7 ms·

Stripe Is Raising $6B to Resolve Employee Tax Issue

42 points by sharkweek 4y ago

testfrequency 4y ago
Why does everyone keep saying they are not profitable? They are raising money to help their employees liquidate, that’s the story (recommend reading)
- HDThoreaun 4y ago
  Is that true? My reading is that there are two separate reasons for raising the money. They want $600 million to buy employee stocks so that the employees aren't foisted with a big tax bill, but they've also got a separate $2.5 billion tax bill that they need to cover unrelated to the RSU stuff.
dang 4y ago
Related ongoing thread: Stripe faces $3.5B tax bill as employees' shares expire - https://news.ycombinator.com/item?id=35058846 https://news.ycombinator.com/item?id=35058846 - March 2023 (30 comments)
ElijahLynn 4y ago
Paywall: Archive.is and Archive.org are unable to view full version.
bagels 4y ago
Related: Stripe Faces $3.5 Billion Tax Bill as Employees' Shares Expire https://archive.is/5jsvT https://archive.is/5jsvT Looks like they waited long enough to attempt a liquidity event that employees are facing their options expiring?
- dang 4y ago
  Posted and discussed here: https://news.ycombinator.com/item?id=35058846 https://news.ycombinator.com/item?id=35058846. I've re-upped that thread since it has an article people can read.
jmstfv 4y ago
I wonder if recent price increases are related to this tax bill. Received this in my inbox 2 hours ago: > Over the past few years, card networks have increased the total fees that Stripe pays for card processing. Because of these costs, starting June 1, Stripe’s additional fee for international card transactions will change from 1.0% to 1.5%. There’s no change to our standard 2.9% + $0.30 pricing for US card transactions Did the cost to process foreign cards increased by 50 basis points? > Whether you win or lose a dispute, card networks charge Stripe a fee in either case. To cover these costs, starting June 1, Stripe will no longer return the $15 dispute fee for successfully contested disputes Why were they covering the dispute fee in the past, then?
- toomuchtodo 4y ago
  Nah, Stripe just paid a bunch of folks with funny money everyone is kicking the can on making real and this is the cost of that strategy due to the mechanizations around equity comp. Tangentially, I think the card networks in general are not going to look great when the Fed's FedNow instant payments go live this summer. If you can get instant settlement up to $100k in value for a few pennies, that's a lot of volume that is going to move to new rails to avoid the ~3% tax (which is a tax on most of the current digital economy). Sure, there is a lot of value to consumers in the ~30 day float, but if merchants start passing the CC fees on (which they are legally allowed to do, and many already do)... Digital wallets might be the next step (Pay with Stripe/Paypal/ShopPay/whatevs) but there ain't much moat there either. Optimistically, it's nice to see payments moving to what it should've always been: a utility, and priced accordingly. The US joins 55 other countries with instant payment networks. Hurray!
  - thedangler 4y ago
    Will this come with an API so anyone can integrate with it or will that be up to the banks? Like some Euro banks have API's to do fund transfers.
    - toomuchtodo 4y ago
      The EU has legislation requiring such interfaces [1]. The US does not. With that said, you're likely be able to go to a technology provider (FiServ is a big one [2], but there are many in the space) who will get you plugged in. [1] https://en.wikipedia.org/wiki/Payment_Services_Directive https://en.wikipedia.org/wiki/Payment_Services_Directive [2] https://www.fiserv.com/en.html https://www.fiserv.com/en.html (not in payments, but adjacent at a fintech)
moralestapia 4y ago
Dang, this smells like trouble. If Stripe is not profitable right now (since they're raising money again) I'm not sure if they will ever be. They still have to room to grow, yes, but they should be able to fund a move like this on their own, just MHO. Maybe they grew too fast?
- jjk166 4y ago
  A company can be very profitable but still not have $6 Billion cash on hand for a one time expense, and even if it does have that cash in the war chest, every dollar going to this is being pulled away from productive investments.
- sidyapa 4y ago
  Did you bother to read the article?
  - dang 4y ago
    "Please don't comment on whether someone read an article. "Did you even read the article? It mentions that" can be shortened to "The article mentions that."" https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html I know it's annoying when a comment is wrong and the correct information is in the article, but it's enough to provide the correct information. Empty putdowns etc. just add poison, not information.
    - sidyapa 4y ago
      Sorry
choppaface 4y ago
If Stripe had offered 83(b) and issued cash bonuses to cover exercise costs, would this tax issue been avoided?
- JumpCrisscross 4y ago
  Yes. Or if they permitted a legitimate secondary market.
  - kasey_junk 4y ago
    RSUs are not eligible for an 83b election.
    - JumpCrisscross 4y ago
      > RSUs are not eligible for an 83b election I may have misread, but I think OP implied everyone would have been better off with options. There were a few years when RSUs were the craze, but they mostly screw holders.
