Types of Covenants
In the previous article, we had a closer look at the concept of covenants as well as indentures. However, we only covered the basics. Indentures and covenants are extremely important to the investors who deploy their money in fixed-income securities. It is for this reason that investors need to have a better understanding of the […]
Arguments against Tax Competition
Proponents of the free market generally believe that competition is good for the economy. They argue in favor of the competition every time. Hence, it is natural for them to feel that competition in taxes is also good. The general argument is that competition forces the governments to rationalize and become more efficient. However, there […]
Series A Funding
Startup funding is not a one-time activity. Instead, it is a long-drawn process that encompasses many years in the initial life of any startup firm. It is important to realize that the funding of any startup company happens in multiple stages. Up until now, we have understood the pre-seed funding as well as the seed […]
Hindsight Bias
There are several cognitive biases that affect our ability to think clearly about financial investments. One such bias is called the hindsight bias. Over the years, the effect of hindsight bias on the value of investor portfolios has been significant. This is the reason that we will have a closer look at what this bias […]
What are STRIP Bonds?
STRIP is an acronym that is commonly used to denote Separate Trading of Registered Interest and Principal of securities. This is a complex-sounding term however, in reality, the meaning is quite simple. It is important to understand that when we buy a bond that pays regular coupon payments, we are actually buying the right to […]
Stripe is one of the most prominent start-ups in the world. It does not have the fame or popularity of other start-ups like Uber or Airbnb. However, Stripe has achieved an equivalent amount of success. In fact, as of early $2022, this start-up company was valued at $95 billion! This stupendous valuation makes it one of the most successful start-ups in the history of the world. Stripe is not very popular or well known because consumers do not directly interact with the company. Instead, Stripe mostly interacts with businesses.
In this article, we will have a closer look at what Stripe is as well as how it generates wealth for its investors.
Stripe can be thought of as being the middleman of the internet. The term middleman seems to have negative connotations. In fact, one of the biggest benefits of operating an online business is that the middleman can be easily cut out. However, Stripe is not an ordinary middleman. Stripe uses its revolutionary technology to transform payment processing. This is the reason that it is one of the most welcome middlemen.
Stripe makes it possible for start-up companies to be able to accept payments in the same way as their counterparts with big budgets. It is a fintech company that provides payment solutions as a service to all types of companies.
The benefit of using Stripe is that it is a highly integrated platform that allows companies to receive payments in more than 125 currencies. It also allows companies to receive payments from debit cards, credit cards, ACH, and other offline mediums. The interface provided by Stripe is very simple and Stripe also helps its customers manage complex reporting requirements.
Stripe was revolutionary because it was way ahead of its competition. A Stripe account can be opened in a very short duration and requires very less money. This is opposed to the way things were done in the pre-Stripe era. Setting up systems for receiving online payments was a tough task and required weeks of work. It also required payment of multiple types of fees. Stripe revolutionized the space by making it simple as well as cheap. Start-ups of any size did not need to have an agreement with any bank or with any other financial service provider in order to receive money from their customer.
Stripe was founded by the Collison brothers who originally hailed from Ireland and were studying in American universities. The Collison brothers had some entrepreneurial experience. They had already created an online application called Auctomatic and had sold it to investors for over $5 million.
Hence, when the brothers decided to drop out of college and pursue their entrepreneurial dream, they found a lot of support. The famous start-up accelerator Y combinator helped them raise funds. Also, famous investors like Peter Thiel invested small amounts of money in the form of seed capital. In the later rounds, the company was able to raise money from large funds such as Sequoia capital. Once the company was able to do so, there was no looking back.
The valuation of the company has grown quickly from $100 million to $100 billion on the back of technological advancements and various funding rounds which they have received from different investors. The company has received over 10 rounds of funds till now and has seen its valuation grow from a few million dollars to $100 billion dollars! The company has been able to raise $2.2 billion from a total of 39 different investors. This shows widespread acceptance of Stripe’s business model amongst the investing community.
Stripe has seemingly come out of nowhere to become the global behemoth in the field of financial processing. In the past eight years that Stripe has existed, it has been able to obtain great scale. Stripe processes more than 50% of the online transactions which happen across the globe. Stripe also claims that around 89% of the credit cards which exist around the world may have been processed on a stripe network at least once. Also, since the company makes a small fee on every transaction that it process, the company is cash-flow positive.
There have been some questions raised about whether the lofty valuations given to Stripe make any sense. This is because when Stripe first entered the payments domain, there wasn’t much competition. However, now many companies such as Google and Amazon have also set their eyes on the payment space. Given the fact that they have much deeper wallets, Stripe may be in for a bumpy ride in the future. Stripe is banking on its advanced technology and a better understanding of the end-to-end process in order to be able to compete with bigger competitors.
The bottom line is that the Stripe story is indeed remarkable. It has shown how a small company with a limited budget can transform a high-tech business space such as online payments.
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