Stripe, the massive payments company and darling of tech circles, has long been on IPO watch. The startup now may be putting its foot on the gas and speeding toward a public listing, or a private market transaction—and VCs have a lot of thoughts about what it means for the rest of Silicon Valley.
The payments titan hired bankers (Goldman Sachs and JPMorgan, to be specific) to explore either taking the company public or doing a deal that would allow employees to sell stock within the next 12 months, co-founders Patrick and John Collison told employees on Thursday, The Information reported. There have been reports of Stripe inching toward going public in recent years, but the current urgency appears to be due to resolving a stock awards issue for employees, where longtime employees’ restricted stock units (RSUs) are set to expire soon—hence the push for some sort of liquidity event. But per the report, it’s more likely that Stripe will raise capital privately than go public. Stripe declined to comment to me.
The RSU expiration element here is pretty wonky, but the long and short of it is that Stripe’s latest plans seem motivated by the need to give employees liquidity versus needing to raise more cash. The company reportedly doesn’t need to raise additional capital, although revenue growth dropped sharply in 2022 and Stripe was unprofitable, per The Information. Meanwhile, the company laid off 14% of its staff in November.
No matter what path they choose, Stripe’s potential moves are a big deal for Silicon Valley. I rang up a few VCs to walk through its implications.
One person familiar with the matter that I spoke to confirmed that if Stripe did a private transaction, it would most likely be a private market capital raise from VCs and a tender offer (which would allow employees to sell shares) for liquidity. (The raise would be so that the startup could remain private, the person said.) Sarah Hinkfuss, a partner at Bain Capital Ventures focused on growth-stage startups, says that what’s playing out with Stripe is “what every company is thinking about and facing. It's a very familiar challenge:...'As I've cut [my] workforce, as the economy is more difficult for families, how do I keep morale high and help people see that we're building incredible value and they're gonna benefit from that in their equity?’”
She says what she likes about the Stripe news is that “This is a huge part of people's wealth, and so companies have to take care of them and think about that side of it.”
If Stripe opts for a tender offer and a raise, the big question is, would the company get hit with a down round? Or, rather, how badly? There are already a lot of indicators: The company has reportedly internally slashed its valuation at least thrice since June, most recently earlier this month, to a roughly $63 billion valuation, per The Information (via a 409a valuation). The 13-year-old firm last raised at an eye-watering $95 billion valuation in early 2021 from big backers including Sequoia Capital and Fidelity Investments. What’s more, Stripe has reportedly recently held talks to raise at least $2 billion at a valuation of between $55 billion to $60 billion, the Wall Street Journal reported. Meanwhile, as my colleague Jessica Mathews reported recently:
In mid-November of 2021, investors were scooping up shares of Stripe on the secondary market for as much as $83 per share, according to [secondary brokerage] Rainmaker data. At the end of last year, the secondary brokerage was placing orders for between $29-35 per share.
Quite the haircut. But VCs I talked to yesterday agree that given how beaten up public tech stocks are, and how chilly the fundraising environment is right now, a down round wouldn’t be anything surprising—even for what's perceived as a blue chip startup like Stripe. In terms of a down round, Brian Ascher, a partner at VC firm Venrock, notes whether it's a secondary or primary sale (meaning the company selling new shares), “it's still liquidity for employees, and if there is [a] primary [sale], it's on clean terms. I think that's actually healthy...and a good lesson” for companies that the sky-high valuations from 2021 "weren't real"—at least until they can grow into them, he says.
The other (albeit seemingly less likely) route is a very hotly anticipated, blockbuster public debut. Stripe is exploring going public via a direct listing, the person familiar confirmed to me—where companies list their shares, historically without raising extra capital, à la Coinbase and Slack in recent years. This is where it gets interesting: Stripe is highly regarded in tech circles and has raised over $2 billion from investors, per PitchBook data. It’s a widely held belief in the VC community that it could be the company—or at least one of the companies—to reopen the IPO window, which has pretty much been slammed shut for a while now. If (and it feels like a big "if") Stripe does choose to go public in the next year, and, importantly, if it’s a successful listing, we may finally see more startups pursuing an IPO.
“The companies that are going to break the IPO drought are going to be those of exceptional quality, and I think Stripe would be on the list,” Hinkfuss says, echoing other VCs’ sentiments. Venrock’s Ascher adds that a successful Stripe debut would “definitely [be] a positive sign, but not necessarily a sign that it's all clear for everybody.” Others like David Pakman, a longtime vet of the venture industry and currently a managing partner at crypto-focused firm CoinFund, say he was surprised: “I didn’t think there'd be anyone talking about going public right now, no matter how great they are.” But ultimately he thinks Stripe could be “one of the first to help try to test the waters.” Meanwhile, I wager other startups, notably private competitors like Checkout.com, are probably closely watching what happens with Stripe as well.
But Hinkfuss mentioned one thing I’ve been thinking about: “It’s newsworthy because it’s Stripe,” she notes, but “I think these conversations are happening already” at other pre-IPO companies.
Whatever Stripe ends up doing, one thing’s for sure: VCs and the Valley—and Term Sheet—are paying close attention.
Have a great weekend,
Anne Sraders
Twitter: @AnneSraders
Email: anne.sraders@fortune.com
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