Memo to Stripe: Winning the hearts of Valley startups is not winning payments

http://pando.com/2014/01/24/memo-to-stripe-winning-the-hearts-of-valley-startups-is-not-winning-payments/

by dzhao • 12 years ago

59 58 12 years ago

noir_lord• 12 years ago

I don't care if they win or not as long as they are sustainable and stay awesome.

I'll use them for my stuff and my business and others can use whatever they want.

I literally wouldn't use PayPal if they paid me to use them (in fact I would pay for and setup a merchant account with online payments processing long before I would touch PayPal).

sama4• 12 years ago

Three things:

1) There are almost certainly a lot of inaccuracies in here. I saw a few on a quick skim of the article.

2) Exponential growth is a hard thing for most people to wrap their minds around. The best tech investors--many of which invested in this round--understand it. Most bloggers do not. The former camp has a better track record on valuing companies like these, although of course a lot of investments don't work out. But I would much prefer to give money to the investors in this round to invest for me than the writers of this article.

3) It's easier to spew hate than it is to build value. While bloggers write stuff like this, companies can just ignore it and laugh about it over drinks in a few years.

untog• 12 years ago

There are almost certainly a lot of inaccuracies in here. I saw a few on a quick skim of the article.

Like what?

It's easier to spew hate than it is to build value.

It's also important to provide a viewpoint that isn't just blindly parroting what a party tells you. This is hardly 'hate'.

sama4• 12 years ago

For example, the liquidation preference is a standard 1x, not 2x, which is a very important inaccuracy.

danso• 12 years ago

Could you elaborate on the inaccuracies you found? Because your current comment contains not much more than an egregious and bald appeal to authority

mcarney75• 12 years ago

Sama, you may have missed it in your "quick skim" but Stripe isn't actually growing that fast (~50% / yr). Braintree is growing much faster and even stodgy old paypal isn't too far behind in terms of growth rate. For its size and valuation, the growth story is fairly underwhelming.

As for the trackrecord and judgement of the investors, no argument that they are among the best. But only Khosla is new money, meaning they are the only one that took significant new risk (although they got plenty of downside protection via liquidation preferences, as we explained). Sequoia and Founders Fund were already heavily invested in Stripe, thus making it a much easier decision to "re-up" in this new round and pad the company's war chest for the highly-competitive slugfest ahead.

I/we don't hate Stripe. In fact, I think they're a great company. I just think the narrative around this funding round when it was announced on Wednesday glossed over the legitimate challenges that the company faces.

sama4• 12 years ago

Per my earlier comment, the liquidation preference thing is just completely inaccurate. And the ~50% growth rate comment is just so insanely inaccurate I'm not even sure how to respond. (do have a look at this, though: https://twitter.com/paulg/status/403183731449413632)

I/we don't hate Pando. I just think the narrative around this article when it was posted this morning glossed over the legitimate facts the company faces.

mcphilip2• 12 years ago

Basically your comment boils down to "I skimmed the article and it seemed hateful and inaccurate". And then something strange about spotting exponential growth being left to the big boys.

On the contrary, I read the entire article and found it useful. The author admits that getting accurate numbers on Stripe isn't possible at this point. I wish Stripe all the best, but it still has a tough road ahead.

pg2• 12 years ago

Sam knows Stripe's numbers. So the fact that he was able to see inaccuracies immediately is more meaningful than the fact that you read the entire article and found it useful.

tomasien3• 12 years ago

Given that Stripe is about to process payments for Twitter, I wouldn't be tremendously worried.

As a side note - Braintree was around before Stripe. Remember that. It's not Apples to Apples on their size, it's about growth, and as PG has publicly shared several times, Stripe is growing at a ridiculous rate. https://twitter.com/paulg/status/403183731449413632/photo/1

mcarney75• 12 years ago

Agreed that Braintree had a head start and that's not to be overlooked. Also, landing Twitter would be a big coup, and potentially lucrative depending on what kind of commerce they enable. But I'd dispute the claim that they're growing at a ridiculous rate. Everything we've heard puts it close to 50%/yr, which is not great given their size and valuation. Braintree was above 100% last year, Square grew 200%, and even PayPal grew 30%.

tomasien3• 12 years ago

I believe PG indicated they're growing 10% month over month recently, maybe more. I didn't find that exact Tweet, but relevant - https://twitter.com/paulg/status/403183731449413632/photo/1

pbreit3• 12 years ago

The PG chart shows them tripling in 6 months.

codegeek• 12 years ago

This article seems very dismissive of Stripe even though it claims to be fair to them.

