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.
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.
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.
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.
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.
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...)
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".
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.
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.
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...)
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
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.
> 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
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.
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
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
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.
> 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
> 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?
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.
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.
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.)
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.
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.
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.
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.
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.
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.
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.
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.
>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"?
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.
>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?
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.
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.
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.
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.
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.
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.
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).
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.
> 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.
> 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.
I think we should accept that this is a good move and leave it at that. I remember a thread a few weeks back where we were criticizing stripe about the incoming deadline and how stripe would end up screwing early employees. Now they made the correct move and the conversation switches to “they should have exited earlier?”. This is an impossible crowd to please. Everyone makes mistakes and mistakes at that scale will always have gigantic implications. They resolved it.
I'm a bit cynical when I see stuff like this. Is it a way for the company to exit employee shareholders and put that equity into investor hands? Especially at a discount from peak?
That can be good for employees (money in your bank is a good thing), but only if they want to sell.
Edit: there's another thread with more info. This round looks to address a specific issue that would affect employees very negatively. So it seems like a good thing and not corp greed.
I thought a frequent reason for this kind of thing was that they had planned on doing an IPO which would have also let employees sell (eventually, after a lockup period?) but given the current market they're waiting.
Also didn't another company recently do this because of some expiring stock options? If employee options expire that's basically a death knell to your ability to recruit and those employees would all hate you and quit. Maybe there's some of that going on here.
I think you're right after reading more. Sounds like RSU are expiring. Not sure about options but 10 year is the options limit so that would align with the age of the company.
What does the tax treatment look like? I'm aware of the following:
1. Get options, pay nothing.
2. Exercise options, pay AMT.
3. Sell stock, pay capital gains.
(Please point out anything missing; it's missing because I don't know about it.)
Assume that the timing of step 2 is nondiscretionary and the stock price is temporarily depressed when it occurs.
Assume that you have to pay the AMT by selling some of your stock until you've sold enough to cover the whole AMT.
If the AMT is a lump sum (seems... unlikely?), then the depression in the price at the moment you have to pay it is bad for you.
If the AMT is a percentage of the value of the stock (my guess?), then by the assumption that you have to pay for it by selling stock, you're going to lose a fixed percentage of your stock no matter what the current stock price is.
If we relax that assumption and you take out a loan to pay the AMT, the depression in the stock price is good for you, because you end up making a profit on holding your shares while they recover.
In step 3, you sell your stock at the "natural" price. I guess that since the stock was temporarily depressed, it's now higher and you pay a capital gains tax on the difference. Is the tax rate higher or lower than the rate you paid for the AMT? If it's equal, what difference did the temporary depression of the stock price make?
Fun fact: You have to pay AMT on exercise even if the stock cannot be sold in the open market. Usually this means dipping into ones other savings. It hurts even more than you are paying AMT on fictitious valuations (if the company is not public yet) and you really can't be sure if they will ever go IPO
Even if you can’t sell the stock directly you can effectively sell options for someone else to buy that stock from you at IPO.
I haven’t looked into this myself, but I recall reading about someone doing this when their options where about to expire in a relatively hot but still far from IPO startup.
My understanding is the ‘secondary market’ is normally based around people selling actual shares and you’re required to have approval from the company before you can sell shares on secondary markets.
The company can do this for the same reason they can force employees to wait six months after IPO to sell their shares, it’s in the contract you sign when exercising your options.
You don’t sell options, you obtain financing to exercise options, with said financing backed by the converter stock produced from the options you’re exercising. Terms are fucking _brutal_, but when you’ve spent a decade at a company with no exit in sight, your hand can be forced. Hence why there’s a market for this.
Brutal terms, but they can be terms where if the company fails to IPO you aren’t in debt. It’s just a question of how much risk you want to take on vs how much upside you need to give up.
Worst case you can always exercise whatever portion of your options you can afford and accept the inherent risks for doing so.
I suspect it will generally be good for employees. In my relatively recent job search, I was considering Stripe versus some large publicly traded tech companies. I ruled out Stripe largely because the equity would not be liquid.
