Payments processor Stripe announced on Wednesday last week that it has raised $6.5 billion in a funding round led by both existing and new investors.
This news comes as a surprise as the company initially targeted fundraising of around $4 billion but ended up receiving more demand than expected.
However, the funding came at a sharply reduced valuation of $50 billion, down nearly 50% from two years ago when the company was valued at $95 billion.
Tax Bill and Liquidity to Employees
Stripe revealed that it plans to use the cash to cover a large tax bill associated with stock granted to employees and to provide liquidity to employees.
Around $3.5 billion of the newly raised capital will be used to cover the tax bill, with the rest being used to buy shares from employees, according to a person familiar with the matter who requested anonymity.
New and Existing Investors
The funding round was led by venture capital firms, including Andreessen Horowitz, Baillie Gifford, Founders Fund, General Catalyst, MSD Partners, and Thrive Capital.
New investors such as Singapore’s sovereign wealth fund GIC, Goldman Sachs Asset and Wealth Management, and Temasek also participated in the round. Goldman Sachs served as the sole placement agent on the funding round, and J.P. Morgan acted as a financial advisor to the company, Stripe said.
No Need for New Funds
Despite the large sum of money raised, Stripe said it does not need the new funds to run its business.
It had initially targeted fundraising of about $4 billion but ended up garnering more demand from investors than it initially anticipated.
Stripe also mentioned that it is still planning to eventually proceed with an initial public offering, but that is unlikely to happen this year, according to a person familiar with the matter.
Investors Turn Cautious
After years of signing big checks for high-flying startups, investors have turned more cautious, and startup metrics such as profitability and cash burn are being scrutinized more closely.
This year, Swedish buy now, pay later giant Klarna also raised capital at a significantly lower valuation.
Stripe counts Amazon.com Inc, Ford Motor Co, Salesforce, and BMW among its customers. The company has previously said it is aiming to turn profitable before going public.
Final Thoughts
Although the valuation of Stripe has significantly dropped over the last two years, the company remains a prominent player in the payments processing industry.
With the funds raised, Stripe can provide liquidity to its employees and cover a large tax bill, ensuring the company remains financially stable.
As investors become more cautious, Stripe’s move to become profitable before going public is a prudent decision that could pay off in the long run.
