A little perspective on the recent event of Paystack acquisition by Stripe.
On a lighter note, it’s juicy to sell a company for 200million Usd. It is really good. But that’s just thinking the money part.
However what you should know as business owners are that there are more to selling your business or raising funds or capital for you to scale.
Is it a good sale if you ask me, I will say NO.
As opposed to the vibes that paystack is joining stripe, I feel they are completely lost inside stripe.
….WHAT COULD HAVE HAPPENED?
1. The Sellout
Paystack raised 10miliom usd first round and Stripe gave them 8m usd.
My thought the money raised must have been a convertible note.
In finance, a convertible bond or convertible note or convertible debt is a type of bond that the holder can convert into a specified number of shares of common stock in the issuing company or cash of equal value. It is a hybrid security with debt- and equity-like features.
However, CN often comes with some clauses of the cap.
E.g I give you 8m usd as a convertible note (CN), for 3 years and when I’m ready to convert this debt to stock, you will sell your stock price value at a discount of say 60%
If others are buying at 10usd, I will convert the debt you are owing to shares at a 60% discount of the original 10usd. Means I’m at 4usd.
To know more search Google…
So, oftentimes CN can make founders lose controlling shares of the company as for company like stripe it is a chess play game for them. They live in an ecosystem that knows the dynamics of fundraising.
They knew what they want from the beginning before they invested in a haystack.
And of course, Paystack didn’t see it coming.
2. The Exit –
As a founder, when you raise capital in series rounds, part of the important elements of your terms sheet will include an exit strategy. An exit strategy may be selling the company or going IPO. The exit is usually how your investors cash out.
Paystack being acquired by stripe for 200m usd, not all cash.
The acquisition will be divided into
A. Convertible stockB. Shareholders cashoutC. Cash for founders
So, do the little math on 200m usd. Let’s assume a ratio 50:30:20 (100m usd, 60m usd and 40m usd) respectively.
3. The Lost –
Stripe is valued at 35 billion usd. So, paystack is completely lost in this big giant with no say executively if you look at the comparison of 10m usd on 35billion usd valuation of Stripe.
Having said all these, looking at the money side, it will be more profitable for them to have no matter how little shares in stripe as a global brand.
If only they have waited for enough to go IPO they will be more valued.
In 2013, Gidiapp was acquired by Apple for 1billion usd. A Nigeria brand. Next to it was the acquisition of WhatsApp for 2 billion usd.
This acquisition breaks record in the VCs ecosystem as one of the most highly valued and acquired startups.
The payment industry is more than that. NIGERIA payment industry is worth more 50billion Usd with the right mindset you can crack it.
…….Some of Paystack’s mistake…….
Mcash a product of Nibss combs over 5billion in revenue per annum. A brand not even widely known as paystack.
1. Paystack was too early to begin to spread across Africa.
2. There are lots of untapped market in Nigeria they could break, but they were in a hurry to expand into other African countries hence the need that necessitates their fundraising.
3. Fintech is a highly profitable industry. As @Akin Alabi with calling it, small business Big money.
Paystack workforce is less than 80 staffs, with no need for unnecessary assets acquisitions and very low liability.
The company processes over 50 million transactions in a year. If you run the mathematics 50milion x NGN150 =7.5billion
So, Paystack is undoubtedly profitable and they could have done more harnessing the unfolding Nigeria payment industry.
4. Their business model was profit-driven than support-driven.
The first-day Flutterwave launched they processed over N70m in total transaction. Of course, Paystack was the first in the market before them. However, Flutterwave took a different route providing backbone (support) solutions for other fintech Companies while till today, flutterwave is bigger.
Their price wasn’t flexible for other Fintech to come into the market and do business competitively.
Flutterwave and paystack have the same PSSP license qualification but they weren’t in it for the enterprise model.
E.g Nibss gives the NIP for a cost if N5-10 per transfer… Paystack charges N50 from their API and flutterwave charges N20.
MY ADVICE TO STARTERS IN TECH SPACE
As much as it sounds remarkable raising funds as a startup, it could end your controlling shares.
Things you must do and consider
1. Raise what you need2. Explore your ground before you march3. When giants are poaching you, remember, they have more experience than you and business is a game of chess. Behind a sacrificed pawn an officer is aiming to strike.
4. Your first round of funding doesn’t give beyond 15%.
If you want to know more about company valuation, fundraising methods and semantics, send me a private chat.