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tl;dr: Seems like the folks at Stripe didn't do very good diligence and others followed them in. I believe this really boils down to "Why did Stripe's investme

by boulos 5y ago

tl;dr: Seems like the folks at Stripe didn't do very good diligence and others followed them in. I believe this really boils down to "Why did Stripe's investment arm value at $150M for an A they lead and then go on to co-lead a B at $500M?". Honestly, it mostly sounds like bad diligence by the folks at Stripe. The co-lead for the B was Addition One, a newish firm that also had invested in one of Stripe's latest rounds, so they may have just been co-investing with Stripe from a "oh yeah, we're all in on Stripe". Edit: or looking at the timeline, perhaps Addition closed this investment in Fast in January 2021 to get in on Stripe's Series H in May 2021.

danpalmer 5y ago
> Seems like the folks at Stripe didn't do very good diligence Perhaps, although given the market they're in, success for Stripe may look very different to most others investing in Fast. Fast weren't going to create their own payments system, so being entirely or substantially backed by Stripe payments would have been valuable to Stripe once Fast scaled. Investing in them as a mechanism to encourage this could have been quite beneficial. It's also quite possible that a desirable outcome for Stripe was potentially buying out Fast and integrating it into Stripe. At that point Stripe would already have plenty of inside knowledge, being on Fast's board, and already owned a significant proportion of the business. Investing ~$100m to get this might sound like a lot, but if you make 10 investments like that, and get one success out of it that can generate ~$2bn of revenue at some point for Stripe down the line, that's probably around break even, assuming 50% margin. Very rough approximation, but at Stripe scale, that sort of business is entirely possible. TaxJar is another example, not sure if they were investors, but they acquired the company and it'll probably end up contributing that sort of revenue, possibly more.
- bombcar 5y ago
  It can also be defensive - if Fast were to somehow destroy Stripe's payment business, you want to have a piece of that pie.
- boulos 5y ago
  $100M or even $50M is real money though. If Stripe had wanted to enter the market directly, that pays for many person years of compensation. Corporate VC funds are supposed to do one of two things: find uncorrelated investments or adjacent partner opportunities. You can argue that acquiring the company is downside protection ("worst case, we buy the team") but it's still pretty inefficient. tl;Dr: the real goal is (should be?) to generate large, cooperative partners not overpay for R&D and integration later.

by boulos 5y ago

danpalmer 5y ago

> Seems like the folks at Stripe didn't do very good diligence Perhaps, although given the market they're in, success for Stripe may look very different to most others investing in Fast. Fast weren't going to create their own payments system, so being entirely or substantially backed by Stripe payments would have been valuable to Stripe once Fast scaled. Investing in them as a mechanism to encourage this could have been quite beneficial. It's also quite possible that a desirable outcome for Stripe was potentially buying out Fast and integrating it into Stripe. At that point Stripe would already have plenty of inside knowledge, being on Fast's board, and already owned a significant proportion of the business. Investing ~$100m to get this might sound like a lot, but if you make 10 investments like that, and get one success out of it that can generate ~$2bn of revenue at some point for Stripe down the line, that's probably around break even, assuming 50% margin. Very rough approximation, but at Stripe scale, that sort of business is entirely possible. TaxJar is another example, not sure if they were investors, but they acquired the company and it'll probably end up contributing that sort of revenue, possibly more.

bombcar 5y ago
It can also be defensive - if Fast were to somehow destroy Stripe's payment business, you want to have a piece of that pie.
boulos 5y ago
$100M or even $50M is real money though. If Stripe had wanted to enter the market directly, that pays for many person years of compensation. Corporate VC funds are supposed to do one of two things: find uncorrelated investments or adjacent partner opportunities. You can argue that acquiring the company is downside protection ("worst case, we buy the team") but it's still pretty inefficient. tl;Dr: the real goal is (should be?) to generate large, cooperative partners not overpay for R&D and integration later.