Monday 21 October 2019

Long way from Tipperary: how to build a €20bn firm

Patrick and John Collison are the most successful Irish entrepreneurs ever. As they touch down in Ireland this week, Adrian Weckler looks at the tech giant they have developed

Worldwide web: John and Patrick Collison are said to be worth up to $3bn each, but the brothers eschew ostentatious displays of wealth and are focused on building Stripe and expanding online trade globally
Photo: David Paul Morris/Bloomberg
Worldwide web: John and Patrick Collison are said to be worth up to $3bn each, but the brothers eschew ostentatious displays of wealth and are focused on building Stripe and expanding online trade globally Photo: David Paul Morris/Bloomberg
Adrian Weckler

Adrian Weckler

They're now regularly portrayed as the poster boys for Ireland's potential in the tech world. Patrick (30) and John (28) Collison have created one of the most talked-about tech companies in the industry. Stripe is an online payments system that lets online stores accept payments through ordinary means (such as credit cards) without any special measures being taken. The success of the system is largely down to the relative ease by which it can be installed by tech people setting up a company's online shop. It's basically a few lines of code that slots in without any fuss.

But it's a 'back end' system, meaning that it's not presented as a customer payment option in the same way as PayPal or a credit card system.

This is probably the reason why, outside the tech industry, it's not a well-known brand like PayPal.

Stripe's business model is to take a small cut of the transaction (in Europe, it's 1.4pc plus 25c for European cards or a little more for non-European cards) from those using it to sell.

But it's Stripe's scale that is its strength. Stripe is now one of four pre-eminent online payment companies in the world. The biggest, and still the best known, is PayPal. The other two are the Chinese outfit Alipay (which isn't directly comparable) and the Dutch firm Adyen.

Stripe has lots of big companies using it, including Uber, Uber competitor Lyft, Salesforce, Shopify and millions of others.

How did this all happen? Both Patrick and John have followed a familiar pattern among high-performing tech founders.

Having been accepted into Massachussetts Institute of Technology (MIT) and Harvard respectively, both brothers dropped out to focus on building companies. Their first success was a small company called Auctomatic, sold to a Canadian company for $5m.

In 2010, at the age of 21 and 19, they founded Stripe. The next year, they got a $2m seed funding round from a handful of Silicon Valley's A-list investors, including PayPal co-founder Peter Thiel. The year after that was their big breakthrough, with two rounds of $18m and $20m.

Autonomy and independence was a strong theme from an early age. Their parents let Patrick go to California for a couple of months as a secondary-school age teenager. Similarly, they were encouraged to seek the best experiences in the best colleges, with Patrick sitting American SATs at the age of 13.

Fast forward to 2019 where, in a 12-month period, the company's valuation has climbed from $9bn to $22.5bn because of two rounds of finance worth $345m led by the US venture fund Tiger Global. It got that funding because of its rapid expansion.

It is growing in two ways. First, by opening offices all over the world in a race to become the default international payments provider. And it is also extending into things like issuing, global fraud prevention and physical stores with its Stripe Terminal.

One reason why the company has attracted so much in funding is that online commerce is still seen as one of the most reliable future bets in tech.

Unlike the saturated businesses of smartphones or social media, less than one in 10 trading transactions happen online. Most economic forecasters predict that this will increase at least threefold over the next decade. This is largely the reason that Amazon, which makes a relatively small profit, is still valued at such a high multiple compared to earnings (and why Jeff Bezos's company is measured by markets as the most valuable publicly traded firm in the world, making him the richest man in the world).

While Irish people like to claim the Collisons as our own, Stripe is firmly a Californian-headquartered company. Yet its burgeoning Irish office is one of its biggest and most important elsewhere in the world. It has more than 100 people now and regards the Dublin facility as one of its key engineering 'hubs', close to a par with the one it has in San Francisco.

This is an unusual thing for a multinational tech company to do in Ireland, partly because it's the type of centre that is difficult to hire for anywhere in the world, given the level of tech expertise required.

