Fintech startup Checkout.com was in the news this morning as the Financial Times reported that the payments company’s intrinsic value has dropped to $11 billion. And that’s a significant drop from the $40 billion valuation the company reached in less than a year.
But this does not mean what you think. In the case of Checkout.com, the company was not in the process of raising new funding. Unlike Klarna’s down round, the new valuation was not determined by a VC firm willing to invest in the company.
Checkout.com is building a full-stack payment company – acting as a gateway, acquisition, risk engine and payment processor. The Company allows you to process payments directly on your site or app, but you may rely on hosted payment pages, create payment links, etc. It supports card payments, Apple Pay, Google Pay, PayPal, Alipay, bank transfer, SEPA Direct Debit and lets you make payments.
Let me take one step ahead. It is difficult to determine how much a private company is worth. Post-money valuation is used as a benchmark for startups to see how big they are compared to their direct competitors. If a 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 this measure is imperfect, because companies do not rise at the same time and the economic situation can change from one year to another. And entrepreneurs tell me that January 2022 is very different from December 2022.
It has become very difficult to close a new funding round. Entrepreneurs have to make some concessions. Sometimes they give their cap table a bigger slice for the same round size, which leads to… underestimation.
Some startups receive liquidity options and other investor-friendly clauses so that their valuations remain stable. In that case, the price becomes even more meaningless as VCs expect bigger returns than they should get on paper.
But reviews aren’t just big numbers for headlines. They are also important for employees who own stock options.
We used it in the current situation to improve the company’s tax estimate. We decided to do that for our employees to re-hit all the options that were recently offered and therefore create a more countervailing capacity for them – they have to pay less for those options,” Checkout.com founder and CEO Guillaume Pousaz told me.
And that reminds me of another payments company that decided to downgrade its internal rating. This summer, Stripe lowered its valuation from $95 billion to $74 billion.
In Stripe’s case, the company worked with third parties to improve the value of the 409A, which changes the value of employee stock options. It has tax implications, as employees will pay taxes on the difference between the option price and the new stock price, as expressed in the new 409A’s value.
I asked Guillaume Pousaz if Checkout.com’s new estimate is the same as the 409A price revision. “Yes, it’s like 409A. It should be produced by an accounting and auditing company,” he said.
There isn’t much buzz about 409A prices in the European startup community. And Checkout.com is a rare example of an internal review change. It means that some VC firms overpay to invest in fintech startups. It may also mean that technology companies have lower earnings multiples compared to 2021.
But he said little about the negotiations between VC firms looking to invest in Checkout.com and the startup’s executives. They rest on different assumptions. But that would require new funding, which is unlikely in the current landscape.
“We don’t need to raise money and there are no plans in this regard,” said Posaz. “To be honest, we don’t have to raise it again. Never say never, but like many fintech companies, we have a proven business model.
