With the market turning so dramatically in 2022, it’s no surprise that many startups are now believed to be raising down rounds.
This week alone, it was reported that Varo was raising a $50 million equity round led by Warburg Pincus at a “significantly” lower valuation. According to Fintech Business Weekly, the struggling neobank would be raising the funding at a pre-money valuation of $1.8 billion. That’s down from the $2.5 billion that Varo was valued at in September of 2021 when it raised a massive and “oversubscribed” $510 million Series E.
The startup last August celebrated the two-year anniversary of obtaining its national bank charter — a move that made it the first-ever all-digital nationally chartered U.S. consumer bank. In an interview with TechCrunch, CEO and founder Colin Walsh last September insisted that the company was “still seeing strong customer growth” and still had “a clear path to profitability.”
TechCrunch reached out to inquire about whether or not Varo has in fact signed a term sheet for a new $50 million raise — with Warburg Pincus ponying up $25 million — but the company declined to comment.
Also this week, The Information reported that payments giant Stripe is still trying to raise capital and is now believed to be targeting a valuation of around $50 billion, or $20 per share, after hitting some obstacles. Earlier this year, TechCrunch reported that Thrive Capital was said to have committed $1 billion in fresh capital to Stripe as part of a new investment in the works that would have valued the fintech company at between $55 billion and $60 billion.
Initially, it was thought that Stripe was seeking to raise $2 billion, but the number is now believed to actually be closer to $2.5 billion to $3 billion, according to reports from The New York Times and The Information. In an unusual twist, Stripe is believed to be raising new funds to, as The Information reported, “address the issue of expiring restricted stock units for some of its veteran employees — and a massive employee tax bill that will likely come with it.”
Most recently publicly valued at $95 billion, Stripe has not been immune to the global downturn. In November, it laid off 14% of its staff, or around 1,120 people. And the company had already slashed its internal valuation more than once over the past year. Earlier this year, TechCrunch reported that Stripe had cut its internal valuation to $63 billion. That 11% cut came after an internal valuation cut that occurred six months prior, which valued the company at $74 billion.
The fact that Stripe might raise money to pay off a tax bill raised eyebrows internally here at TechCrunch. That is not typical, and it certainly doesn’t seem like it’s an ideal way to spend investors’ cash. Ken Smythe, founder and CEO of Next Round Capital Partners — a capital markets and VC secondaries firm — validated our impressions.
In a phone interview on January 27, he told me that it is “highly unusual for investors to be excited about a new round that is primarily going to pay unpaid taxes.”
Either way, the fact that fintech startups — or any startups for that matter — are raising down rounds is not the big news that it might have been a year ago. When faced with either shutting down or raising a down round, most startups would opt for the latter.
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