Payment processing company Stripe is gearing up for an IPO, but the expected valuation is likely to be lower than its current private market valuation of $115 billion. This potential “down round” IPO has raised questions about Stripe’s future prospects and the impact on employees who received restricted stock units (RSUs) as part of their compensation package. Read our complete deep dive on Stripe.
While a down-round IPO can be disappointing for early investors, it is not necessarily a reflection of the company’s overall performance or future potential. In Stripe’s case, the lower valuation may be due to a variety of factors, including increased competition in the payments industry, regulatory uncertainty, and concerns about the company’s ability to maintain its rapid growth rate.
Despite the potential valuation dip, Stripe’s IPO is still expected to be one of the largest in recent years. The company has experienced explosive growth in recent years, with revenue nearly doubling year-over-year to reach $1.2 billion in 2020. Stripe’s success has been driven in part by its focus on providing a seamless and user-friendly payments experience for businesses of all sizes, from small startups to large enterprise clients.
One potential issue for employees who hold RSUs is that a down-round IPO can result in a reduction in the value of their stock. RSUs are a form of equity compensation that gives employees the right to receive shares of company stock at a future date, typically after a certain vesting period has passed. However, the value of these shares is determined by the company’s valuation at the time they are granted. If the company’s valuation drops, so do the value of the employee’s RSUs.
Stripe's plan to "make whole" affected employees
To address this concern, Stripe has reportedly implemented a plan to “make whole” the RSUs of employees who may be impacted by a down round IPO. Under this plan, Stripe would offer affected employees additional RSUs or cash payments to ensure that their total compensation is not negatively impacted by the IPO.
While this approach is likely to be welcomed by employees, it also raises questions about the impact of down round IPOs on broader market trends. Historically, down round IPOs have been relatively rare, as companies typically wait until they are confident in their ability to achieve a high valuation before going public. However, the recent trend of companies staying private for longer periods of time has led to a backlog of potential IPOs, which could result in more down round offerings in the future.
Broader market implications of down round IPOs
Additionally, some experts have raised concerns about the potential impact of down round IPOs on investor confidence. If investors perceive a down round IPO as a signal of weakness or lack of confidence in the company’s future prospects, it could lead to a broader market sell-off and dampen enthusiasm for future IPOs.
Despite these concerns, there are also potential benefits to down round IPOs. For example, a lower valuation could make a company’s stock more attractive to a wider range of investors, including those who may have been priced out of the market at a higher valuation. Additionally, a down round IPO could help to reset investor expectations and allow a company to focus on building a sustainable, profitable business over the long term.
Ultimately, the impact of Stripe’s potential down round IPO will depend on a variety of factors, including the final valuation, investor appetite for the stock, and the company’s ability to continue growing and innovating in the highly competitive payments space. However, regardless of the outcome, the IPO is likely to be closely watched by investors, employees, and industry experts alike as a bellwether for the broader market.