"But that was before 2011: When PayPal realized it was hated and named a new president in David Marcus who dramatically changed the culture "

Really, is this true ? The above statement seems to claim that Paypal is not that hated anymore. Current paypal users who have been long term users, I wonder what they have to say.

"The reason PayPal held its ground for so long despite its poor reputation is because it had the most consumer account data and the most name recognition."

Umm, I would say No. The reason was "monopoly" and companies like Stripe have been a major reason that the monopoly has dwindled.

"PayPal had become the big, ugly monster, screwing up transactions left and right with a mix of poor technology and bad customer service. Merchant accounts were frozen haphazardly, and the company often took its sweet time unfreezing them. PayPal was so widely loathed among developers, founders, and customers that even with its advantages of scale, ubiquity, and familiarity, companies were eager to try something else."

Is this all really in past tense ?

dangrossman6• 12 years ago

Current paypal users who have been long term users, I wonder what they have to say.

I opened my PayPal account in July of 2000 and they were my primary processor for 11 of the 13+ years since. They've never given me a reason to hate them, or even dislike them. None of the "horror stories" I've read about others seemed irrational once all the facts were on the table. I never understood the integration gripes either, particularly before all the newer offerings came about (express checkout, paypal pro, etc). It was always just pasting in a payment button, defining a notification URL, and an IPN script comprised of 20 lines of code in any language -- it's just POSTing back the same POST you received.

jarrett• 12 years ago

I tried them in the early 2010s. My biggest gripes:

* Hard-to-find, outdated, labyrinthine documentation.

* Confusing web front end.

* Flakey login. I had trouble accessing my account more than I should have.

* Flakey POSTing back to my server. Notifications came through late or not at all.

All of that together was a deal killer for me.

Granted, a few years have passed. So perhaps these issues have been corrected. But it would be hard to persuade me to use PayPal again.

pc2• 12 years ago

Stripe cofounder here. Needless to say, this article contains many factual inaccuracies.

More broadly, articles like this are part of why we didn't announce our previous financings. If you don't also announce metrics, it's easy to write articles like this.

tomasien3• 12 years ago

Did they bother to check PG's Twitter account? I mean, do they think he's lying?

TheMakeA• 12 years ago

https://twitter.com/paulg/status/403183731449413632/photo/1

mcarney75• 12 years ago

Hey Patrick, we'd be happy to include any numbers that you share publicly. We gave you that opportunity yesterday, but you declined. You guys have been fundraising and having M&A talks over the last 6+ mo, meaning your numbers are "out there." I find it hard to believe that everyone we spoke to is grossly inaccurate in the exact same ballpark. I'm happy to concede that the figures may be outdated, and we acknowledged that in the article. But we also compared you guys against competitors' metrics from the same period. Our goal is to be fair and accurate. The more you share, obviously, the better.

adamnemecek• 12 years ago

Seems like a blackmail-y proposition.

throwawayun• 12 years ago

The more you share, obviously, the better.

Better for who?

They obviously have a strategy, and your comment is rude and presumptive. This is why people often hate the press.

ivanca4• 12 years ago

I'm happy to concede that the figures may be outdated

"Share your metrics or we are going to assume and publish your company as being today where it was many months ago" is pretty shady journalism.

We gave you that opportunity yesterday

How generous of you.

sama4• 12 years ago

It does not work this way. You do not get to cite made up numbers with anonymous sources that clearly contradict some public info (e.g. the graph PG tweeted in November) and use that disinformation as an attempt at blackmail to get the company to release its numbers.

