dollars in employee compensation that would hurt workers’ morale and financial well-being.
Earlier this month, Stripe cut its internal valuation to $63 billion according to some tax fillings. These valuations are used by companies to estimate the price of the stock options the company has granted to its employees.
A Moderate Down-Round for Stripe Can Still Be Considered a Good Outcome
Even though a down-round is not good news no matter how someone puts it, Stripe would be facing a less steep valuation cut compared to multiple publicly-traded tech firms that have seen their equity prices drop by over 60% since 2022 started amid a change in the macroeconomic backdrop.
In November last year, Stripe was forced to lay off 14% of its workforce after it aggressively ramped up its headcount during the pandemic in response to the growing demand that its services were experiencing back then.
Also read: Best Upcoming IPOs to Watch in 2023
However, with the global economy being expected to grow at a slower rate in the following one to two years on the back of central banks’ hawkish policy decisions, the firm is probably preparing for a scenario of lower revenues and slower growth.
Last year, Forbes reported that Stripe brought around $2.5 billion in net revenues and was EBITDA positive. This would result in a sales multiple of approximately 24x if it manages to close a $60 billion funding round.
Comparatively, Stripe’s rivals PayPal (PYPL) and Block (SQ) are being valued at 3.4x and 3x their revenues from the past 12 months.
Can Stripe Pull Off Another Private Funding Round?
Stripe could turn to its most trusted backers including Sequoia Capital, Baillie Gifford, Allianz, and Fidelity to raise this $2 billion. That said, eyebrows were raised after this latest report about the company’s intention to use the money for taxes.
In this regard, Ken Smythe, the founder and CEO of Next Round Capital Partners, told TechCrunch that it is “highly unusual” that a firm will entice investors by stating that the proceeds from a funding round will be used for this concept.
Can Stripe still pull it off? The odds are certainly in its favor as appetite for the firm’s shares appears to still be there. One reason for this is that its earliest backers may opt to sit around and wait some more time until the firm ultimately decides to float its shares in the public market.
That said, they could also use this opportunity to partially exit their investment with decent (if not still stellar) profits if the opportunity presents itself.
In regards to the long-awaited IPO, Smythe commented: “It’s highly unlikely that an IPO for Stripe is anywhere near on the horizon, given the weakness of broader fintech gains and the unpredictability and volatility of Stripe’s revenues”.
If an IPO is off the table, employees would only be able to resort to this upcoming private round to cash out before their stock benefits expire worthless.
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This article was written for Business 2 Community by Alejandro Arrieche.
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