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Stripe Capital

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Re: Stripe Capital

#221

Post by james_s_tayler »

owens99 wrote: post #150
kryogen1c wrote: post #109

Earlier quoted context omitted.

Just popping in to say this is one of the most impressive C-level replies i have ever seen. Straight acknowledgement of the criticism from OP, but explains the reasoning and demonstrates the benefit to both customer and stripe. Closes with willingness to change if business model doesnt produce results matched by test market. Doesnt read as defensive or marketing buzzwordy, just straightforward and simple. I hope to o…

It’s a solid response. Not sure if it’s worth pointing out but you are totally fan boying PC and making his response out to be way more than it is.

Not sure it's worth pointing out but I don't think there was any value in pointing that out.

I thought the comment was apt.

Re: Stripe Capital

#222

Post by edoceo »

pc wrote: post #67
atourgates wrote: post #11

Earlier quoted context omitted.

Based on the amount of junkmail I get offering my small business loans, I have a hard time believing the "filling a niche no-one else is offering" narrative. We get about 2x mailers per week from AMEX alone offering business loans of up to $500k, not to mention the many other offers we get less frequently. I like Stripe and think the offer a great product, but I don't think they're doing this because no-one else will…

[Stripe cofounder.] > Based on the amount of junkmail I get offering my small business loans, I have a hard time believing the "filling a niche no-one else is offering" narrative. Leaving aside questions about how good those lenders actually are to work with, it's still a surprisingly inefficient market. Businesses built on Stripe still report that access to capital is one of the _very top_ limiting factors on their…

Dude, outside of the SV bubble access to capital is always the top for any small business that believes in themselves. Did you "discover" labor is the second biggest?

Re: Stripe Capital

#224

Post by edoceo »

abalone wrote: post #37
harshadante wrote: post #27

Earlier quoted context omitted.

Harsha from Stripe Capital here. A ton of entities supply capital to businesses today -- it's one of the largest markets in the world. We aren't trying to beat anyone else. We're just responding to the need we heard from Stripe users for a product like this. I think how we do it (in terms of how we model the risk profiles of nascent, capital-light internet business; how we present it to customers; etc.) is all pretty…

This doesn't answer the question. That is exactly what Square Capital does (perhaps PayPal too).

Stripe has exactly what Square and PayPal and many other offer. Similar rates, process, terms, etc - no outsized compelling reason for one over the other (similar to CC rates)

Re: Stripe Capital

#225

Post by buildawesome »

zaroth wrote: post #110
pc wrote: post #59

Earlier quoted context omitted.

[Stripe cofounder.] > But one thing strikes me as odd about this whole arrangement. The better a business performs, the quicker it is able to repay the loan, and the higher its effective APR becomes! It's essentially a prepayment penalty in disguise. So you'd better make sure the loan doesn't help your business too much, or you'll end up getting hosed by the loan fee. Yes, this is right -- if your business suddenly s…

It would a nice benefit if you could discount the credit card processing fees during the repayment period. E.g. You charge a 10% upfront fee for the loan, and repay at a 10% rate, from the perspective of the company they’re actually paying 12.9% to Stripe during repayment. If you could pay just the 10% or even if you just got a .5% reduction to 12.4% overall going to Stripe during the repayment period, it becomes mor…

Problem is that usually 0.5% or 50 basis points is the markup on the fee, so effectively, the processor wouldn't make money on transactions, but would only make money on complete repayment. This is a loss to the business if it takes longer for the merchant to pay back the working capital loan.

Re: Stripe Capital

#226

Post by chii »

CPLX wrote: post #218
pc wrote: post #59

Earlier quoted context omitted.

