Stripe, a highly valued payments startup, has cut its internal valuation yet again, according to sources familiar with the manner. It is now valued, internally, at $63 billion.
The cut, first reported by The Information, puts Stripe’s internal share price at $24.71, down 40% from its peak. The 11% cut comes after an internal valuation cut that occurred six months ago, which valued the company at $74 billion.
The valuation change was not caused by a new round of financing, but by a new price change of the 409A; 409A valuations are set by third parties, which means they are not tied to what a venture sponsor or other investor thinks. It is an IRS-regulated process that measures the value of common stock against public market quotations to help establish a fair market value.
Companies are supposed to do a 409A at least every 12 months or whenever a major event may lower their valuation. In the case of Stripe, along with other late-stage companies, 409A valuation reviews are now done on what appears to be a quarterly basis. Material events in the background range from the ever-green, ever-tense macroeconomic climate; And let’s not forget that Stripe’s public marketplace comparisons are certainly showing signs of trouble, with Shopify, Block, and PayPal all down from their 52-week highs.
Internal valuation cuts offer a different signal than an investor-driven downgrade. In fact, many founders and industry insiders consider a company receiving a 409A valuation lower than the investor-led private valuation to be a good thing. That’s because a low 409A valuation allows companies to give their employees stock options at a lower price, analysts say. Companies can also use the new, lower 409A valuation as a recruiting tool, luring potential employees with cheap options and the promise of charging at a higher price when the company finally exits.
Still, in the case of Stripe, a second internal valuation cut may not necessarily be being used to attract new talent. In November 2022, the fintech laid off 14% of its workforce, impacting around 1,120 of the fintech giant’s 8,000 workers. In August, TechCrunch learned that Stripe fired the employees behind TaxJar, a tax compliance startup it acquired last year.
In a memo addressing the Stripe layoffs, CEO Patrick Collison shared some of his reasons for layoffs: “We were overly optimistic about the near-term growth of the Internet economy in 2022 and 2023 and both underestimated the likelihood as the impact of a broader slowdown. Instead, the valuation cut could help with retention of existing employees, or even adjust expectations ahead of a desired IPO.
