The payments processing startup from San Francisco is seeking to raise around $2.5 billion, , which would raise Stripe鈥檚 valuation from $55 billion to $60 billion.听

, which led Stripe鈥檚 Series C and contributed to its Series E (according to SA国际传媒 data), contributed $1 billion to the fundraising efforts per the report.听

Stripe鈥檚 raise will likely not go toward bolstering the company鈥檚 operations, . Instead, the company will use the funds to resolve the expiring stock units held by employees.听

Collapsing under late-stage pressure

Stock options are a crucial tool for tech startups to recruit and retain valuable employees, and several veteran members of Stripe also have stock units that are set to expire this year. Stripe is considering going public or facilitating a private market transaction to allow employees to liquidate those assets.听

Stripe鈥檚 next moves could pave the way for other late-stage, high-value companies grappling with the same problems. It鈥檚 the fifth-highest valued startup on , under , owner and .

The company, which spent the majority of its last 12 years flourishing, is now reckoning with a frosty market. The startup was valued at a high of $95 billion back in March 2021, when the company raised a $600 million Series H round. At the time, co-founder said he had .听

That valuation was, reportedly, later cut down to $74 billion in July and amid a funding pullback. But Stripe鈥檚 current reported valuation of $55 billion is still light years ahead of where it was in 2020, when it was valued at $36 billion.听

Illustration:

Stripe has been arguably one of the most anticipated IPOs of 2023, making several end-of-the-year lists (including ours). It was also one of the highest-valued decacorns in 2022. And yet, when the company was valued at $95 billion in 2021, Stripe co-founder said there were .听

But it looks like his tune has changed. The company is looking to solve the issue of 10-year stock units awarded to veteran employees that are . It鈥檚 an issue several companies Stripe鈥檚 size will face as the IPO market all but closed up in 2022.听

One way for Stripe to resolve the issue is to take the decacorn public. Founded in 2010, the company has raised around $2.2 billion since then 鈥� most recently a $600 million Series H in 2021. It has dual headquarters, in San Francisco and in Dublin, Ireland.

Looking at the secondary market聽

The other option Stripe may be considering is allowing stockholders to sell shares on the secondary markets.听

As an employee retention tool, it鈥檚 unclear what the best picture is for Stripe, which has operated privately for 13 years. According to data from secondary markets platform , almost half of the investor activity on its platform in 2020 was around companies that were 10 years or older. In Q4 of last year, that interest nosedived to 8% 鈥� .听

That鈥檚 pretty surprising, considering that the majority of tech company activity on the secondary markets are centered around established, pre-IPO dinosaurs such as Stripe. But given the state of overhyped valuations and the frosty market, perhaps investors are hesitant to buy shares.

Further reading

• Stripe Reportedly Lowers Internal Valuation
• When there Are No IPOs, All Eyes Are On The Secondary Markets
• Unicorn Valuations Are On The Chopping Block

Illustration:

Payments could remain the most-funded sector within fintech, especially startups focused on B2B payments. On the other side, cryptocurrency and blockchain, which experienced a large increase in funding in recent years, will most likely face a pullback in the wake of 鈥檚 collapse.听

Leading sectors

Venture investment into fintech companies in 2022 reached $81 billion as of Dec. 14 鈥� down 41% so far from the peak of 2021 at $137 billion. Still, that $81 billion figure still exceeds 2020 amounts by more than $30 billion.听

All told, the sector has grown more than 10 times in the last decade from $7 billion in 2013.听

Within the fintech sector, payments- and banking-related startups received the most venture funding over the past five years, SA国际传媒 data shows. Cryptocurrency startup funding exceeded these two leading sectors in 2021, but dropped back a bit in 2022. Blockchain technology also received more funding in 2021 and grew its share into 2022.听

E-commerce and insurance, meanwhile, fell as a proportion of overall dollars invested.听

First innings in fintech

The fintech sector is still in early innings, according to from venture firm that analyzes the changes modern fintech has brought to the world of finance.听

The New York-based firm, an investor in private and public company stocks, wrestles with the question of value creation in the fintech sector in the report on the state of fintech.听