[Stripe cofounder.] > But one thing strikes me as odd about this whole arrangement. The better a business performs, the quicker it is able to repay the loan, and the higher its effective APR becomes! It's essentially a prepayment penalty in disguise. So you'd better make sure the loan doesn't help your business too much, or you'll end up getting hosed by the loan fee. Yes, this is right -- if your business suddenly s…

I wonder if you’ve considered the perverse incentive you’ve created. It may prove fatal to this model. In short, you’re charging the highest interest rate to those whose businesses do better than you expected and the lowest rate to business who underperform your projections. As such, you’ve created a financial incentive to underperform, and are entering this business of lending money by literally penalizing the least…

> the customers who have the most reason to believe they are growing faster than baseline

if you have reasons to believe that you can grow faster than "the baseline", it makes sense to use that evidence to borrow from a traditional bank. If you are undertaking a risky business move, the bank will not want to lend you the loan, and this model stripe has is going to be the next best thing.

Re: Stripe Capital

#227

Post by buildawesome »

jakelazaroff wrote: post #52
jawns wrote: post #25

The way Stripe Capital has structured repayment of the loan -- fixed fee, dynamic loan term -- is is an interesting way to make it hard to compare against other lenders, which typical express their fees through APRs. The term of the loan is variable, and depends on daily sales, but assuming you have a high volume of sales and take out a small loan, the effective APR is going to be through the roof! For instance, supp…

Isn't this inherent in a fixed fee, though? The faster you pay it off, the higher your effective APR will be. Whereas with a traditional loan your APR is fixed, but you end up owing more money the longer you take to repay it. Seems to me like they're targeting businesses that do not meet your assumption of high sales volume.

They're not not targeting higher sales volumed merchants. It just happens that more lower volume merchants use working capital advances to boost their free cash flow or invest it into something that will net more profit even at the cost of a discount rate.

Re: Stripe Capital

#228

Post by workaway »

meowface wrote: post #176
owens99 wrote: post #150

Earlier quoted context omitted.

It’s a solid response. Not sure if it’s worth pointing out but you are totally fan boying PC and making his response out to be way more than it is.

Regardless of the particular response or the company, it's good to see transparency and lack of bullshit exec speak from C-levels. It might be more common among tech startups, but plenty of non-tech startup founders do it too. I wonder if the correlation might be age, since it seems to me that younger people try to avoid bullshit and seek out authenticity (giving or receiving) moreso than older generations, which wer…

I think most executives could post a coherent and informed response online (with some notable exceptions), but older and more established companies tend to have layers of lawyers and PR specialists in between the CEO and the public.

Re: Stripe Capital

#229

Post by buildawesome »

tschwimmer wrote: post #216

I am shocked that nobody has mentioned adverse selection here. Stripe presumably has some sophistication that allows them to predict the probability of future cashflows. They're not going to lend to companies that are going to 'default' with crappy future revenue. They'll just choose to lend to the 'winners.' It's an interesting twist, because this makes the terms relative to a standard loan worse: PC mentioned that…

Would you lend money to someone who you knew was going to lose you money? Stripe is a business too.

And offering capital is pretty common among many independent credit card processors.

Re: Stripe Capital

#230

Post by buildawesome »

penagwin wrote: post #123
Meekro wrote: post #112

My company was auto-enrolled in the Stripe Capital beta some weeks/months ago (not sure when). I never accepted the money. Here's what they offered: $12,500 advance; $1,250 fixed fee; 3.8% of sales towards repayment. $18,500 advance; $1,850 fixed fee; 5.6% of sales towards repayment. $25,000 advance; $2,500 fixed fee; 7.6% of sales towards repayment. My company grossed $45,600 MRR this August. I love Stripe and swear…

I think you might be on the "high side" of the businesses they're looking to support? 25k seems to be the highest they're offering at all. I'm not really sure what their rates look like for smaller accounts, but I feel like the target audience is one person startups and such, who have some income from their hobby (let's say 1k a month) and want to grow to a full-time job.

I'm guessing it's because they are trying to maximize a 12 month window. In lending, the longer the money is out there, the less money you make on it. At 25K, even though they could qualify for more, Stripes assumption is that they are going to pay it back relatively quickly and be able to lend more after that period.
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