How Stripe Built A $35 Billion Company

Think of the term “middleman” and it conjures up negative ideas and stereotypes. In fact, “cutting out the middleman” is considered a good thing. But is it? Stripe, one of the fastest growing fintech companies in the world, has focused its growth on becoming known as the middleman of the internet. And based on their recent valuation of $35

billion

, they've done quite well in that space. In this video, we'll cover exactly how Stripe has established itself as the leading choice for accepting online payments. This video was brought to you by EquityZen, the pre-IPO marketplace. Growing up in rural Ireland, brothers and Stripe co-founders Patrick and John Collison were exposed to the world of business at a young age.

Children of entrepreneurial parents, it seemed natural for children to start and run businesses, often a game they played as children. It wasn't until their early teens that they had access to the Internet for the first time, each of them creating their own websites and experimenting with web development in their free time. Both Collison boys earned high grades in school and began developing online businesses as a natural extension of their passions. When they were 19 and 17 respectively, they founded Auctomatic, a business that aimed to solve some of the problems they saw with eBay. In a span of just 10 months, they

built

, financed, launched, tested, and sold that

company

for a whopping $5 million, making both boys filthy rich before they even finished high school.

After moving to the US, the Collisons attended Harvard and MIT for a few months and periodically discussed the future of online transactions. By financing their tuition by developing iPhone apps, they commented on how easy it is to make money with the App Store's convenient payment system. But if you ran an online business, the ability to accept payments would feel like the 1970s. It was complex, outdated, and in desperate need of a change. The financial barriers to starting a business were immense, more favorable for large corporations and uninspiring for the small startups Patrick and John knew. Companies couldn't spend enough time working on their products because they had to deal with currencies, reporting, payment routing, and dozens of other financial hurdles simply to allow customers to give them money.

Joking that they should start their own payments service, Patrick and John stumbled upon their "next big thing." It was here that others saw only 16 digits on a piece of plastic and a few lines of code, but for these two young men they saw an opportunity. It was late 2009 when the Collisons started working on their payment acceptance service, dropped out of school and moved to Buenos Aires to work full time on their revolutionary idea. Stripe, even though it was called “reducing developer payments” back then, felt very natural to the Collisons. They wanted to solve their own problems and those of their friends.

If they could eliminate the need for startups to worry about the financial side of the business, then they could invest more time and energy into their products and services. With a few Internet businesses under their belt, the Collisons were well aware of the problems of accepting payments. When creating Stripe, they initially focused primarily on solving their own problems. But within a few months it became clear that this lake of potential customers was actually an entire ocean. All e-commerce could benefit from the service Stripe provides. And so, his vision became even grander. Enter Y Combinator, the startup accelerator with several successes under its belt.

Founder Paul Graham had already made several hundred thousand dollars from his investment in Auctomatic and once the Collisons applied again, this time with their new Stripe concept, he quickly funded it in 2010. Launching a beta test, they attracted more interest of Angel investors. including Peter Thiel, the founder of PayPal. They were allowing businesses to receive payments immediately and test their theory that these businesses would grow thanks to Stripe's financial intermediary platform. And in September 2011, they were live and available to the public. After that, the growth was enormous. In 2012, they raised a round of funding from famed venture investment firm Sequoia and AMEX Ventures.

In 2014, they raised another round of financing, raising their valuation from $1.7

billion

to $3.4 billion in just a matter of months. And in 2019, Stripe's latest funding round raised an additional $250 million at a staggering $35 billion valuation. At this stage, Stripe isn't simply offering a way for startups to accept money. They had launched Radar, a machine learning fraud detection service that reduced credit card fraud by up to 25%. They also launched Atlas, which provides an end-to-end

company

formation service, allowing anyone in the world to quickly and easily form a new company, further removing barriers to innovation. Recently, Stripe launched Issuing, a platform that labels credit cards for businesses and offers a percentage of the fees Stripe charges as cash back for its business customers.

And what's next for Stripe? Perhaps with the new credit card service they are positioning themselves for a buyout by one of the major credit card companies that invested in them. Perhaps they intend to make public a more complete version of their already extensive end-to-end service. The Collisons are keeping quiet, saying they remain in the expansion phase and are not yet done developing and offering new solutions for the growing transition to online commerce. In 2018 alone, an estimated half of Americans who spent a dollar online used Stripe to make that payment. Stripe was never intended to become a competitor to major payment services like Paypal, Square or Apple Pay.

But as a fast follower, this unicorn company has been able to observe what the “big guys” are doing and quickly improve its own service to capture a large portion of the market, including offering payments infrastructure to Amazon, Facebook, and Lyft. By making online business easier for everyone, Stripe and the broker service they offer have become an incredibly popular company. Of course, this was only possible thanks to investors who believed in them and financed their success. Which brings us to today's sponsor, EquityZen. EquityZen has opened the door to pre-IPO investment. Since 2013, it has been one of the leaders in connecting shareholders of private technology companies who want to sell their shares to accredited investors looking to access the private market.

Its investment funds buy shares of companies like Stripe while they are still private, allowing it to unlock investment opportunities that were previously only available to well-known venture capitalists. And if you're new to EquityZen, you can invest for as little as $10,000. Click the link below to learn more about how your capital can be appreciated through pre-IPO investments offered by EquityZen. If you enjoyed this video, also be sure to hit the like button and subscribe for more content like this. Until next time, stay smart.