That's a very cynical view of things. There's always a buyer and seller in a transaction. It's not like they are confiscating the employee shares and selling them.
I've been in the situation where it's not a choice. So that is where my view comes from. It probably worked out better for me personally than if it didn't happen, so I'm not upset now.
I believe the issue is that the options of early employees are expiring. And that sounded like it’s actually a lot more difficult to solve for a private large corporation than it sounds
The company is 12 years old, the biggest player in their domain (online payments) and still needs that much funding? Where is it time to turn the knobs and start producing income?
> The funds raised will be used to provide liquidity to current and former employees and address employee withholding tax obligations related to equity awards, resulting in the retirement of Stripe shares that will offset the issuance of new shares to Series I investors. *Stripe does not need this capital to run its business.*
They could have just let employee options expire and then they wouldn't have had the tax bill. Though, I imagine recruitment would become a bit harder then.
If paying your employees in stock with no plan to IPO is how you run your business then you do in fact need capital to pay taxes on that stock in order to keep your employees.
The way I understand it is that if they wouldn't have this round, lots of very valuable, tenured employees would be f-ed over, which could cause them to leave on very bad terms and a PR nightmare that could make attracting workers hard.
There’s an appreciable difference between a company selling newly issues shares to fund their corporate expenses, and arranging a liquidity event for your employees. That’s what they are explaining in that paragraph.
Obviously it can be very much in their interest to do this, while it is still also true that “Stripe does not need this capital to run its business.”
They'd planned to IPO, but the market for that right now is very, very bad. They only have one chance to get maximum value for their IPO and it's understandable they'd want to wait. Not like being private for another few years hurts them any after the previous decade, this isn't a company going for an asap exit. However, there is the 10 year hard limit for options, so this appears to just be a maneuver to deal with these two conflicting realities.
This part is confusing to me. Yes, the market is bad and their IPO would probably be way less than it would’ve been if the market was “healthier”.
But if the market recovers and they want to do an IPO then, wouldn’t they be in the same position if they IPOd now, and then growth of the market would cause their stock to grow as well?
Employees cannot wait, their shares expire without sale. These are being taxed.
Stripe can wait, that isn't the problem for them and is what they're doing. The board can also waive these fees, but that shifts liability from Stripe to each individual employee in question and that's the last thing they want, to piss off early employees.
Firstly, a good or bad IPO can be remembered for years as part of the reputation of the company.
Secondly, yes their stock could grow after the IPO, however the stock would be publicly owned at that point so the profit would go to the public shareholders instead of the current holders of the stock (founders, investors, employees).
In the 2nd case, you are assuming everyone cashes out and avoids missing on growth that would happen. If they keep the stock, or just sell partially (which would most likely be the case for many people, given how much money did Stripe raise to cover tax liabilities), they would be a part of the growth.
I still think (and I might be wrong) Stripe put themselves in a corner position, and raising 6.5 billion USD after 13 years of operating to cover this cost seems like something that could definitely have been avoided.
Stripe made the right move here. Going public is a huge move. You don't want to make a big decision like this because early employees couldn't have cashed out.
There are lots of other considerations that come along with an IPO and Stripe is addressing the core problem (early employee liquidity) with a targeted solution.
(And yes -- they would've been better off doing two years ago. But timing is hard, and that's not really relevant to their decision now, which is the best at the current time given the past.)
I agree that decision to IPO is a massive one and it shouldn't be just driven by this specific situation, which was probably solved in people's best interest.
But, they were put into this position for waiting for too long and not going public earlier. I have a feeling that Stripe is doing a classic 'emotional investor' mistake. They are considering their valuation to be 90b+, and see this as 'just 50, it will bounce back', not considering that company went from 0 to 50b. There is no guarantee that it will go above the current valuation, and anything below that is going to be harmful, even for current employees who were saved by this move.
If you go public, there are a bunch of requirements on you as a company. you have to regularly tell everyone your P&L and a bunch of other things Stripe would rather not tell anyone.
