A Tech Giant Closes In on a Pricey Funding Round

A giant start-up takes a hit to raise cash

Stripe, one of Silicon Valley’s biggest private start-ups, plans to raise roughly $2.5 billion, led by Josh Kushner’s Thrive Capital, DealBook’s Lauren Hirsch and Maureen Farrell report in The Times. The investment would give Stripe financial breathing room at a time when start-ups are struggling to raise money.

But the deal would come at a cost: It will value Stripe, which reportedly lost money last year, at $55 billion to $60 billion, down sharply from just a few years ago. It’s perhaps the biggest sign yet that start-ups will have to accept some trade-offs to raise money while the I.P.O. markets remain largely shut.

Stripe has fallen from the $95 billion it was valued at in 2021, as part of a $600 million fund-raising round. Then, the company — whose payment processing technology is used by customers including Amazon and Peloton — was riding high from the pandemic-driven surge in e-commerce and digital services, along with an investment boom spurred by near-zero interest rates that led to eye-popping valuations.

But as interest rates have risen and a slowing economy has hurt publicly traded tech companies, Stripe and other start-ups have seen their fortunes fall. The company, which has announced layoffs and cost cuts in recent weeks, has lowered the internal stock price used to calculate stock option grants.

Stripe faced some pressure to raise money soon. The investment led by Thrive, an existing investor, would be used not to fund operations but to pay tax liabilities associated with employee stock grants and, just as importantly, let employees sell their shares — which has grown in importance as the I.P.O. market remains largely inhospitable. (How times have changed: At this time in 2021, seven tech companies had raised about $7 billion via I.P.O.s, according to Dealogic; no tech companies have gone public this year.)

Still, Stripe is exploring whether to go public within the next 12 months: It has hired Goldman Sachs and JPMorgan Chase as advisers, and is considering options like an I.P.O. or a direct listing.

Will others follow Stripe’s example? Not every company is willing to swallow a so-called down-round investment, in which its valuation falls. (Some start-ups are resorting to complicated ways to raise funds while maintaining their lofty valuations, which investors told DealBook could cause headaches later on.)

It’s possible that the markets will open up in the next year, encouraging Stripe and others to pursue stock listings. But start-ups may face a long wait — and turn to valuation-cutting investments to get money in the meantime.

HERE’S WHAT’S HAPPENING

The global economic picture brightens. The eurozone grew 0.1 percent in the fourth quarter, heading off forecasts of a recession; hours earlier, the I.M.F. raised its global economic outlook as the threat of inflation eased. One prominent outlier: Britain, which the I.M.F. expects to enter a recession this year.

The Biden administration will let the Covid public health emergency end. The move, set for May 11, will lead to sweeping policy changes, including new charges for coronavirus vaccinations and treatments. But many U.S. businesses have long since ended the measures they took during the height of the pandemic, including mandatory testing.

Twitter reportedly makes an interest payment on its buyout-related debt. The payment, said to be around $300 million, was due last week, according to Bloomberg. Tech watchers had wondered whether Elon Musk — who has directed Twitter to stop paying rent on some property as he cut costs — would refuse to pay the interest as well.

The U.S. considers a total ban on exports to Huawei. The Biden administration is reportedly discussing halting licenses for any American technology to be supplied to the Chinese telecom giant, which officials accuse of aiding Beijing’s spying efforts. Experts say that such a move would be the most draconian action against the company yet.

A search for a missing radioactive capsule in Australia intensifies. The Australian government has dispatched more personnel to help find a radiation source less than half an inch across, which fell off a truck convoy during a more than 800-mile journey to Perth from a Rio Tinto mine. The authorities have warned people to stay well away from the capsule, which could cause severe radiation burns.

Adani wins a reprieve from investors

Asia’s richest man, the Indian industrialist Gautam Adani, pulled off a $2.5 billion share offer this morning for his listed flagship business, Adani Enterprises, defying a short-seller attack by Hindenburg Research that has rocked his empire and drastically cut his personal fortune in the past week.

Bidding went down to the wire, as a clutch of anchor investors including Goldman Sachs, Jupiter Asset Management and Abu Dhabi’s International Holding Company agreed to buy into the follow-on public offer, India’s biggest ever.

The offer was oversubscribed, as of market close in Mumbai, earning Mr. Adani a vote of confidence as he seeks to expand the shareholder base. The billionaire, who has close ties to India’s prime minister, Narendra Modi, has big ambitions toexpand the company’s sprawling businesses in energy, e-commerce, media and cement.

Hindenburg’s attack has inflicted damage. Shares in Adani Enterprises closed at 2,948 rupees on Tuesday, or $36.14, about 5 percent underneath the offer’s price range, suggesting participants overpaid.