      - kasey_junk 4y ago
        The article is a bit of a mess as it says “exercise restricted stock units” which is not a thing. Other reports have said that Stripe is raising to cover RSU tax bill that would come from letting them vest in order to prevent the RSU from expiring.
      - panopticon 4y ago
        How do RSUs mostly screw holders compared to options? I don't have a lot of experience with options, but they generally seemed riskier.
        choppaface 4y ago
        With RSUs, if you are taxed on receiving them in any way and yet they are not liquid or you decide not to liquidate them, then the RSU price could go to zero and you’ve lost more than everything because you can’t necessarily recoup the taxes. That said ISOs have similar risk but additionally you could lose whatever you paid to exercise and also you could incur AMT which complicates your tax return quite a bit.
deleted 4y ago
[deleted]
- deleted 4y ago
  [deleted]
rhuru 4y ago
I am finding it very surprising that Stripe is not profitable.
- beoberha 4y ago
  Do you have evidence for that? Even if they’re profitable, they may not have enough on hand or it may make sense to raise this money to pay off the expiring options
  - lotsofpulp 4y ago
    The Bloomberg article linked in another comment says: > In the presentation, Stripe said it generated $14.3 billion in revenue as it processed $816 billion in payments volume last year. The company’s so-called transaction margin before losses — a measure of net revenue — rose to $3.17 billion, or 0.38% of total volume. That compares with 17 basis points for rival Adyen NV, according to the presentation. If Stripe had notable profits or profit margins, I assume they would have shown them off in a presentation to potential investors.
dvt 4y ago
The most interesting thing here is that this is a down round (n.b. employee liquidations should've been priced into prior valuations). Imo, if they try to IPO this year, they're going to get wrecked. Stripe has been one of YC's most winningest startups (if not the most winningest—on paper, of course), so it's worrying to see what is potentially the beginning of the end.
- benatkin 4y ago
  Kinda like WeWork or Uber. They'll still chug along but lose a lot of their shine. Though I still love the ambience of WeWork offices and the convenience of Uber/Lyft on occasions when I use it.
- jstummbillig 4y ago
  What is interesting about that? Amazon is down 30% yty. Why would Stripe not take a hit?
  - benatkin 4y ago
    It seems they're in for a lot worse than that. Could be wrong though. I still think Stripe is really thriving in terms of products, services, and customers. However, when even really good news (somebody wants to give them a whole lot of money!) is interpreted as bad news (not at as high of a valuation as before), it's hard to imagine them not having a hard time.
  - dvt 4y ago
    Raising a down round when you're private is fundamentally different than the "market being down" when you're public ($AMZN is down due to macro factors). It means a few things: old investors are diluted which is very painful, employees are diluted which means you'll lose talent, you're most likely desperate for cash which shows cashflow/war chest problems, and finally, the IPO strike price will most likely be even lower than expected.
    - jstummbillig 4y ago
      I don't understand. Why would a publicly and a privately traded company react fundamentally different to the economy? What macro factors are you referring to, that fundamentally influence one but not the other?
Eric_Newcomer 4y ago
I wrote the story and would love if you would subscribe to Newcomer. A little additional context on the round from the story: "The funding round is one of the largest venture rounds in a private technology startup ever. OpenAI’s Microsoft deal, if it ends up totaling $10 billion, would be larger, but it’s a different sort of animal. This Stripe round is humongous by any standard. The money is going toward helping early Stripe employees exercise their restricted stock units before they expire and then toward organizing a tender offer for employees to sell shares. While the tax bill has been estimated to total about $3.5 billion, much of the excess money will be used to allow employees to sell their Stripe shares. The funding round is not intended for Stripe’s corporate coffers." I get into the debate around the appropriate valuation later in the story.
dang 4y ago
This publication looks hardwalled. Is there an alternative URL? (Paywalls are ok on HN if there are workarounds. By 'hardwall' I mean there isn't an easy workaround. The latter are not ok on HN—people need to read the articles to be able to substantively discuss the information in them!) https://hn.algolia.com/?dateRange=all&page=0&prefix=false&sort=byDate&type=comment&query=paywalls%20by:dang https://hn.algolia.com/?dateRange=all&page=0&prefix=false&so... https://news.ycombinator.com/item?id=10178989 https://news.ycombinator.com/item?id=10178989
- dvt 4y ago
  I found https://www.reuters.com/article/us-stripe-funding-breakingviews-idDEKBN2V41M1 https://www.reuters.com/article/us-stripe-funding-breakingvi... which has no paywall.

