Stripe keeps bending over backward to stay private and still let employees get rich

A few weeks ago, I wrote about Stripe’s continued refusal to go public, mentioning that one issue with remaining private is that many of your long-time employees will, eventually, want to sell some of their shares and turn their paper millions into real millions. To quote myself:

In 2021, Stripe was the hottest startup in tech. In March of that year, it raised $600 million at a $95 billion valuation, and six months later, the company was flirting with the idea of going public. Three years later, Stripe still hasn’t gone public, and its valuation (as of February 2024) has declined to $65 billion. If you’re a long-time employee still holding your paper shares, you can’t be too happy about missing the liquidity event of a lifetime.

So Stripe devised a solution: because outside demand for stakes in the company was so high, Stripe could facilitate tender offers allowing some of its employees to sell their shares to outside investors. From Bloomberg:

Stripe Inc. expects to again let employees cash out some of their shares, the fintech’s co-founder said, reiterating that the company is in no rush for an initial public offering.

Stripe, which helps online and brick-and-mortar merchants process customer payments, will probably again turn to investors and the firm’s own coffers for an employee tender offer — which would be its third, John Collison said in an interview with David Rubenstein.

‘We did that last year, we did that this year, and we’ll probably do it again in the future,’ Collison said.

While venture capital subsidized Stripe’s ability to stay private by creating a medium for its employees to liquidate their shares through tender offers, one group of investors has still been waiting to sell its shares for more than a decade: the limited partners (LPs) in the VC funds that invested in Stripe’s earliest funding rounds.

That said, it appears that some of Sequoia Capital’s LPs from funds that invested in Stripe between 2009 and 2012 are going to receive an $861 million payday. The buyer? Sequoia’s newer funds. From Axios:

Sequoia this morning emailed LPs in funds raised between 2009 and 2012, offering to buy up to $861 million of Stripe shares. The purchasers would be other, more recent Sequoia Capital funds — a process partially enabled by the firm's 2021 restructuring.

The price would be $27.51 per share, which is Stripe's most recent 409A mark and represents a $70 billion valuation. For context, Stripe was valued at $95 billion back in 2021, but by last summer had slashed its worth to $50 billion…

Sequoia is recognizing what some of its investors need, while simultaneously expressing faith in Stripe's future. What's not clear, however, is why Sequoia is convinced that Stripe will enable an exit that rewards such faith. Internal messaging has been to expect an IPO eventually, but its actions have suggested that the founding Collison brothers would rather stay private indefinitely.

Sequoia invested in Stripe’s 2012 Series B at a valuation of “hundreds of millions” of dollars, and Stripe is now worth $70 billion, meaning that, ignoring further dilution, LPs from the 2012 investment are sitting on at least a 100x return. Those LPs would like to realize that return, but Stripe’s founders have no intention of taking the company public any time soon.

If you are Sequoia, what do you do?

Well, investor demand has remained high for Stripe shares, considering the company hasn’t had a problem finding investors to purchase employees’ shares in secondary offerings, and Stripe is still growing quickly, with Axios noting that the fintech giant handled $1 trillion in payment volume in 2023, up 25% from 2022, so I doubt LPs in Sequoia’s new funds will question a Stripe investment. Moving shares from an older Sequoia fund to newer Sequoia funds is a short-term option that resets the timeline by which Sequoia will need to distribute capital from its Stripe investment to its LPs.

But sooner or later, I imagine Sequoia (and other VC firms) will want to sell their stakes, right? The venture model is predicated on buying stakes in private startups to fund their growth, with the expectation that you’ll realize gains from an acquisition or IPO. Moving your Stripe stake from fund to fund doesn’t benefit anyone except Stripe’s founders, who have expressed that they have no desire to go public.

In February, Axios noted that “Stripe had told employees to expect annual opportunities to sell shares,” and those opportunities can only stem from one of two sources: outside investors buying shares in secondary offerings, or the company itself buying shares back. At some point, you would think that venture capitalists would grow tired of subsidizing Stripe’s life as a private company, stop offering to buy employees’ shares, and pressure management to take the company public.

But until then, I guess Sequoia will keep selling to Sequoia.