Beware, Stripe is said to be raising new funds at much lower valuations

Image credit: mustafaU/Getty Images

With the market turning so dramatically in 2022, it’s no surprise that many startups are now believed to be raising down rounds.

Just this week, it was reported that Varo raised a $50 million equity round led by Warburg Pincus at a “significantly” lower valuation. According to Fintech Business Weekly, the struggling neobank would raise the funding at a pre-money value 1.8 billion dollars. That’s down from the $2.5 billion that Varo was valued at in September 2021 when it raised a massive and “oversubscribed” $510 million in Series E.

The startup celebrated its second anniversary in August obtain their national bank charter – a move that made it the first all-digital nationally chartered US consumer bank ever. In a interview with TechCrunch, CEO and founder Colin Walsh insisted in September that the company was “still seeing strong customer growth” and still had “a clear path to profitability.”

TechCrunch reached out to ask if Varo has indeed signed a term sheet for a new $50 million raise — with Warburg Pincus ponying up $25 million — but had not heard back at the time of writing.

Also this week, the Information reported that payments giant Stripe is still trying to raise capital and is now believed to have a valuation of around $50 billion, or $20 per share, after hitting some hurdles. Earlier this year, TechCrunch reported that Thrive Capital was said to have committed $1 billion in new 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.

Stripe was initially thought to be 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 for some of its veteran employees — and a massive tax bill for employees who are likely to follow.”

The fact that the company might be raising money to pay off a tax bill raised eyebrows internally here at TechCrunch. That’s not typical, and it certainly doesn’t seem like an ideal way to spend investors’ money. Ken Smythe, founder and CEO of Next Round Capital Partners – a capital markets and VC secondary firm – validated our impressions.

In a Jan. 27 phone interview, he told me it’s “highly unusual for investors to be excited about a new round that’s primarily going to pay off unpaid taxes.”

Regardless, the fact that fintech startups—or any startups for that matter—are raising rounds isn’t 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 choose the latter.