Flipped around, Stripe would not write a blog post about Pando saying all sorts of wildly wrong things and then say "well if you want to correct us and tell us that your traffic is not dwindling and you're not almost out of money, we'll give you that opportunity because our goal is to be fair and accurate".

kposehn• 12 years ago

Four issues with the article:

#1: I understand the desire to do comparison in the market and look at Stripe's multiple vs. others, but PayPal and Stripe are not equal in forward looking growth. To try and apply Stripe's valuation multiple to PayPal's earnings assumes that PayPal is in the same sort of growth stage, which it clearly isn't. And most likely, Braintree was not either when they sold. Why sell if you're eating everyone's lunch?

#2: While numbers from six months ago may have been circulated and Pando apparently has those numbers, a lot can change in that timeframe. Large deals can be closed, growth can accelerate or very important technology can mature that has the potential to upset the status quo in Stripe's favor. General analysis of the market and knowing the habits of several of Stripe's investors makes me think that a key factor that is not public is in play. I expect a deal that gives them far better profit margin.

#3: "Stripe is a transaction-based business with a clear model — and one not growing particularly rapidly if it took two years to get to just $1.5 billion in annual payments volume our sources report as of six months ago." This is a bad assumption to make. As a rule, I never assume a company has a transparent business model as there are many aspects of technology and deal structure outsiders are not privy to. Who is to say Stripe doesn't have a new payments product on the way? Would it be so crazy for them to start snapping up downstream fulfillment companies with an $80mm war chest to maximize profit margin? Maybe so as they of course don't want to compete with customers, but who knows?

#4: Another issue with the assumption about payment volume is a linear growth curve. If you say "Braintree did $12bn in payment volume when it sold in late 2013, that means $2bn in volume growth per year, more than stripe with $500mm per year over 3 years of life". However, looking at articles that state Braintree's payment volume shows they were apparently doing only $3bn annually in 2011 at their $34mm Series-C (http://techcrunch.com/2011/06/29/accel-puts-34-million-in-on...). If Stripe is assumed to be making a rapid growth stride to make this raise, then they likely have a similar (or stronger) growth curve than Braintree did at that point (https://twitter.com/paulg/status/403183731449413632/photo/1)

The problem I have with the article is that you're making a series of assumptions and treating them as fact, or at least as highly likely. This is difficult to make stick with a company that is deliberately opaque, as is their right to be.

* I am of course analyzing this from a very-outside perspective and my assumptions should be taken with a grain of salt. Or ten.

pg2• 12 years ago

"Our goal is to be fair and accurate. The more you share, obviously, the better."

We wouldn't want you guys to get hurt. And unless you do what we want, I'm afraid we can't guarantee your safety.

ChuckMcM• 12 years ago

Shocking that PandoDaily got their facts wrong! :-) In a weird way, the press coverage feels more bubblish when the press can't figure out what is going on and do this sort of article (one presumes to draw out data they couldn't get in the first place). Of course it could just be to get the rage views.

zallarak2• 12 years ago

First off, congrats on the hard work and incredible progress you guys have made.

I'd just comment that you responding to this, along with a YC partner, only adds credibility to the story. If its BS, it should be totally ignored. The fact that both of you took time to attempt to discredit an article from a blog would make one question why you feel the need to do so.

Interestingly I got down-voted on this comment too.. Ironic because I am generally impressed with and love Stripe and its story. Just sayin' to not take an outlet like Pando too seriously.

ivanca4• 12 years ago

So, when scientist take the time to point out why creationism is wrong it means that they believe creationism is correct? I call bullshit on you.

rgbrenner2• 12 years ago

Out of curiosity, why don't you release metrics?

I would like to use Stripe for one of my startups.. but wasn't able to find any numbers.. so since the company is young, and you get a small fraction of the total processed... with 30 employees at Stripe... I figure you have a huge burn rate.. and I'm hesitant to use it.. not when I'm already familiar with authnet, paypal, and others..

Stripe looks great, but no numbers means I can't be sure if you guys are doing well.. or if I'm going to be doing an integration with a different company in a year.

pc2• 12 years ago

Want to drop me an email? patrick@stripe.com. Would be happy to describe our thinking and see if we can help out with your startup.