42 points by sharkweek 4y ago

Why does everyone keep saying they are not profitable? They are raising money to help their employees liquidate, that’s the story (recommend reading)

HDThoreaun 4y ago
Is that true? My reading is that there are two separate reasons for raising the money. They want $600 million to buy employee stocks so that the employees aren't foisted with a big tax bill, but they've also got a separate $2.5 billion tax bill that they need to cover unrelated to the RSU stuff.

dang 4y ago

Related ongoing thread: Stripe faces $3.5B tax bill as employees' shares expire - https://news.ycombinator.com/item?id=35058846 https://news.ycombinator.com/item?id=35058846 - March 2023 (30 comments)

ElijahLynn 4y ago

Paywall: Archive.is and Archive.org are unable to view full version.

bagels 4y ago

Related: Stripe Faces $3.5 Billion Tax Bill as Employees' Shares Expire https://archive.is/5jsvT https://archive.is/5jsvT Looks like they waited long enough to attempt a liquidity event that employees are facing their options expiring?

dang 4y ago
Posted and discussed here: https://news.ycombinator.com/item?id=35058846 https://news.ycombinator.com/item?id=35058846. I've re-upped that thread since it has an article people can read.

jmstfv 4y ago

I wonder if recent price increases are related to this tax bill. Received this in my inbox 2 hours ago: > Over the past few years, card networks have increased the total fees that Stripe pays for card processing. Because of these costs, starting June 1, Stripe’s additional fee for international card transactions will change from 1.0% to 1.5%. There’s no change to our standard 2.9% + $0.30 pricing for US card transactions Did the cost to process foreign cards increased by 50 basis points? > Whether you win or lose a dispute, card networks charge Stripe a fee in either case. To cover these costs, starting June 1, Stripe will no longer return the $15 dispute fee for successfully contested disputes Why were they covering the dispute fee in the past, then?

toomuchtodo 4y ago
Nah, Stripe just paid a bunch of folks with funny money everyone is kicking the can on making real and this is the cost of that strategy due to the mechanizations around equity comp. Tangentially, I think the card networks in general are not going to look great when the Fed's FedNow instant payments go live this summer. If you can get instant settlement up to $100k in value for a few pennies, that's a lot of volume that is going to move to new rails to avoid the ~3% tax (which is a tax on most of the current digital economy). Sure, there is a lot of value to consumers in the ~30 day float, but if merchants start passing the CC fees on (which they are legally allowed to do, and many already do)... Digital wallets might be the next step (Pay with Stripe/Paypal/ShopPay/whatevs) but there ain't much moat there either. Optimistically, it's nice to see payments moving to what it should've always been: a utility, and priced accordingly. The US joins 55 other countries with instant payment networks. Hurray!
- thedangler 4y ago
  Will this come with an API so anyone can integrate with it or will that be up to the banks? Like some Euro banks have API's to do fund transfers.
  - toomuchtodo 4y ago
    The EU has legislation requiring such interfaces [1]. The US does not. With that said, you're likely be able to go to a technology provider (FiServ is a big one [2], but there are many in the space) who will get you plugged in. [1] https://en.wikipedia.org/wiki/Payment_Services_Directive https://en.wikipedia.org/wiki/Payment_Services_Directive [2] https://www.fiserv.com/en.html https://www.fiserv.com/en.html (not in payments, but adjacent at a fintech)

moralestapia 4y ago

Dang, this smells like trouble. If Stripe is not profitable right now (since they're raising money again) I'm not sure if they will ever be. They still have to room to grow, yes, but they should be able to fund a move like this on their own, just MHO. Maybe they grew too fast?

jjk166 4y ago
A company can be very profitable but still not have $6 Billion cash on hand for a one time expense, and even if it does have that cash in the war chest, every dollar going to this is being pulled away from productive investments.
sidyapa 4y ago
Did you bother to read the article?
- dang 4y ago
  "Please don't comment on whether someone read an article. "Did you even read the article? It mentions that" can be shortened to "The article mentions that."" https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html I know it's annoying when a comment is wrong and the correct information is in the article, but it's enough to provide the correct information. Empty putdowns etc. just add poison, not information.
  - sidyapa 4y ago
    Sorry

choppaface 4y ago

If Stripe had offered 83(b) and issued cash bonuses to cover exercise costs, would this tax issue been avoided?