"There's often this broader tension around companies moving operations or support to Dublin and not necessarily treating those offices as real research and development centres," said Patrick Collison. "But we've spent time now in Dublin and are struck by how much real engineering and tech talent there is now, and how that's trending upwards. So we took a broad view on where we might base this European engineering office and have decided to place our bets on Ireland and on Dublin."

Part of the plan, he says, is to hire advanced tech engineers from "every corner of the globe", as well as locally, to create an elite engineering unit in Dublin.

There are now persistent questions around how long Stripe can remain a private company. By most normal rules of Silicon Valley, Stripe would be close to an initial public offering. Venture capitalists and large private investors of the sort that Stripe has attracted usually look to realise a gain of some sort with six or seven years. It has now been eight years since the firm took its first major round of private funding ($38m), with seven significant rounds since then, totalling nearly $800m.

Three or four years ago, both brothers would regularly say that there was no immediate plan for an IPO because they were still firmly focused on expansion. The tone has changed a little lately. In an interview with the 'Los Angeles Times' earlier this month, Patrick discussed several elements of the company's goals but declined to comment on plans for a flotation. This doesn't mean that Stripe is currently planning an IPO. But it is common for founders thinking of a possible IPO to stop saying that one isn't imminent.

Along the way to making Stripe one of the biggest tech companies in the world, the Collisons have become investors too.

Stripe has made significant investments in other startups over the last two or three years. Earlier this month, the company jointly led a $40m funding round into a US-Israeli fintech company called Rapyd, described by its CEO as a "fintech as a service" startup.

Last year, Stripe led an $8m round (with participation from Visa and China's ecommerce giant Tencent) into a Nigerian-based payments startup called Paystack, which processes over 15pc of online payments in Nigeria and acts as a payment engine for tens of thousands of businesses in the country with Africa's largest population (200 milliion).

Just how wealthy are the Collison brothers? While this is a shallow question, it's a source of interest to a great many people in Ireland and beyond. Most estimates put the brother's wealth at somewhere between $1bn and $3bn each. Forbes, which is often referenced in such matters, has them at $2.1bn each, even after the company's most recent funding top-up and increase in valuation to $22.5bn.

But the truth about these estimates is that they are really just guesses. Unless (or until) the company files for a public offering or agrees to being acquired (which seems very unlikely), that's what they'll remain.

Even if most of the Collisons' valuation might be tied up in company valuation, there are no signs of opulence.

The Collisons typify a certain breed of successful tech founder. There are no Larry Ellison-style yachts, big parties or other ostentatious displays of wealth.

Both brothers like to pilot planes, although it's limited to small aircraft of the type that thousands of enthusiasts choose. The Collisons appear to follow the kind of lifestyle aesthetic naturally favoured by Steve Jobs, and Warren Buffett, both of whom chose ordinary suburban houses and a relatively modest way of life over glitz and shiny things. This is not to say that it might always be thus. Bezos famously drove an old car for years and hung on to an 'ordinary guy' lifestyle until he hit his mid-40s. Now he has a number of lavish properties around the world and indulges some super-rich hobbies, like using a submarine.

The money issue has always been a source of confusion for many Irish commentators, used to associating wealth with industries such as property, where developers rush to cover themselves with Rolex watches and other initial trappings of cash.

In all of the interviews that this newspaper has done with the Collisons over the years, one theme has stayed fairly consistent: they're obsessed with cutting through a lot of the blockades that stop meaningful trade happening online.

"The promise of the internet is around this transcendence of physical geography," said Patrick Collison. "To a large degree, the internet has delivered on that promise, but when it comes to the movement of money and the ability to start and operate a business or needing to purchase from a business, it really hasn't. You have this balkanised landscape of European internet companies and American internet companies and Chinese internet companies and so forth. Entrepreneurs in the US or western Europe can really easily start an online business, but somebody in Peru or Indonesia or India cannot. That should not be acceptable to us."

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