Stripe, the payments’ processing company, added $600 million to its Series G funding round in April 2020. Yes, Series G is a long way down from a Series A. Venture Capital heavyweights Andreessen Horowitz, General Catalyst, GV, and Sequoia all participated in the fundraising. You kind of have to given the size of the round. The funding comes on top of an already huge $250 million round announced in September 2019, and values Stripe at a staggering $36 billion.
That is no small feat in the current environment, at a time when venture capital firms either do not commit new capital, or do it at knock-off valuations (like Monzo in June). And it’s not going to get any better any time soon…
Put it in perspective, even though public markets are quite irrational these days, $36 billion is more than half the market capitalisation of Goldman Sachs (c.$60 billion) and almost half that of HSBC (c.$80 billion). Two banking behemoths. That is quite impressive.
But is it really surprising? Well, not really.
Let’s first take a step back and have a look at what Stripe actually does. Founded in 2010 by Irish brothers Patrick and John Collison, Stripe has built itself up into a major player in the payments industry. Simply speaking, it makes it easy for online sellers to accept payments. Stripe provides everything an internet business needs to make and receive payments, and even expanded into providing financing to its customers through Stripe Capital.
After the Great Financial Crisis of 2008/2009, fintech boomed. Startups understood that payments and particularly processing was the low hanging fruit. Clunky and slow, it clearly was not right for most businesses. Even more if you were a fast-growing internet business. Therefore Stripe decided to focus on that segment.
Surely at a time when physical shops and stores have been closed for months or will never reopen in most countries from Europe to America, that seems like a very good bet in hindsight. Most transactions happen online these days and this is unlikely to change any time soon. Obviously, Stripe could not have forecast this once-in-300-year crisis.
However, even before the coronavirus outbreak, brick-and-mortar was on a downward path. At the same time, online players, with Amazon leading the charge, were growing at an outstanding pace. Customers’ preferences changed and businesses like Stripe understood it and nicely followed the trend. Stripe powers most of the successful businesses that are thriving during this crisis, from DoorDash to Zoom.
So what now?
Stripe continues to develop its offering to serve even more of the financial needs of its business customers. From providing loans through Stripe Capital to issuing physical cards. Stripe has established itself as the dominant player in its segment and is likely to want to control more of the value.
The idea is for an online business not to need a bank or any other financial institutions. It will be either vertical or horizontal integration for Stripe. The macro economic trends are also going in the right direction for the payments behemoth. It would not be surprising to see an even bigger funding round very soon – or a huge IPO…
The former is more likely, as companies stay private for longer these days, but that’s another story…