The economy is spiraling into a recession, but payment processing companies are loading up with record amounts of cash.
On the one hand, the pandemic has shattered business and consumer confidence, causing spending—and the transaction fees it generates—to dwindle. On the other hand, lockdowns have created an unprecedented need for ecommerce and digital payments. More coronavirus news: Continuing coverage from PitchBook
Stripe announced Thursday that it has secured $600 million in new funding, the largest round to date for a US-based online payments startup. The financing comes from existing investors Andreessen Horowitz, General Catalyst and Sequoia, and values Stripe at an estimated $36 billion. The new funding is an extension of the company's Series G round, which initially raised $250 million in September.
"Stripe has been a huge beneficiary in the shift to online commerce, which represented around 10% of total commerce before the crisis," said Robert Le, an emerging tech analyst at PitchBook.
The coronavirus pandemic has accelerated that online shift and provided a tailwind for the digital payments industry overall. Some prominent Stripe customers have also seen demand increase due to lockdown measures, including video conferencing leader Zoom and in-demand food delivery startups DoorDash, Postmates and Instacart.
But companies and ordinary people are feeling increasingly uneasy about the economic outlook. By tightening their purse strings, they also diminish the large transaction volumes that companies like Stripe depend on for revenue.
Other Stripe customers, like Zillow, Lyft and Expedia, are reportedly cutting costs as consumer spending dries up in the real estate, transportation and travel sectors. Stripe said it has $2 billion on its balance sheet, indicating that the new financing was not spurred by an impending cash crunch.
PitchBook's Le said that investors have been very optimistic about payments companies. The North American and European payments sector has received almost $2 billion worth of venture capital investment through the first quarter of 2020, with the year already on pace to hit a decade high.
Stripe's expanding war chest caps a flurry of fundraising from payment specialists including Tradeshift, AvidXchange and HighRadius, all of which have raised mega-deals this year, according to PitchBook data. AvidXchange, which offers an automation platform to process invoices and payments, raised $260 million in a round led by TPG Sixth Street Partners in January, bringing its total capital raised to over $830 million. Stripe has now raised more than $1 billion in private financing.
Looking ahead, Le said that Stripe's recent rollout of Stripe Capital, which offers credit to small businesses, should enable it to win new merchants as the recovery ensues.
The growth of payments startups has proven fruitful for investors like Sequoia, which first backed Stripe in 2010. Kleiner Perkins is among the most active firms in the payments space, with investments in Brex, Veem and Plastiq, in addition to Stripe.