(Also -- we're now 85 people and have companies like Rackspace and Hubspot using Stripe in case that helps :-).)

dangrossman6• 12 years ago

I can't be sure if you guys are doing well.. or if I'm going to be doing an integration with a different company in a year.

If you can spend a couple extra bucks, you might consider integrating with Spreedly instead of with any individual processor. They're a unified API for 55+ gateways, and a gateway-agnostic card vault. This is one of the worries using them eliminates; you can use Stripe no matter what your concerns are, because if they do disappear in a year, you can point your sites back at Authnet or whoever you prefer without changing any code. No interruption of service, no lost customer info to continue billing.

http://www.spreedly.com

You do have to trust Spreedly will still be around, but that's much easier than trusting in a new processor. Unlike a payment processor, they don't suffer from existential threats like a failure in their risk evaluation allowing a fraud event to wipe out a month's worth of profit at a time. Their business model basically prints money (run an API, keep a few pennies of each transaction) and they've been at it for years.

felix• 12 years ago

“It’s literally inconceivable that someone starting a company would choose to use Braintree or PayPal,” Rabois says. “Stripe has become the monopoly for new startups.”

You keep using that word. I do not think it means what you think it means. Really.

Braintree and Venmo are services that he could not even conceive of a startup using? I suspect that they might have like.. um.. facts that might dispute that worldview.

jmngomes• 12 years ago

I didn't get it either. I'm actually considering Braintree for accepting payments because their price is lower.

dangrossman6• 12 years ago

Bit of a tangent: my first "traditional" merchant account provider processed 6 times PayPal's volume last year ($1.2 trillion), and charges as little as 0.09%+$0.30 for debit cards versus the 2.9%+$0.30 flat rate all these 3rd party processors start at. Why do so many startups write off going straight to an ISO/MSP? Or do they, but Stripe/Braintree make better offers? They don't all have BS fees, and flat markups over interchange are becoming the norm for pricing. Popular payment gateways like Authorize.net have drop-in libraries for just about any language or shopping cart you can imagine.

rebelidealist2• 12 years ago

How much do they charge you for credit cards? Do they add a % for AMEX, Discover + "unqualified" transactions? What about monthly fees?

dangrossman6• 12 years ago

The same as debit: interchange plus 0.04%+$0.10. Even though I sell mostly B2B, Visa debit cards make up over 25% of my transactions, all at 0.05% interchange. Interchange on CNP credit ranges from 1.6% to 2.8%, but most cards are closer to the low end.

There are no extra fees for Amex/Discover, and "unqualified transactions" (which is nothing but commercial purchasing cards sent to the gateway without line-item info) are <5% of volume over the past 12 months.

The MAP charges $15/mo in fixed monthly fees, which includes paying for a 3rd-party for PCIDSS compliance (the SAQ and quarterly scans). The payment gateway costs an extra $20/month I think. Regardless, the savings on transaction fees pays for them immediately.

dkrich• 12 years ago

Stripe is a transaction-based business with a clear model — and one not growing particularly rapidly if it took two years to get to just $1.5 billion in annual payments volume our sources report as of six months ago.

Another way to interpret this story is that in just two years, they grew to process $1.5 billion. Braintree is processing $12 billion after having been around for an additional four years.

I didn't see any analysis of the components of that $12 billion, either. What if Uber comprises 30% of their volume? Then perhaps they aren't as valuable as it seems. After all, if Uber decides to switch processors, then Braintree is fucked. It seems having a wider base of customers is usually advantageous and less risky when compared to relying on a few whales.

stevenj• 12 years ago

This article is awful.

One of its inaccuracies:

Young founders in their early 20s take on the online payments sector with nothing more than a YC pedigree to their name.

Patrick actually co-founded Auctomatic in the beginning of 2007. It sold about a year later for $5 million.

http://www.crunchbase.com/company/auctomatic

http://techcrunch.com/2008/03/26/communicate-acquires-y-comb...

Memo to Stripe: Winning the hearts of Valley startups is not winning payments

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