Why Checkout.com lowered its internal valuation • TechCrunch
Fintech startup Checkout.com was in the news this morning because the Financial Times reported that the payments company had cut its internal valuation to $11 billion. And that’s a huge drop compared to the $40 billion valuation the company reached a little less than a year ago.
But it doesn’t necessarily mean what you think it means. In Checkout.com’s case, the company was not in the process of raising another round of funding. Unlike Klarna’s downturn, the new valuation was not determined by a VC firm willing to invest in the company.
Checkout.com is building a full-stack payments company – it acts as a gateway, an acquirer, a risk engine and a payment processor. The company allows you to process payments directly on your website or in your app, but you can also rely on hosted payment sites, create payment links, etc. It supports card payments, Apple Pay, Google Pay, PayPal, Alipay, bank transfers, SEPA direct debit, and it allows you also issue payouts.
Let me take a step back first. It is difficult to determine how much a private company is worth. Post-money valuation has been used as a metric for startups to see how big they are compared to their direct competitors. If the Big VC Firm is willing to invest $100 million for a 25% stake in a startup, the startup is now worth four times that investment, or $400 million—at least on paper.
But that calculation is imperfect, as companies do not grow at the same time and the economic environment can change drastically from one year to the next. And entrepreneurs tell me that January 2022 is very different from December 2022.
It has become much more difficult to close a new round of funding. Contractors must make some concessions. Sometimes they will give out a larger portion of the cap table for the same round size, leading to…a lower valuation.
Some startups accept liquidation preferences and other investor-friendly clauses so that their valuation remains stable. In that case, the valuation becomes even more meaningless as VCs expect greater returns than what they are supposed to get on paper.
But valuations aren’t just big numbers for headlines. They are also important for employees who own share options.
“We used the current conditions to update the tax value of the company. We decided to do it for our employees so that we can reverse all the options that have been handed out recently and therefore create more upside potential for them – they will have to pay less for these options,” Checkout.com Founder and CEO Guillaume Pousaz told me.
It reminds me of another payment company that also decided to lower its internal valuation. This summer, Stripe lowered its own valuation to around $74 billion from $95 billion.
In Stripe’s case, the company worked with third parties to update the 409A value, which changes the value of employee stock options. That has tax implications, as employees typically pay taxes on the difference between the price of their options and the new stock value as defined by the new 409A value.
I asked Guillaume Pousaz if Checkout.com’s new valuation was similar to a 409A valuation update. “Yeah, it’s like a 409A. It has to be produced by an accounting and auditing firm,” he told me.
There isn’t much chatter about 409A ratings in the European startup community. And Checkout.com is a rare example of an internal valuation change. It could mean that some VC firms paid too much to invest in the fintech startup. It could also mean that technology companies are now valued at a lower earnings multiple compared to 2021.
But that doesn’t say much about the upcoming negotiations between VC firms looking to invest in Checkout.com and the startup’s executives. They will land on a different valuation. But that will require a new round of financing, which does not seem likely in today’s landscape.
“We don’t need to raise money and there are no plans in that regard,” Pousaz said. “To be honest, we don’t need to raise again. Never say never, but unlike many fintech companies, we have a proven business model.”
