Many companies seem to be getting acquired early on, rather than riding it out to an IPO
There are two definite signs that a space has started to mature. First, when companies start raising later stage rounds, meaning they've been around long enough to start taking in big checks. Next come the exits, with companies either being scooped up, or, going public.
By that measure, the payment startup space is finally coming into its own, though it still has relatively few companies going public, as many of the bigger names are staying private.
The number of exits in the payments space have spiked in the last two quarters, according to data out from CB Insights, with the end of 2014 seeing double the usual number.
In the fourth quarter of 2014, there were a total of 11 exits, followed by another eight in the first quarter of 2015. That is much higher than the typical three or four, sometimes five, that the space has been seeing since 2010.
But these were almost all mergers and acquisitions. Overall, 2014 saw 22 exits, only one of which was an IPO. In fact, since 2010, there have been 87 total exits in the payments space, and only seven of them were IPOs, including QIWi, which raised $884 million and Xoom, which raised $509 million in its IPO, both in 2013.
Part of the reason for that, CB Insights seems to suggest, is the "relative recent scarcity of IPOs among venture-backed companies." With 34 IPOs raising $5.4 billion, the first quarter of 2015 turned out to be the least active quarter by IPO count since the first quarter of 2013, and the smallest by proceeds raised since the third quarter of 2011. So it is true that fewer companies are taking this route.
At the same time, there is value in not exiting so quickly. Look at the biggest name in the space, Square, which has decided to remain private, raking up a lot of funding and a huge valuation in the process.
The company, which closed a $150 million funding around at a $6 billion valuation this past October, giving it a total of $590 million in funding, has been talked about as a potential candidate for a public offering for years. Itwas said to entertaining the thought of an IPO in 2014. The rumors were making their rounds—supposedly of talks with banks, like Goldman Sachs and Morgan Stanley. And Square hired former Salesforce.com exec Sarah Friar as its new CFO last year.
Dorsey, however, scuttled those plans in February of last year due to problems with revenue. Namely, the company is not profitable, but the company has always remained near the top of the list of companies that will eventually see themselves IPO.
Square has been able to raise a huge amount of money, and, by comparison, the companies that have exited have often not raised much in terms of funding.
Fleetcor and Yodlee, both of which went public, and Clear2Pay, which was bought by C&E Holdings in 2012, all received more than $100 million in funding before exiting.
Those companies, and Square, however, are the outliers. Many in this space are still not raising big amounts of funding. 99Bill, which was acquired by WANDA Group in December, had raised around $80 million before it exited. Braintree, which was bought by eBay in 2013, had raised $69 million. TxVia, which was acquired by Google in 2012, has raised $55 million.
It seems as thought the payments space might do well to have a few more companies like Square, willing to ride it out, rather than taking the quick exit like so many others.
(Image source: tizjezzme.deviantart.com)
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