Paystack is joining Stripe through an acquisition deal reportedly worth over $200 million (₦76.6 billion), making it the biggest Nigerian startup acquisition.
Stripe agreeing to buy Paystack is not surprising; it was fated.
Through its private beta launch in November 2014 and public launch on January 11, 2016, Paystack has been describing itself as the "Stripe for Africa". And in 2018, the real Stripe had led the $8 million (₦2.8 billion) Series A funding round of the Stripe-for-Africa.
Both Stripe and Paystack are solving the same problem: payment; they also have similar missions. Paystack's mission is "to help businesses in Africa become profitable, envied, and loved". Stripe wants to "increase the GDP [Gross Domestic Product] of the internet".
Paystack is a Nigerian tech company. But it was incorporated in Delaware, United States, in 2015 (same year it joined Y Combinator Accelerator). Paystack is "solving payment problems for ambitious businesses". (Flutterwave, its archrival, is also incorporated in Delaware.)
Stripe is an American technology company building "economic infrastructure for the internet". It was co-founded by the Collison brothers, Patrick (CEO) and John (President). In January 2010, Stripe launched in private beta, and its public beta was launched in September 2011. "Businesses of every size — from new startups to public companies — use our software to accept payments and manage their businesses online", Stripe says on its website.
Tidbit: Before settling for stripe.com, the co-founders of Stripe considered using paystack.com.
Hence, officially becoming the Stripe for Africa through a $200m+ (₦76.6 billion) acquisition is an expected trajectory for Paystack. Although Stripe noted that the acquisition is subject to standard closing conditions, including regulatory approvals. But the October 15 announcement, which was originally postponed because of social unrest in Nigeria, suggests the sale is signed, sealed, (yet to be) delivered.
What does the acquisition of Paystack by Stripe mean?
Paystack acquisition deal with Stripe has and would have far-reaching impact, for both companies, investors, and the Nigerian tech ecosystem.
Obviously, the co-founders of Paystack: Shola Akinlade (CEO) and Ezra Olubi (CTO), are the biggest winners. But the size of their win depends on how much equity they've given to their 40 investors. According to its FORM D, Paystack has raised a total of $10,205,002 (₦3,684,005,722). But Crunchbase notes Paystack has raised a total of $11.7 million (₦4.2 billion) from 20 investors, including a $50,000 (₦16.6 million) grant from Google Launchpad Accelerator.
Nonetheless, whichever figure is used, by selling for over $200 million (₦76.6 billion) — nearly 20 times more than their total financing — Shola and Ezra have done a good job. According to SaaStr Rule of Startup Success: "Just multiply [the] amount of venture capital raised times 10. That is what you must sell or IPO for — for it all to work out". And Shola and Ezra are selling Paystack for more than 10x of capital raised.
For more context: In November 2019, Visa reportedly acquired 20% stake in Interswitch for $200 million (₦76.6 billion). The deal propped up the foremost Nigerian payment processing company to a unicorn status; that is, a company with $1 billion or more valuation. And interestingly, Visa had also participated in Paystack's Series A in 2018.
Interswitch, which was founded by Mitchell Elegbe, is an 18-year-old company, while Paystack is five years old.
What the acquisition means for Stripe and Paystack
According to the statement released by Stripe, this acquisition will give Paystack resources to develop new products, support more businesses and consolidate the hyper-fragmented African payments market.
Currently, Paystack is only available in three African countries: Nigeria, Ghana (October 2018) and South Africa (July 2020). Compared to Flutterwave, however, Paystack still has a long way to go. Flutterwave, which was launched in 2016, is available in 50 African countries and the UK and US. (But Flutterwave has raised a total of $64.5 million (₦24.6 billion), the last round being a $35 million Series B.)
Notwithstanding, businesses and individuals using Paystack can receive money from anywhere in the world. Stripe said, "Paystack will continue to operate independently, growing their operations in Africa and adding more international payment methods".
Between April and October 2020, Paystack has announced new integrations, products and features. Notably, Paystack added Address Verification Service, Shopify integration for Ghana businesses; integrated with Craft and Wix, launched Paystack Commerce, Pay with Transfer, Merchant App, and Paystack for MemberPress plugin.
Similarly, Stripe is currently available in 42 countries across all continents except Antarctica and Africa. And since Stripe started acquiring startups in 2013, this is its biggest acquisition yet. It is also the first acquisition Stripe has made to expand its global footprint rather than to improve its technology stack.
