Stripe has become one of Silicon Valley’s most prominent startups, valued at $36 billion thanks to its technology powering online purchases for clients like Target and Amazon. In the background, its founders have also been building another business: venture capital.
Since 2017, the San Francisco–based company has invested in more than 15 startups. It tends to take early-stage stakes of about 10% in startups that are led by its former employees or represent a facet of the financial technology sector, say investors who have worked with Stripe on deals. Leveraging its success as a private company and the reputation of its founders Patrick and John Collison, Stripe has won deals, sometimes by outbidding traditional VC firms. That’s helped it emerge as a growing force in corporate venture capital, just as Google and Salesforce did in years past.
“There’s a halo effect around Stripe” because of its valuation and engineering reputation, said Ross Rich, who spent four years at the company before he co-founded Accord, which makes collaborative software for sales representatives. Stripe led its seed financing earlier this year after a competitive fundraising process.
That halo effect is largely due to the track record of the Collison brothers. Now both in their early thirties, they enrolled in the Y Combinator startup accelerator in 2009 and launched the company during the financial crisis. Riding the upswell in e-commerce, Stripe has raised nearly $2 billion in venture funding since its start, including a $600 million round in April. The 3,000-person company facilitates online transactions for millions of businesses. It’s expected that the company’s founders will take it public soon, though CEO Patrick Collison has said that “it’s not a focus now.”
Stripe’s reputation has helped it assemble a global portfolio of financial technology companies in just three years.
In April, Stripe led a $20 million Series A financing for Fast, a San Francisco–based startup behind a one-click online shopping technology. The deal valued the 18-month-old business at $180 million, according to a person familiar with the matter, or about six times the median for an early-stage deal, according to PitchBook. Fast declined to comment.
Earlier this year, Stripe won a competitive $10 million seed investment in Pulley, an equity management tool for startups that graduated from Y Combinator in March, said two people familiar with the deal. The deal size was significantly larger than most seed rounds.
In December, Stripe made its first investment in Latin America, leading a $7.4 million Series A in Mexican banking startup Cuenca. It has also invested in Paystack, an online payment processing tool headquartered in Nigeria, and Manila-based PayMongo, which facilitates internet payments like Stripe.
Stripe has positioned two executives that hail from venture firms to direct its investing strategy: Will Gaybrick, formerly a general partner at Thrive Capital, and Jordan Angelos, a former investor with Accel Partners. At Stripe, they also have other roles—Gaybrick is chief product officer and Angelos runs M&A as well as investments—reflecting how closely tied Stripe’s venture strategy is to its corporate mission.
Stripe invests off its balance sheet rather than allocating a specific amount of capital to its VC efforts. Its investing strategy aims to grow the GDP of the internet, said a spokesperson. Stripe seeks investments in companies that can advance that mission and deliver a solid return, the spokesperson said.
The Collison brothers can lean on their own angel investing experience, which includes investments in Airtable and Intercom. Among their individual wins, in 2014 they invested in Slack’s Series C financing at a valuation of $220 million. By the time Slack went public, the value of the stake had risen an estimated 60 times.
Sometimes the billionaire founders invest their own capital in companies Stripe also invests in. In 2017, the brothers invested in the seed round of Pilot, which helps startups automate bookkeeping. Two years later, Stripe participated in Pilot's Series B fundraising.
Stripe led its first deal as a corporate investor in 2017. The $93 million financing valued the British mobile banking startup Monzo Bank at $327 million, according to PitchBook. Monzo is today worth roughly $1.4 billion. Since then, Stripe has invested in more than a dozen other fintech startups.
Ex-employees of Stripe run some of them. In March, it led a $3.1 million financing in a company that makes an operating system for customer support teams called Assembled. Assembled CEO and co-founder Brian Sze previously built support tools at Stripe, and the company’s other co-founders—brothers Ryan and John Wang—are former Stripe software engineers.
Like Google and Slack
Public companies, as well some well-financed private startups, have steered into VC in recent years. The investments can give more mature companies access to innovative ideas as well as potential competitors. Relative newcomers to venture capital can quickly become an investing force. GV, an investing arm of Google parent Alphabet, overcame early skeptics with well-timed stakes in Uber and Slack.
Last year, corporate venture arms invested $57.1 billion globally across more than 3,000 deals, just 2.5% higher than in 2018 but 57% higher than in 2017, according to financial data firm CB Insights. This deal activity has remained high even during the pandemic, when many expected these nontraditional investors would retreat from investing as they have done in past crises.
Setting up a corporate venture capital fund “is one of the things you should do if innovation is critical,” said Scott Lenet, founder of Touchdown Ventures, which helps corporations set up VC units. “It doesn’t matter if you are a decades-old company or someone like Stripe.”
Private tech companies can also set up VC funds to encourage the development of a niche that will benefit them. Slack, for instance, in 2015 launched a fund to support companies building tools on top of its messaging software.
More recently, in 2018, cryptocurrency trading company Coinbase, last valued by private investors at $8 billion, launched Coinbase Ventures to work toward its aim of establishing a financial system built on digital currency.
“The primary goal is to let 1,000 flowers bloom,” said Dan Yoo, Coinbase’s vice president of business and data.