Yesterday, 26 January 2023, the financial community got word of fintech giant, Stripe’s plans to go public, and excitement has spread through the IPO-starved industry.
According to The Information, which broke the news, Stripe told employees in an email that they had set a twelve-month deadline to either go public or make a deal that would allow employees to sell stock.
The company hired Goldman Sachs and JPMorgan to help with the proceedings and is considering a direct listing or private market transaction. An “all-hands meeting” will be held today to discuss options.
“Our vision is to offer predictable, ongoing liquidity, at market prices, to current and former Stripes,” the email reportedly read. “Doing so as a public company is the most common path, and while it remains the default outcome, we’re going to assess both private and public options for enabling effective and orderly trading of Stripe’s equity.”
A challenging environment
For many in the industry, 2022 was a challenging year, with mounting stories of layoffs and valuation cuts.
Stripe has not escaped the destruction, their internal valuation slipping 40% since its peak in 2021. Just two weeks before the release of its plans to go public, the company had slashed the value of internal shares to $25, bringing its implied valuation to $63 billion.
This latest announcement comes ahead of a looming expiry date for the stock units of some of Stripe’s oldest employees.
“This is yet another example of Patrick and John Collison leading the way in doing right by their employees,” said Alex Harris, Founding partner of Fiat Ventures. “A reality for many early employees of 10+-year-old startups is that they face options either expiring or being forced to exercise options with little to no options for selling shares to pay their taxes.”
“This represents a firm commitment by the leaders of Stripe to take care of their team members regardless of IPO timing.”
The move to public would avoid the need for veteran employees to exercise options and allow them to benefit from the sale of the shares.
Excitement From The Industry
The response on large has been positive, with many looking at the news as a sign of better times for the maturing fintech industry.
“The equity markets were completely shut at the end of last year. Stripe’s announcement is a good sign that the window is ajar at a minimum for the very best companies,” Isabelle Freidheim, Founder and Chairman of the Board at Athena.
“That’s good news for the many great businesses that want to access the deepest pool of capital in the world. There’s a backlog and a long waiting line, and we know the very best companies are the first to be able to break through.”
Following a barrage of plummeting valuations and general insecurity, the fintech industry has become a tundra for public offerings. Many foresaw this environment to continue well into 2023. Stripe’s news has sparked a glimmer of hope on the horizon.
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“Stripe’s resiliency and dominance in the market give them a genuine opportunity to lead the way for the next generation of fintech leaders backed by solid business fundamentals and continued growth to make their IPOs without fear of the uncertain market we are in,” continued Harris. “I hope that many other leading companies follow their example of properly assisting their employees and bringing financially sound businesses into the public markets.”
His opinion is shared by others in the industry.
“Stripe is a bell weather for the post-PayPal generation of fintech,” said Tom Brown, Partner at Nyca Partners. “The fact that they have remained private for as long as they have is, on balance, bad for the industry as a whole. If the bell weather isn’t willing to subject itself to public market scrutiny, it suggests that the industry as a whole isn’t ready for prime time.”
Hindsight is always twenty-twenty.
Despite this excitement, others remain skeptical.
The Information’s Jessica E. Lessin felt that the growing anticipation of fintechs looking to follow Stripe’s lead with their own IPOs is somewhat premature. She wrote that this was the outcome JP Morgan and Goldman Sachs were looking for.
“That doesn’t mean there will be any action,” she warned.
Citing the ongoing uncertainty caused by rising interest rates and inflation, she felt this “isn’t really time to roll the dice,” instead suggesting a fundraising initiative to privately support the “stock squeeze” as the more favorable option.
Others felt that the decision to go public should have been made in 2021 instead of today, back Stripe was skyrocketing, and secondary market investors implied a valuation of $225 billion.
As the year unfolds, the Collison brothers’ next steps will undoubtedly mark the future of the industry. The result remains to be seen.
“Ultimately, the market will value Stripe as it does every business,” concluded Brown.