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John Collison at TechCrunch Disrupt NY in 2013
# valuation
Explainer: How did Stripe become a $1.75 billion company?
With Stripe raising another $80 million in investment last night, how did the Collison brothers create a $1.75 billion company in the space of three years.
CHANCES ARE YOU’VE heard of the Collison Brothers before now.
Originally from Limerick, John (23) and Patrick Collison’s (25) e-payments service Stripe raised $80 million (€59 million) in funding last night, meaning the company is now valued at $1.75 billion (€1.3 billion).
With a potential deal with Twitter on the cards, which would allow companies to sell goods directly on the site if completed, it’s a company that continues to generate interest as it grows.
But with all the hype behind it, how did the two brothers create a company that’s now worth $1.75 billion in the space of three years?
What is Stripe?
Originally founded by the brothers in 2010, and launching in 2011, Stripe is a service designed around making online credit card payments simple for developers.
Based in San Francisco and employing 84 people – most of who are engineers – the company believes that the problem of online transactions is something that’s rooted in code instead of finance.
Through its service, it allowed developers to build their own payment forms on site, and allow visitors to stay on the site when going through the checkout process.
By supporting multiple programming languages, and allowing it to be setup within minutes, its ease of use has meant it’s become popular with both developers and startups who regularly deal with transactions.
The service is currently available in the US, Canada, UK and Ireland and is being tested out in Australia, Belgium, Germany, Finland, France, Luxembourg, Netherlands, and Spain.
The company generates revenue by collecting 2.9 per cent of most transactions in addition to a flat commission of 30 cents per charge – similar to PayPal.
Why is there so much hype behind it?
Including the $80 million mentioned earlier, Stripe has raised more than $120 million since 2010. Some of its investors include the founders of PayPal, Elon Musk and Peter Thiel, as well as venture capitalist firms Sequoia Capital, and Khosla Ventures. The last time Stripe was valued back in June 2012, it was valued at close to $500 million (€366 million).
The service is probably one of the biggest threats to existing online payment services such as PayPal. Back in September, PayPal made a bid to buy Stripe, but the offer was turned down. When this happened, it spent $800 million on online and mobile payments firm Braintree instead.
What did the Collison brothers do before Stripe?
Despite their young age, this is the Collison brothers’ second startup. Their first company Shuppa (pronounced “siopa”), which later became Auctomatic, was founded in 2007 and offered an auction and marketplace management system for individual sellers on market sites such as eBay and Amazon.
In March 2008, the brothers sold the company to Canadian firm Live Current Media for $5 million (€3.2 million), making the two brothers millionaires before they reached their twenties (at the time, John was 17 and Patrick was 19).
It was through this startup that it became familiar with Y Combinator, an American startup accelerator which invests in startups in return for a percentage in equity. The accelerator was one of the first to invest in Stripe when it launched in 2010.
Before founding Stripe, Patrick was studying mathematics in the Massachusetts Institute of Technology and John was studying physics in Harvard, before they both decided to drop out. Their experience with Auctomatic meant they knew the ePayments space better and use that experience to create a service that would separate Stripe from other similar competitors.
What’s next for the company?
For now, it’s focused on expanding the company and launching the service in more territories. The service is only available in 12 countries meaning there is a lot of scope for expansion, and it has both the funds and the team to pull it off.
Despite the high valuation, the brothers have ruled out the possibility of the company going public with Patrick Collison telling Silicon Republic that talk of it is “like trying to decide the career paths of four-year-olds.”
For now, the aim for 2014 is to expand the service into more countries and make Stripe the primary mode of online payment, although both are aware that this won’t be an easy task as John Collison told Techcrunch.
Creating this layer and modernizing payments infrastructure for the web us a big task… This means we have to expand to more countries, and potentially beyond credit card payments. We want to make payments work well for all merchants, all over the world.
It will still take time for this to happen, but with the backing it’s received and the team it has, 2014 could be a very eventful year for the company.
