John Collison, President and Co-Founder of Stripe.
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Rising interest rates have depressed technology stock valuations and had a chilling effect on Silicon Valley. Stripe’s co-founder says this is necessary.
“Overall, the impact of higher interest rates has been pretty good,” John Collison, president of the online payments company, told CNBC at the company’s annual meeting on Wednesday. “The period when money was free in Silicon Valley Not a healthy period“.
Collison founded Stripe in 2010 with his brother Patrick. Second to Elon Musk’s SpaceX.
Stripe has been forced to join the rest of the industry in making deep cuts starting in 2022 as soaring inflation and rising interest rates force investors out of the riskiest assets, raise borrowing costs and force startups to tighten their belts.
Stripe slashed its valuation to $50 billion in a 2023 funding round.The company’s recent employee buyout offer values the company at nearly $65 billion, according to The Wall Street Journal report.
“Valuations are a product of interest rates,” Collison said. Still, he said, “Stripe’s business is the healthiest it’s ever been.” Regarding the valuation drop, he added, “We’re not losing sleep over it.”
Stripe processed $1 trillion in funds last year, a 25% increase from 2023, the company said in its annual letter.
Collison said that although many technology companies took a hit in 2022 and 2023, the rising interest rate environment successfully eliminated the “weirdest” startup ideas and allowed the best ideas to obtain financing.
He pointed out that there is a “glut of money” for some good ideas and that “zombie companies” take a long time to go bankrupt.
“This is not conducive to dynamic capital allocation in the broader economy,” Collison said. “You want people to work on the most valuable ideas, not the fringe ideas.
After borrowing costs were at their lowest for a long time, the Fed began raising interest rates in 2022 and last year raised its benchmark rate to the highest level since 2001. Recent statements have solidified the notion that there will be no cuts in the coming months.
Federal Reserve Chairman Jerome Powell speaks during a news conference at the Federal Reserve’s William McChesney Martin Building on March 20, 2024 in Washington, DC.
Chip Somodevilla | Getty Images News | Getty Images
Collison said there was more pain to come.
“The point of high interest rates is that they should hurt, but they don’t hurt enough,” he said. “We should assume that the damage takes longer to arrive.”
Collison said that one part of the technology market that is driving development in a high interest rate environment is artificial intelligence, and “it seems like there is a new round of artificial intelligence financing every week.”
this week, Puzzled Announced the completion of a US$63 million round of financing, bringing its valuation to more than US$1 billion. SoftBank and Jeff Bezos are among its backers.
Stripe is benefiting from this excitement in its own way. OpenAI, Anthropic and Hugging Face are among the artificial intelligence startups using the company’s payment processing technology.
“I can’t remember a time when Silicon Valley was so interested in technological advancement,” Collison said of the artificial intelligence boom. “Broadly speaking, it’s an interesting time in the tech industry.”
As for Stripe’s future, an eventual IPO has been a source of speculation for years, given the company’s high valuation and list of high-profile backers eager for a return on investment. Collison said Stripe is “in no rush” and that senior management is focused on providing liquidity to employees through secondary stock sales.
“We have not announced a timetable for becoming a public company,” he said. “Something we’re very focused on is making sure there’s good employee mobility.”
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