Stripe Faces $3.5 Billion Tax Bill as Employees' Shares Expire
- Firm plans to use $600 million for taxes to exercise options
- Stripe has discussed $50 billion value, down from $95 billion
Jennifer Surane and
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Stripe Inc., one of the world’s most valuable startups, told investors it plans to use money it receives in its latest round of fundraising to help cover a roughly $3.5 billion tax bill.
Using an illustrative valuation of $55 billion, the payments giant said it is looking to raise about $2.3 billion to cover tax withholdings in the first quarter, according to an investor document seen by Bloomberg News. It plans to withhold an additional $500 million and $700 million in taxes later this year and next year, respectively.
The company also expects to use $600 million of the fundraising to cover costs of taxes tied to exercising some employees’ options, according to the presentation, handed out to wealthy clients of Goldman Sachs Group Inc.
A spokeswoman for Stripe, which has dual headquarters in San Francisco and Dublin, declined to comment. Goldman representatives didn’t immediately respond to a request for comment.
The document shows just how much Stripe is looking to raise from investors in the coming weeks as it continues with a fundraising push it started in January, when it hired investment bankers at Goldman Sachs and JPMorgan Chase & Co. as it evaluated options to raise cash or go public. In recent talks with investors, the company has discussed a $50 billion valuation, compared with the $95 billion valuation it received when it last raised cash from outside investors.
Read more: Stripe Hires JPMorgan, Goldman Sachs to Explore Liquidity Raise
Throughout the fundraising, Stripe has been adamant with investors that it doesn’t need the cash to fund normal business operations. Rather, at the center of Stripe’s quest for cash are the company’s so-called double-trigger restricted stock units. For years, the company handed out the units to attract and retain talent.
Normally, employees given such shares have to clear two hurdles for them to pay out: First, the shares have to vest. Second, the company has to have a liquidity event such as an initial public offering so they can sell their shares. Whenever that happens, the employee faces a higher personal tax liability, and they can use the proceeds from the sale of their shares to cover it.
But equity capital markets have been largely shut for months, making it hard for Stripe to make its public debut. Now the company is facing a looming issue. Many of Stripe’s earliest employees’ shares could soon expire unless the board waives that second trigger. But doing so would leave employees suddenly facing the higher personal tax liability without having a way to sell shares to pay for it.
The document shows that Stripe has two goals for its latest round of fundraising: raising enough money to cover the looming tax bill that early employees will soon face, then organizing a tender offer to allow those staffers to sell at least some of their shares.
Some elements of Stripe’s plans to cover tax obligations through its fundraising efforts were previously reported by The Information.
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.
"Secular market-share trends favor Stripe and other tech-forward competitors," Stripe said in the document. "Payments growth is not a zero-sum game."
The company said it wins about 44% of new opportunities it competes for, and just 9% of potential business go to a competitor. The remaining 47% "represent opportunities where prospect abandoned process or where reliable data on the ultimate outcome is unavailable," Stripe said.
The company also touted newer efforts, including its issuing business. That unit, which allows Stripe to compete with other startups such as Marqeta Inc., offers customers the ability to create a commercial-card program.
The business is on track to earn $127 million in transaction margin before losses by 2024, up from $37 million last year, Stripe said in the presentation.
— With assistance by Katie Roof
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