You should be be hesitant! But not everyone wants to work at a large public company and deal with all the bureaucracy that entails, or want to work somewhere risky for the chance to make it big.
We are talking about Stripe. It’s not exactly a small startup.
The “chance” of a startup making it big is infinitesimal.
First only 1 in 10 startups “succeed”. And “success” means that the VCs didn’t lose money. By the time you join a late stage startup where some of the risk of completely failure are derisked, the chance of outsized gains are also lower.
Besides, then we get back a private company, every year I work without the company going public, I’m even less diversified because I am more dependent on the company succeeding.
In a public company, I can derisk every six months.
And then there is the issue that Stripe employees have to pay taxes but they couldn’t sell their equity to pay for it. In a public company, you can choose to sell shares to cover taxes.
Yeah, everyone should think about what kind of company they want to work for. Maybe you want a big name on your resume, a couple years at stripe might not be a bad idea.
Similarly, if they get a bad anti-employee rep, they'll suffer in hiring. The company needs to make concessions to avoid that fate
I think this is effectively costing Stripe nothing. I'm skimming over a lot details, but they're taking equity that is owned by employees and transferring that to other investors.
It's a way to keep employees happy since they've decided it's not a good time to IPO and they have a lot of employees with thousands or even millions of dollars locked up in illiquid stock.
> The funds raised will be used to provide liquidity to current and former employees and address employee withholding tax obligations related to equity awards, resulting in the retirement of Stripe shares that will offset the issuance of new shares to Series I investors. Stripe does not need this capital to run its business.
While they've got a lot of mindshare, I have to wonder if they have a particularly deep moat.
I know the appeal of Stripe was that it was easy and attractive; using their embedded widgets allowed you to keep a low PCI compliance profile. But similar products are rapidly becoming table stakes in the industry.
When that's no longer your secret sauce, how do they fend off when merchants scale to a point where their finance guy says "We can save money by swapping Stripe for Brand X Gateway"
To counterpoint, their success is probably correlated with consumer spending habits (If consumers don't spend, transactions aren't happening, Stripe isn't getting its commission)
The case against Stripe probably sits with an understanding of how an incoming recession will impact the volume of transactions Stripe is dealing with.
> If I were an employee I'd take the liquidity now before this goes the way of WeWork
To take the liquidity an investor has to give the liquidity - if all the employees on the inside believe in the mission so much that they want to sell ...
I think they’re referring to net present value of future cash is determined by the difference between interest rates and inflation discounted over time. As inflation has gone up so have interest rates. Cash today is worth more in the future, especially if inflation is tamed and you locked in a good interest rate on a long dated bond.
Sort of. The value of companies is (meme stock speculation notwithstanding) the net present value of their future cash flows; for startups that tends to be far into the future cash flows. It's only natural that the price drops when interest rates go up.
But that's due to noncash instruments having higher-than-previously nominal yields. The long-term value of cash is unaffected. (Except to the extent that the higher opportunity cost of holding cash lowers the value of cash.)
This is about the opposite of long-term value, it's about the value of cash right now. This deal is mainly about letting Stripe employees cash out today, and high inflation means cash today is scarce/expensive.
But I don't see how this can be an explanation of Stripe's nominal value now being lower than it was in the past - inflation between the past and now means cash is cheaper now than it was then. This looks more like an explanation of Stripe's value now being lower than Stripe's value in the future?
Stripe's value now is, very roughly, the expected value of its future dividends, and the amount of expected inflation between now and when those get paid is much more than the amount of inflation that's actually happened in the past few months.
The short scale isn't a thing in English or when talking dollars which is implied by the dollar sign in "$95 billion" and the fact that this is a US company
"$95 billion" simply means $95,000,000,000.00 and there's no ambiguity...
That doesn't read like anyone is actually confused over the meaning of "billion" , it seems like people are just speculating on whether this error is long/short scale confusion between languages. Personally, I think it was just a typo - there is no conceivable way that a billion CHF could ever be a million USD regardless of the scales used...