JumpCrisscross 4y ago
Yes. Or if they permitted a legitimate secondary market.
- kasey_junk 4y ago
  RSUs are not eligible for an 83b election.
  - JumpCrisscross 4y ago
    > RSUs are not eligible for an 83b election I may have misread, but I think OP implied everyone would have been better off with options. There were a few years when RSUs were the craze, but they mostly screw holders.
    - kasey_junk 4y ago
      The article is a bit of a mess as it says “exercise restricted stock units” which is not a thing. Other reports have said that Stripe is raising to cover RSU tax bill that would come from letting them vest in order to prevent the RSU from expiring.
    - panopticon 4y ago
      How do RSUs mostly screw holders compared to options? I don't have a lot of experience with options, but they generally seemed riskier.
      - choppaface 4y ago
        With RSUs, if you are taxed on receiving them in any way and yet they are not liquid or you decide not to liquidate them, then the RSU price could go to zero and you’ve lost more than everything because you can’t necessarily recoup the taxes. That said ISOs have similar risk but additionally you could lose whatever you paid to exercise and also you could incur AMT which complicates your tax return quite a bit.

deleted 4y ago

[deleted]

deleted 4y ago
[deleted]

rhuru 4y ago

I am finding it very surprising that Stripe is not profitable.

beoberha 4y ago
Do you have evidence for that? Even if they’re profitable, they may not have enough on hand or it may make sense to raise this money to pay off the expiring options
- lotsofpulp 4y ago
  The Bloomberg article linked in another comment says: > In the presentation, Stripe said it generated $14.3 billion in revenue as it processed $816 billion in payments volume last year. The company’s so-called transaction margin before losses — a measure of net revenue — rose to $3.17 billion, or 0.38% of total volume. That compares with 17 basis points for rival Adyen NV, according to the presentation. If Stripe had notable profits or profit margins, I assume they would have shown them off in a presentation to potential investors.

dvt 4y ago

The most interesting thing here is that this is a down round (n.b. employee liquidations should've been priced into prior valuations). Imo, if they try to IPO this year, they're going to get wrecked. Stripe has been one of YC's most winningest startups (if not the most winningest—on paper, of course), so it's worrying to see what is potentially the beginning of the end.

benatkin 4y ago
Kinda like WeWork or Uber. They'll still chug along but lose a lot of their shine. Though I still love the ambience of WeWork offices and the convenience of Uber/Lyft on occasions when I use it.
jstummbillig 4y ago
What is interesting about that? Amazon is down 30% yty. Why would Stripe not take a hit?
- benatkin 4y ago
  It seems they're in for a lot worse than that. Could be wrong though. I still think Stripe is really thriving in terms of products, services, and customers. However, when even really good news (somebody wants to give them a whole lot of money!) is interpreted as bad news (not at as high of a valuation as before), it's hard to imagine them not having a hard time.
- dvt 4y ago
  Raising a down round when you're private is fundamentally different than the "market being down" when you're public ($AMZN is down due to macro factors). It means a few things: old investors are diluted which is very painful, employees are diluted which means you'll lose talent, you're most likely desperate for cash which shows cashflow/war chest problems, and finally, the IPO strike price will most likely be even lower than expected.
  - jstummbillig 4y ago
    I don't understand. Why would a publicly and a privately traded company react fundamentally different to the economy? What macro factors are you referring to, that fundamentally influence one but not the other?

Eric_Newcomer 4y ago

I wrote the story and would love if you would subscribe to Newcomer. A little additional context on the round from the story: "The funding round is one of the largest venture rounds in a private technology startup ever. OpenAI’s Microsoft deal, if it ends up totaling $10 billion, would be larger, but it’s a different sort of animal. This Stripe round is humongous by any standard. The money is going toward helping early Stripe employees exercise their restricted stock units before they expire and then toward organizing a tender offer for employees to sell shares. While the tax bill has been estimated to total about $3.5 billion, much of the excess money will be used to allow employees to sell their Stripe shares. The funding round is not intended for Stripe’s corporate coffers." I get into the debate around the appropriate valuation later in the story.

dang 4y ago

This publication looks hardwalled. Is there an alternative URL? (Paywalls are ok on HN if there are workarounds. By 'hardwall' I mean there isn't an easy workaround. The latter are not ok on HN—people need to read the articles to be able to substantively discuss the information in them!) https://hn.algolia.com/?dateRange=all&page=0&prefix=false&sort=byDate&type=comment&query=paywalls%20by:dang https://hn.algolia.com/?dateRange=all&page=0&prefix=false&so... https://news.ycombinator.com/item?id=10178989 https://news.ycombinator.com/item?id=10178989

dvt 4y ago
I found https://www.reuters.com/article/us-stripe-funding-breakingviews-idDEKBN2V41M1 https://www.reuters.com/article/us-stripe-funding-breakingvi... which has no paywall.