Of the $11 trillion in market capitalization in financial services companies as of October 2022, only $508 billion 鈥� 2% 鈥� was in modern fintech companies, Coatue notes. That proportion was higher in 2021 at 5% due to high valuations given to public technology stocks, but in prior years it did not reach 1%.听

鈥淥n the way up everybody values growth,鈥� , the co-head of its fintech practice and co-COO of Coatue鈥檚 growth practice, said in an interview. 鈥淥n the way down, everybody is valuing profitability and retention. The highest-quality business models within fintech have actually been hit a lot less than the rest of the market.鈥澛�

There is a large amount of gross profit for modern fintechs to eat into: Across the financial services sector, gross profits globally totaled $6.5 trillion in 2021, Coatue estimates.听

Fintech business models

Not all fintech businesses and business models are created equal. Newer and in some cases unproven business models that have been hit harder in the public markets are consumer finance, insurtech and SMB payments, according to the report.听

Source: Coatue Whitepaper: Fintech and the Pursuit of the Prize, October 2022.

Public fintech

Coatue analyzed the strength of public financial services businesses across four measures: revenue retention, gross margin, operating margin and revenue growth. It then used its 鈥渞ule of 200%,鈥� which states that if those four factors combined add up to 200% or more, a company is in a stronger position in this market.听

By that measure, public fintechs leading on the list are Uruguay-based cross-border payment provider , Palo Alto, California-based back office financial startup and North Carolina-based banking platform .听

Source: Coatue Whitepaper: Fintech and the Pursuit of the Prize, October 2022.

Sectors for investment in 2023

鈥淚t’s very clear that it’s easier than ever to offer financial services, whether as a standalone business or as part of incremental margin and revenue in an otherwise non-financial business,鈥� said of . 鈥淎nd we believe that trend is going to continue for the rest of our lives.鈥�

With the slump in new tech listings in 2022 and the nosedive in value in public technology stocks including fintechs, where do investors see opportunities in 2023? Here are some sectors that stand out.听

B2B fintech聽

Coatue continues to focus on B2B fintech, Gilroy said. Based on an analysis of the firm’s investments the best business models are in B2B. That鈥檚 because business-oriented financial services tend to have lower churn 鈥� compared to consumer fintech 鈥� and business customers often grow over time, increase spend and provide opportunities to cross-sell with new products.听

There is also opportunity in a 鈥渧erticalized approach, whether you’re going after landlords in the real estate market or restaurants,鈥� Gilroy said.听

Emerging markets聽

Emerging markets present another growth opportunity for fintech startups.

鈥淭here’s a lot of underserved communities around the world in terms of access to even the most basic financial products,鈥� said , a principal at and an investor in the firm鈥檚 early-stage practice in fintech and B2B software.听

Coatue noted in its report that 鈥渇or incumbents who often struggle with customer service and innovation, doing business in emerging markets is practically impossible due to the increasing rate at which locals are coming online.鈥�

Latin American fintechs that have gone public include cross-border payments dLocal, neobank and e-commerce platform , which went public in 2007.听

CFO stack

Then there鈥檚 the so-called 鈥淐FO stack,鈥� or technologies that would make a finance executive鈥檚 job easier.

鈥淭here’s a tremendous amount of digitalization yet to come. A lot of that is around payments, but a lot of that is also around what we would characterize as the CFO stack, all of the different functions a CFO might ultimately have to navigate,鈥� said Savage.听

Areas of innovation in this stack include tackling expense management, payroll and benefits, stock allocation, business analytics, financial planning and accounting.听

鈥淭he opportunity areas in fintech focus on the boring areas of infrastructure, fraud, payment operations, compliance, and taxes. CFOs will be more focused than ever on impact to the bottom line,鈥� , a general partner at , said via email. 鈥淔intechs that can demonstrate an improvement in payment authorization rates, better reconciliation rates, or reduction in fraud that is measurable will weather the downturn.鈥�

Owning the balance sheet

Becoming a bank is expensive and time consuming in the U.S., according to Coatue, but can ultimately provide longer-term stability for a fintech company.听聽

With that in mind, many fintechs are applying to get banking licenses in order to hold customer deposits, manage money transfers and offer loans instead of partnering with an established bank. received a banking license in March 2021 to be able to originate loans through Square Financial Services. has a banking license in the European Union but has yet to be approved for a banking license in the U.K. Neobanks Nubank and Chime are not licensed as banks.听聽聽

聽鈥淚n a rising interest rate environment, legacy banks, insurance providers, and asset managers have the potential to weather down cycles better than capital-light business models, e.g., insurtech and consumer-facing fintech,鈥� said Coatue in its report.