Adani Enterprises’ share price is down roughly 14 percent in the past week, since Hindenburg accused its parent group and Mr. Adani himself of stock price manipulation and running the “largest con in corporate history.”

Hindenburg is shorting the Adani companies through U.S.-traded bonds and non-Indian-traded derivative instruments. The Adani Group has called Hindenburg’s report baseless, and an “attack on India.”

Adani’s other listed businesses have suffered a big blow. Shares in Adani Green Energy have fallen by roughly 37 percent and in Adani Total Gas by nearly 46 percent since Hindenburg released its report last week, wiping tens of billions off the companies’ market values. Investors will be watching to see if the firms rebound now that anxieties about the follow-on offer are no longer hanging over the stocks.

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Some borrowed time for Rent the Runway

The fashion rental company Rent the Runway has struck a deal to restructure its debt, a sign of how once highly valued start-ups are looking to buy breathing space as they come under increasing pressure from investors to become profitable.

The company has agreed with Temasek, the Singapore state-backed investment group, to push back the deadline for repaying $274.6 million by two years to October 2026, The Times’s Jordyn Holman writes for DealBook.

Rent the Runway has had a rough time after going public. It stock has plummeted 77 percent since its initial public offering in October 2021, as the Covid pandemic disrupted the occasions for which consumers would typically borrow luxury clothing.

The company laid off a quarter of its work force and made other structural changes in September, generating up to $27 million of cost savings, as it has tried to adapt to changes in consumer spending and behavior. Before the pandemic, most of its business was women shopping for work clothes, Jennifer Hyman, the C.E.O., told analysts at the time — but hybrid working cut that to just 20 percent.

The restructuring may assuage investors. Analysts have previously flagged the terms of Rent the Runway’s debt as a potential risk, so the company’s backers will probably welcome a deal to shift them. “We now have a much longer period of time to repay, to prove out growth, to prove out free cash flow profitability, which obviously puts the company in an advantageous position to repay it,” Ms. Hyman told DealBook.

But questions hang over the company’s business model. This month, Rent the Runway signed a deal with Amazon to sell new and used clothing on the tech giant’s platform, adding to concerns that it could be shifting from its reusable approach.

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“If you had to make a list of the 10 most important airplanes ever built since the Wright Flyer, the 747 needs to be on that list. It was a quantum leap.”

— Shea Oakley, who runs an aviation history consulting firm, on the significance of Boeing’s jumbo jet, which transformed travel after it was launched in 1969. The company will deliver its last 747 on Tuesday.

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Quiz time, market edition

Risky financial assets have boomed this month. What makes the rally all the more remarkable is that some of 2022’s worst performers are among this year’s best.

Which of the following is the best-performing asset so far this year?

• Bitcoin

• The Nasdaq composite

• The S&P 500 financials sector

• Tesla

The answer is Bitcoin, which was up 37.7 percent in 2023 as of 3 a.m. Eastern. No. 2 is Tesla, up 34.1 percent.

THE SPEED READ

Deals

• Norway’s sovereign wealth fund lost a record $164 billion last year, hurt by the war in Ukraine, inflation and rising interest rates. (Reuters)

• UBS reported better-than-expected earnings, helped by clients abandoning its archrival, Credit Suisse. (FT)

• Goldman Sachs’s head of U.S. loan trading, Adam Berry, is reportedly leaving to become an executive with the Philadelphia Eagles N.F.L. team. (Bloomberg)

• A big shareholder in Ritchie Bros. Auctioneers is supporting the company’s $6 billion deal to buy IAA. (Bloomberg)

Policy

• A federal judge rejected Johnson & Johnson’s plan to put a subsidiary into bankruptcy to shield itself from thousands of lawsuits over its talcum powder products. (NYT)

• Manhattan prosecutors have begun presenting evidence to a grand jury about Donald Trump’s role in paying hush money to the porn actress Stormy Daniels during his 2016 presidential campaign. (NYT)

Best of the rest

• Good news for car buyers: The pandemic used-car boom is coming to a swift end and Ford is slashing the price of its Mustang Mach-E. (NYT)

• Regulators in Australia reportedly surveilled FTX’s operations there months before its collapse, after being alarmed by statements from Sam Bankman-Fried. (Guardian)

• Samsung Electronics reported its worst profit decline in over eight years, hurt by declining smartphone sales. (CNBC)

• Goodbye, Showtime. Hello, Paramount+ With Showtime. (NYT)

• A reminder that before his death after being violently beaten by Memphis police officers, Tyre Nichols was an impressive skateboarder. (NPR)

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