With this acquisition deal, Stripe will be launching in Africa soon, starting with Nigeria. "In absolute numbers, Africa may be smaller right now than other regions, but online commerce will grow about 30% every year", Patrick told TechCrunch. "Stripe thinks on a longer time horizon than others because we are an infrastructure company. We are thinking of what the world will look like in 2040-2050".
According to the statement announcing the deal, Paystack’s capabilities will be embedded in Stripe's Global Payments and Treasury Network, a programmable platform for global money movement that currently spans 42 countries. With such integration, Nigerians would be able to easily launch their Substack paid newsletters and join Medium Partner Programme. And other platforms and services that use Stripe as a payment provider.
Sorry for the trouble. Stripe is our sole payments provider at this time.— Substack (@SubstackInc) April 17, 2020
What the acquisition of Paystack by Stripe means for investors
All the 40 or 20 corporate and individual investors in Paystack are making bank with the exit to Stripe. The $200m+ (₦76.6 billion) acquisition deal provides the much-needed answer to the question investors ask: "Where are the $100 million African exits?".
Paystack acquisition by Stripe shows local and international investors that their bets on Nigerian (and African) startups could pay off. As the co-founder of Y Combinator (YC), Paul Graham, said, "Investors who ignore Nigeria now have to ask themselves: What do I know that Patrick Collison doesn't?".
It is important to note that while this is Nigeria's biggest startup acquisition yet, it isn't the first for the continent. WorldRemit had announced in August 2020 that it would acquire Sendwave for $500 million (₦190.5 billion).
The acquisition of Paystack by Stripe would also serve as a wake up call for more people to consider startup equity as an asset class. Depending on who you ask, African startups raised between $2 billion and $496 million in 2019. It would be unfortunate for high net worth individuals in Africa not to participate in the wealth created by African startups.
"This [acquisition] deal will also make other high net worth individuals, who have stayed away from investing startups, have FOMO [Fear Of Missing Out]", Rebecca Enonchong, a founding member of African Business Angel Network, said. "They will want to be a part of the next success story".
Paystack investors (and their return on investment)
While some people might want to quibble over whether Paystack acquisition is a success story or an early sellout, their investors are making a bank. And according to CB Insights, 48% of exits in venture-backed tech companies globally occured after the companies raise seed or Series A financing.
Hence, Paystack acquisition by Stripe is the norm. And selling for over $200 million after raising $8 million in Series A (and $10.2 million in total financing) is a successful exit.
Because Paystack is a private company, its financial statement is not public. And as such, it is difficult to know how much each investor put in Paystack and their ROI. However, inference can be made from the size of cheques and equity some investors cut and take.
Paystack CEO, Shola, revealed in an interview that YC made the first investment in Paystack. Although a local investor had offered him N20 million for about 60% equity just before Paystack was accepted into YC Accelerator.
Following Paystack participation in its Accelerator, YC invested $125,000 (₦32.5 million) in Paystack for 7% equity. Ceteris paribus, YC return on investment (ROI) would be about $14 million (₦5.3 billion).
In addition to YC, other early investors in Paystack include:
- Dr Ola Brown, Director at Greentree Investment;
- Kola Aina, Founding Partner at Ventures Platform Fund (invests between $20k and $200k);
- Maya Horgan Famodu, Partner at Ingressive Capital (used to invest between $50k and $100k but now invests between $200k and $400k for 10% equity);
- Olumide Soyombo, Managing Director at LeadPath (invests between $25k and $100k);
- Leonard Stiegeler, Founder of LS;
- Comcast Ventures;
- Singularity Investments;
- Tencent Holdings
Other investors in Paystack, who likely joined in the Series A, include:
- Jason Njoku, CEO of irokotv and Partner at Spark
- Oo Nwoye, Board Member at Ventures Platform
- Lauren Cochran, Managing Director at Blue Haven Initiative
- Sudeep Ramnani, CEO at Sporty Internet Group
- Tom Stafford, Managing Partner at DST Global
- Gbenga Oyebode, Founding Partner at Aluko & Oyebode
- Nedu Ottih, Principal at Apax Partners
- Lexi Novitske, Managing Partner at Acuity Venture Partners
- Dale Mathias, Co-Founder at Innovation Partners Africa
- Bastian Gotter, Co-Founder at irokotv
- Wale Ayeni, Investor