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Stripe understated its volume
Adyen leads to Stripe
Payments was an industry the buyers knew from Adyen, a next-gen cloud payments company in the take-share business against Worldpay. Modern cloud payments was about 5 percent of an $80 trillion market. In due diligence on Adyen they talked to 200 customers, and the conversations kept turning to Stripe. The two looked like Coke and Pepsi. A meeting with the Collison brothers followed in 2019.
The April 2020 offer
In April 2020, a friend at a venture firm called with shares to sell. The buyers lacked the full financials, but they knew Adyen's take rate was 25 or 30 basis points, Stripe's was 40 or 50, and they knew how many employees Stripe had, which let them get at its profitability.
Better than expected
Underwriting on those assumptions, the real numbers came out better. The take rate was higher, and Stripe had been modest about its total payment volume, which was closer to $1 trillion than the 550 billion disclosed.
How do payment companies earn on each transaction?
When a customer pays by card, the merchant's fee is split among the bank that issued the card, called interchange, the card network such as Visa or Mastercard, and the payment company's own markup. Interchange is the largest piece. The markup is the payment company's revenue, so its take rate sits well below the headline fee. Adyen, founded in Amsterdam in 2006, listed on Euronext Amsterdam in June 2018.
Why did developers pick Stripe?
Before Stripe, accepting cards online meant applying for a merchant account and wiring up a gateway through a slow, paperwork-heavy process. Patrick and John Collison started Stripe in 2010 on the pitch that a developer could accept payments by adding a few lines of code. The company launched publicly in September 2011. Developers who liked the tool carried it to the companies they later joined.
How does a private company share sale work?
In a secondary sale, existing shareholders such as early investors or employees sell their shares to a new buyer. The company does not issue new stock, so it raises no money from the deal. Buyers usually see limited financial information and must lean on outside data. The price per share in a secondary deal sets the company's headline valuation.
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