The Stripe Business Model
Stripe is one of the most prominent start-ups in the world. It does not have the fame or popularity of other start-ups like Uber or Airbnb. However, Stripe has achieved an equivalent amount of success. In fact, as of early $2022, this start-up company was valued at $95 billion! This stupendous valuation makes it one of the most successful start-ups in the history of the world. Stripe is not very popular or well known because consumers do not directly interact with the company. Instead, Stripe mostly interacts with businesses.
In this article, we will have a closer look at what Stripe is as well as how it generates wealth for its investors.
What is Stripe?
Stripe can be thought of as being the middleman of the internet. The term middleman seems to have negative connotations. In fact, one of the biggest benefits of operating an online business is that the middleman can be easily cut out. However, Stripe is not an ordinary middleman. Stripe uses its revolutionary technology to transform payment processing. This is the reason that it is one of the most welcome middlemen.
Stripe makes it possible for start-up companies to be able to accept payments in the same way as their counterparts with big budgets. It is a fintech company that provides payment solutions as a service to all types of companies.
The benefit of using Stripe is that it is a highly integrated platform that allows companies to receive payments in more than 125 currencies. It also allows companies to receive payments from debit cards, credit cards, ACH, and other offline mediums. The interface provided by Stripe is very simple and Stripe also helps its customers manage complex reporting requirements.
Stripe was revolutionary because it was way ahead of its competition. A Stripe account can be opened in a very short duration and requires very less money. This is opposed to the way things were done in the pre-Stripe era. Setting up systems for receiving online payments was a tough task and required weeks of work. It also required payment of multiple types of fees. Stripe revolutionized the space by making it simple as well as cheap. Start-ups of any size did not need to have an agreement with any bank or with any other financial service provider in order to receive money from their customer.
How did Stripe Grow so Fast?
Stripe was founded by the Collison brothers who originally hailed from Ireland and were studying in American universities. The Collison brothers had some entrepreneurial experience. They had already created an online application called Auctomatic and had sold it to investors for over $5 million.
Hence, when the brothers decided to drop out of college and pursue their entrepreneurial dream, they found a lot of support. The famous start-up accelerator Y combinator helped them raise funds. Also, famous investors like Peter Thiel invested small amounts of money in the form of seed capital. In the later rounds, the company was able to raise money from large funds such as Sequoia capital. Once the company was able to do so, there was no looking back.
The valuation of the company has grown quickly from $100 million to $100 billion on the back of technological advancements and various funding rounds which they have received from different investors. The company has received over 10 rounds of funds till now and has seen its valuation grow from a few million dollars to $100 billion dollars! The company has been able to raise $2.2 billion from a total of 39 different investors. This shows widespread acceptance of Stripe’s business model amongst the investing community.
How Big is Stripe?
Stripe has seemingly come out of nowhere to become the global behemoth in the field of financial processing. In the past eight years that Stripe has existed, it has been able to obtain great scale. Stripe processes more than 50% of the online transactions which happen across the globe. Stripe also claims that around 89% of the credit cards which exist around the world may have been processed on a stripe network at least once. Also, since the company makes a small fee on every transaction that it process, the company is cash-flow positive.
Future of Stripe
There have been some questions raised about whether the lofty valuations given to Stripe make any sense. This is because when Stripe first entered the payments domain, there wasn’t much competition. However, now many companies such as Google and Amazon have also set their eyes on the payment space. Given the fact that they have much deeper wallets, Stripe may be in for a bumpy ride in the future. Stripe is banking on its advanced technology and a better understanding of the end-to-end process in order to be able to compete with bigger competitors.
The bottom line is that the Stripe story is indeed remarkable. It has shown how a small company with a limited budget can transform a high-tech business space such as online payments.
Authorship/Referencing - About the Author(s)
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- Seed Funding - Introduction
- Why is it Difficult to Raise Seed Funding?
- Documents Required for Startup Financing
- How Co-Founders Split Their Equity?
- Proof of Concept
- Minimum Viable Product
- What is Prototyping?
- Asset Light Business Model
- Advantages of Asset Light Business Model
- Disadvantages of Asset Light Business Models
- Cash Burn Rate: The Basics
- Managing the Cash Burn Rate
- Startup Financing and Term Sheets
- Key Terms and Conditions in a Term Sheet of Startup Funding
- Red Flags that Investors Need to Look out for in Term Sheet
- The True Cost of Owning a Property
- Valuation of Early-Stage Startups: The Mindset of Investors
- Pre Money and Post Money Valuation
- Start-Up Valuation: Advanced Concepts
- How Pre-Revenue Companies are Valued?
- Valuation Divergence - Meaning and its Importance
- How Do Option Pools Work?
- What are Capitalization Tables?
- Asset Sale vs. Stock Sale
- Financial Models for Startups
- Key Performance Indicators for Startups
- Restricted Stock Options (RSU’s)
- Veto Rights - Meaning and its Importance
- Financial Benefits of Incubators
- What are Unicorns?
- Why Startup Companies are Staying Private?
- Why Unicorn Companies Fail?
- Building a Startup Team
- Bootstrapping: Meaning and its Advantages
- Disadvantages of Bootstrapping
- Revenue Based Financing
- Convertible Notes and Startup Funding
- Pros and Cons of Convertible Notes
- Simple Agreement for Future Equity (SAFE)
- Keep It Simple Securities (KISS)
- Series A Funding
- Series B Funding
- Series C Financing
- Venture Debt in Startup Funding
- Pros and Cons of Venture Debt
- What is Venture Leasing?
- The Freemium Model - Different Types of Freemium Models
- Pros and Cons of Freemium Model
- Scalability and Startups
- Pros and Cons of Scalable Business Models
- Why Do Start-ups Fail After Receiving Funding?
- Start-ups and Arbitration
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- Understanding Investor Focus on Burn Rate
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- Government Regulations Which Impact Start-Ups
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- Managing the Operational Metrics of a Startup
- Different Types of Investors
- The Founder’s Dilemma
- Role of Social Media In Start-Up Funding
- Start-Ups and Public Relations
- Red Flags for Start-Up Investors
- IPO: An Exit Route for Start-Ups
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- How to Build a Start-Up that gets Acquired?
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- Corporate Venturing
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- Aggregator Business Model
- Marketplace Business Model
- Difference between Aggregator and Marketplace Business Models
- Product as a Service (PaaS)
- Benefits of Product as a Service (PaaS) Model
- Disadvantages of Product as a Service (PaaS) Model
- The Co-Working Business Model
- How Co-Working Spaces Make Money?
- Peer to Peer (P2P) Business Model
- The Instacart Business Model
- The Goodleap Business Model
- The Twitter Story
- How Tesla Reinvented the Automobile Industry?
- How Epic Games Changed the Gaming Industry?
- The SpaceX Success Story
- The Stripe Business Model
- The TikTok Business Model
- Zillow Story - The Real Estate Marketplace
- How Business Cycles Affect Start-Up Companies
- Managing Start-ups During an Economic Downturn