Apologies if you're referring to a different comment.
That's a fair point, but wasn't that $95B valuation based on an ~$500M fundraise primarily to the irish government (as well as, I'm assuming, any funds that had participation rights)?
I'm not saying it doesn't look like a bad drop in valuation, but it's not clear that the $95 valuation would have been supported by any larger.
> Stripe benefits from the early role it plays in technology waves that reverberate across the industry, like mobile marketplaces, SaaS, and now AI, with users like OpenAI, Anthropic, Midjourney, Copy.ai, CoreWeave, and a long list of others.
So does Starbucks, by selling coffee to those companies' employees.
Are you talking about the $115B company that basically only sells coffee, has a literal giant of a rewards program that also generates billions of dollars a year? Yah, sucks to be starbucks.
> Stripe [] has signed agreements for a Series I fundraise of more than $6.5 billion (€6.15 billion) at a $50B (€47B) valuation. Primary investors include ...
> The funds raised will be used to provide liquidity to current and former employees and address employee withholding tax obligations related to equity awards, resulting in the retirement of Stripe shares that will offset the issuance of new shares to Series I investors. Stripe does not need this capital to run its business.
As I read this, the plan is to issue a number of shares, buy exactly that many shares from Stripe employees, and retire the purchased shares.
Why do it that way instead of allowing the employees to sell their shares into the Series I offering?
> instead of allowing the employees to sell their shares into the Series I offering
Stripe has a large tax liability on its own hands. Investors don’t want employees’ common stock, they want top-of-the-stack pref. And Stripe wants to maintain control. Outside the executive ranks, most employees don’t have open market permission to sell their common stock.
Probably easier to do legally. Usually your option shares have a clause that you are not allowed to sell them on the secondary market (which this would be).
People have RSUs. Those RSUs vest at some point. When they vest, they have to pay taxes on them, at whatever value they have at that moment. This raise allows Stripe's employees to pay those taxes, and gives them a chance to sell if they want to. If they don't sell, they'll have to wait for future liquidity events, like private raises, buybacks from Stripe, or IPO.
The down round is appealing if you're intending to hold the shares until later, because you pay employee taxes at a low valuation, and then capital gains on the difference between that low valuation and your eventual sale price.
The advantage of vesting during a down round would apply only IF employees were paying cash for their taxes instead of withholding shares. Unfortunately, most employees don't have the cash to do so. For equity compensation that is withheld from, employees pay a constant percentage in withholding and have the over withholding converted into cash in the form of a tax refund. If/When they choose to sell their shares later on they must then pay a capital gains tax on the difference between the vest and sell price, effectively double-taxing them on the difference.
The down round is only appealing if you specifically have <1m in shares, have the cash to take a lower withholding rate, and value Stripe exposure so highly that it overcomes both the double-taxing and the opportunity cost of using cash for taxes. That trifecta is a nearly non-existent minority of former employees.
> Unfortunately, most employees don't have the cash to do so.
I don't think using cash to pay the taxes is even an option.
> If/When they choose to sell their shares later on they must then pay a capital gains tax on the difference between the vest and sell price, effectively double-taxing them on the difference.
Why are they "double-taxed"? After the withholding, you get shares with a cost basis of X (the price of the share at the liquidity event). Any future capital gain/loss is based on that cost basis. Where is the double taxation coming from?
I think you're confusing RSUs (Restricted Stock Units) and ISOs (Incentive Stock Options). Stripe employees were given ISOs. ISOs expire worthless if not exercised. And if Stripe employees chose to exercise their options, they were not allowed to sell the shares they received. So they would get a large tax bill on a paper gain, but not receive any cash to pay the IRS.
Stripe started issuing RSUs ~7 years ago and the first of those are set to expire next year without a liquidity event, which is why they're doing this.
If I was an employee of such company, I would just sell all my equity as soon as I got it. I suspect they have no clue how insanely lucky they are and how many forces have worked in their favor behind the scenes to put them in such fortunate position. After such insane winning streaks, it's the less arrogant ones who understand their luck who get to keep the spoils.
