John Collison – the world's second-youngest self-made billionaire, according to Forbes, behind makeup-peddler Kylie Jenner of the Kardashian-Jenner paparazzi-feeding machine – has just become a whole lot richer. On paper, at least.
The Tipperary native (29), who co-founded online payments company Stripe in 2010, is estimated to be worth about $3.5 billion (€3.2 billion) after the fast-growing group raised a fresh round of funds this week, valuing it at $35 billion. His 31-year-old brother and company chief executive, Patrick, is worth the same.
The college dropouts are said to own about 20 per cent of Stripe between them, following multiple fundraisings rounds over less than a decade, totalling $1.2 billion. The latest, raking in $250 million from blue-chip venture capital (VC) funds including Sequoia Capital, General Catalyst and Andreessen Horowitz, will be used to help it continue to expand around the world and launch new products.
While the fintech originally saw its niche helping small businesses process customer payments and navigate the world of ecommerce, its technology is now used by big names such as Amazon, Google, Spotify, Uber, Deliveroo and Microsoft.
And the younger Collison believes they’ve only gotten started. “Even now, in 2019, less than 8 per cent of commerce happens online,” the Stripe president said on Thursday. “We’re investing now to build the infrastructure that will power internet commerce in 2030 – and beyond. If we get it right, we can help the internet fulfil its potential as an engine for global economic progress.”
That’s ambition. Dot. Com.
The valuation marks a massive jump from the $22.5 billion put on the business just nine months' ago as part of another equity-raising round. It stands at 10 times what the fintech was valued at in late 2014, and cements its position as one of the most valuable start-ups on the planet. Indeed, it ranks third by value among unicorn companies in the US, behind e-cigarettes group Juul Labs and We Co, parent of share work space manager WeWork, according to Bloomberg.
Any comparisons to WeWork, which became the stuff of venture capitalists’ nightmares this week when it abandoned an initial public offering (IPO), wouldn’t be welcomed by the Collisons.
But the flop offers a cautionary reminder of a yawning gap that has emerged between what VC firms, awash with cash in a low-yield environment, are prepared to wager on the “next big thing” – and what public markets will accept at this late stage in the economic cycle.
Of course, WeWork has particular issues. It's an office leasing company masquerading as a fintech; it has an outsized personality at the helm in the shape of its chief executive Adam Neumann; it's burning through cash at a fantastic pace, and it failed in its IPO prospectus to offer any clue as to when it may turn a profit.
Reality
Stripe, which employs 200 people in Dublin and 2,000 worldwide, doesn’t disclose whether it is profitable or not. But the Collisons, now based in San Francisco, seem to be more in tune with reality than Neumann, who invited would-be shareholders to leap into an investment twilight zone with a statement in WeWork’s IPO prospectus that they should look at the company as more than a landlord that leases buildings and sublets space to tenants under short-term deals.
“We are a community company committed to maximum impact,” it said on the very first page. “Our mission is to elevate the world’s consciousness.”
The stock market – all the more wary after shares in other VC-backed firms Uber and Lyft wobbled after their IPOs this year – saw right through WeWork's guff, even if the documents ditched its previously-preferred profit metric of "community adjusted ebitda" (earnings before interest, tax, depreciation and amortisation).
While the company was valued at $47 billion earlier this year as Japanese conglomerate SoftBank bought $2 billion of stock, expectations began to drop dramatically in recent weeks, with Reuters reporting last Friday that people close to the planned flotation were working off a valuation of between $10 billion and $12 billion in order to drum up interest.
The last-minute decision on Monday night to postpone the IPO has rattled the VC world and may mark a turning point in the industry’s explosive growth over the past decade.
Still, another VC darling, home-sharing rental business Airbnb announced on Thursday that it plans to go public “during 2020”. The fact that the company, valued by private investors at $31 billion two years’ ago, has delivered operating profits over the past two years will probably help.
Stripe, for now, has no plans to test whether its VC valuation will hold up on the public market. John Collison told business broadcaster CNBC on Thursday that the company has “no plans” to go public right away. “We’re very happy as a private company,” he said. “We’re quite early in this opportunity.”
But the company will ultimately be steered by its VC backers, who will want an exit at some stage.
In the meantime, Stripe is branching out. At the start of this month it launched a lending product, Stripe Capital, which will allow business customers borrow money without the need to fill out lengthy application forms or wait weeks for approval. A week later, it unveiled a new corporate credit card.
These open the door to greater opportunities. And greater risks.