鈥淭hrough this last cycle, balance sheets have kind of been a bad word within financial services, and we’re learning that owning the balance sheet, whether you鈥檙e consumer facing or business facing, puts you in control of your own destiny and takes you away from the need to maybe go and partner with somebody and continuously work on these these balance sheet agreements,鈥� said Gilroy.

Looking forward

Last year, the big themes in financial services were infrastructure building, embedded finance, consumer fintech and a big interest in buy now, pay later platforms.听

With an increase in interest rates and the market downturn, consumer fintech and lending companies face choppier waters while those focused on enterprise payments have a greater potential for consistent growth in 2023.听

We expect consolidation as funding dries up, and fewer companies can scale up.听

Subscribe to the SA国际传媒 Daily

That’s the business London-based is in. Its international money transfer and cashless remittance services facilitates payments from 50 鈥渟ending鈥� countries to 150 鈥渞eceiving鈥� countries around the world.

Today, the company it financing from a troika of prior investors鈥�, , and 鈥攚hich now values the company at $900 million, post-money.

According to SA国际传媒 data, the company has raised . The company’s last round, $40 million in Series C funding, , post-money, back in December 2017.

WorldRemit’s CEO, , said in that “For more than eight years our core purpose has been and continues to be to help migrants send money to their families, friends and communities. Our customers play a key role in the economies where they work and their remittances are important to their home countries.鈥� Corcoran joined the company in October 2018 to take over the CEO role from cofounder , who co-founded the company with back in 2010. A indicates that Ahmed and Wines still serve director roles at the company.

“Over the past eight years, Ismail and his founding team have built a fantastic business that offers customers a compelling solution and value proposition,” TCV general partner said in a statement. He continued, “Since passing the reins to Breon and the new management team last year, the business has continued to build on this platform and accelerated. We believe the opportunity and proposition is larger than ever.”

The company is growing, but perhaps a bit slower than its executives and VC backers would like. When the company it said in a statement that the capital it raised would help WorldRemit reach 10 million customers “connected to emerging markets” by 2020. Today’s , some 18 months after the last round, said the company now “serves almost 4 million customers.” 2020 is six months away.

WorldRemit said it will use the fresh Series D capital to “further drive global growth and diversify the company鈥檚 product offering for both money transfer senders and recipients.” The company also said it will launch “a new money transfer solution targeting small and medium-sized business owners who trade internationally, especially in emerging markets.”

Against incumbents like Western Union and upstart peers like TransferWise, WorldRemit is competing for its piece of a growing pie. According to an , 2018 set records for international remittance flows. “Global remittances, which include flows to high-income countries, reached $689 billion in 2018, up from $633 billion in 2017,” according to the report.

滨濒濒耻蝉迟谤补迟颈辞苍:听

However, in keeping with a trend in technology IPOs we’ve seen recently, the firm priced above range.

Follow SA国际传媒 News on

How much did StoneCo raise at $24 per share? It’s actually not something agreed upon. Axios’ Dan Primack , based on the primary shares offered, and under two million shares from existing shareholders. . There are also around seven million shares in the underwriter’s option, and the company after its .

If you take the primary shares, the existing shareholder bloc, the underwriter’s option, and the other shares, it works out to a $1.4 billion raise. Reuters has it written down . If you figure that out, let us know.

The StoneCo IPO (quick notes on its financials here) matters as it is another global unicorn IPO, yes, but also one that is coming due during market turmoil. This may not have been the ideal week if you were going to price a huge offering in a different market from your HQ. Still, StoneCo pulled it off.

The firm, founded in 2012, is and made its only . And now it’s public, and therefore a company that we shall ignore. You can wait for it to start trading .

The first version of this story incorrectly listed StoneCo’s founding year as 2013. It has been corrected.

Top Image Credit: .