These offers usually don't let you sell 100% of your shares. I was at a company that did two offers before the IPO and the most you could sell was 20%.
Yeah Uber had this, twice actually as a private company; once with Softbank in January 2018. And then again with Coatue / a few other investors in July 2018.
There's a bit of game theory at stake, as to what you tender. You want to cash out a certain amount to diversify... but if too many people say yes, then your stake is whittled down to due to oversubscribed interest on the selling side.
You get one shot to put in for your % number, and it will either be that, or proportionately lower depending on every other eligible employee's interest in selling.
I recall the max was throttled at 50% vested shares, or something like that anyway for Uber. And you had to have a minimum number of shares vested to participate (low tens of thousands overall as I recall?)
Anyhow, I put in for the maximum both times which worked out because that % got whittled down since the tender offer was filled on both occasions (as I recall).
(P.S. Not that it matters for the story, but $40/share in July 2018 and just under $33/share in January 2018 ended up working out great compared to what happened subsequently.)
I understand in your case it worked out well, but I have to believe transactions like this, in aggregate, are highly negative EV for the seller. The buyer just has so much more information than you do on how market valuations are being set. And, the buyer knows the sellers are desperate for liquidity. The only way to combat these dynamics, as a seller, is to drive significant competition in the bidding process, but I doubt there's sufficient competition in most cases.
Maybe. The buyer certainly has more info for how market valuations are set if they're an investing professional, like is often the case for these tender offers.
However, on the other side... you have long standing employees of the company! So they are by definition insiders. And you'd have to think that some subset of employees actually would have info about the company that buyers in the tender offer process wouldn't have, particularly execs or in finance or maybe some key component of technology that the company's ultimate success hinges on. (Else, you wouldn't see public company restrictions on employees trading shares.)
I believe the general thinking around tender offers is they're often done on some level of discount on what an "open market" offer could be, at that point in time. In part, that's because private companies like to control their cap table. And so you're right that this dramatically reduces the competition in the bidding process as basically it's large funds/firms. Of which there are way fewer than, say, retail investors and smaller funds who would be willing to buy fractions of a few dozen employees' stakes.
Nevertheless, many people taking tender offers are not necessarily doing so out of desperation for liquidity per se. It's an opportunistic way to get some value out of your having worked to build a company, besides salary.
At this point, they might as well do a direct listing. Raising more money would just cut their valuation further and as soon as they list everyone can dump 20% of their holdings to provide liquidity.
But either way, they should have at least IPO'd in 2019, just like the rest of the companies out there who raced to the exit [0] [1] instead of a 50% valuation cut from $95BN.
Even in the best case of startup outcomes it still seems like they find a way to screw you over unless you have preferred shares. Sure there are the few lotteries that hit, but overall it isn’t a great deal. I wonder if we will see more startups just start to offer all cash.
My understanding is that preferred shares are only important if the company doesn’t have a high enough valuation. I won’t pretend to be an expert on the matter though.
It might be a matter of executive preference. Lots of people don't want to deal with the regulatory attention and mandatory reporting which comes from a company being publicly traded.
Not really. On general grounds, you expect to take a haircut when you offer shares privately, because there are fewer investors competing for the shares you're selling.
What happens to all these decade+ year old startups in the event of a recession and/or market collapse? You might be looking at 5 or more years before market conditions are conducive for loss-making startup IPOs.
Stripe is better than most of course, but plenty of 10-15 year old startups with negative cash flow and no exit path for another 5 years.
I'm not so sure about this, but can we really say that they're just trying to hype their upcoming IPO a bit more? Who knows though. Also, I am thinking they might be on the right path to further delay their IPO because of the current market condition.
Eek, why don't we fix AMT and stop treating employees so poorly? This whole scheme is utterly repellent to me and makes me feel incompetent to have to read and consume it. Why so many stratagems around something that is literally incompetent?
