Isn't valuation is based on not only current revenue and business model but also forecasts and potential?
Square has a bit of a different opportunity than BrainTree as they are focusing on simplifying a real-world payments platform vs online and mobile payments. There seems to be less competition and a larger market for Square vs. Braintree I think.
Valuation is based on growth and expected future profit more than current revenue or processing volume. If two companies both process $10bn, but one makes 3% and is growing 25% YoY while the other makes 1% and is growing 5%, they should have radically different valuations.
Square probably has better gross margins than Braintree because they target a different market: small businesses.
The value Square adds to that market is much more substantial: free POS system, mobile wallet app, promotion in their marketplace, Jack Dorsey's autographed photo, etc.
Braintree (and Stripe) target ecommerce startups. Their value-add is streamlined APIs and tailored customer service. That value-add is nice but relatively smaller and less scalable to boot. As soon as those sites get big they will negotiate for lower rates they can get from a commodity processor. No doubt the big customers in their portfolio already have and we just don't know it.
Square's got a whole world of small business to expand into, a much larger market than ecommerce startups. And their margins are more sustainable; it takes an awful lot of growth for a merchant to justify switching out all their POS systems and other Square lock-in, just to shave a few basis points off their processing rate.
Bad:
Paypal as a potential suitor will make some existing and potential customers very nervous and that won't be good for customer acquisition. Other potential suitors may see other heavyweights passing on the deal as a negative.
Good:
The attention may increase the pool of suitors.
Exactly. We process over $1M a year with Braintree (that's why I posted this article). In my opinion, PayPal is the worst possible scenario short of Braintree shutting down.
The thought of forcing thousands of customers to re-enter billing information makes me throw up in my mouth a little.
Nothing would be required of customers. They'd migrate the data over to Paypal's setup in such a scenario. Card data is stored with a symmetric encryption algorithm (e.g. reversible), so this type of thing could happen fairly easily.
Contact Braintree if you're concerned. There are processes in place where they can transfer payment information (including credit cards stored for recurring billing purposes) to another payment gateway.
I would agree with the "bad" assessment. If I had accounts at BrainTree, I would be very worried about PayPal as a suitor. Ostensibly a fair percentage elected to use BrainTree because there were Not PayPal. I presently steer clients away from PayPal, and had previously recommended BrainTree. This casts doubt on that going forward.
“Without outside capital, we have to make do with less ... Constraints are a beautiful thing because they force creativity and precision. We don’t have the resources to throw after hit-or-miss hires or strategies. Bootstrapping a business requires a different mentality. It’s taught us to be frugal, hire slowly, and exercise caution as we grew the business. While companies that take funding can do those things, people have a tendency to behave differently when it’s not their money on the line.”
I'm the former CTO of Braintree and one of the founding employees. I was there when Bryan Johnson hired Bill Ready as CEO and decided to move to Chairman. The authors of the TechCrunch article were either misinformed or speculating when they said that Bryan "lost his position" and that Bill joining was a "decision made by Accel." Bryan made the decision to hire Bill and move into the Chairman role without pressure from anyone.
This acquisition culture is almost always bad for customers. Imagine what PayPal would do to Braintree if they acquired them. PayPal can't even manage their own risk without pissing customers off. I can only imagine they'd slowly turn Braintree into a braindead company that's nothing but a shell of its former self.
I sincerely hope Braintree finds a way to keep its independence and continues standing on its own. We need a degree of competition and fragmentation in all industries so these companies keep up the pace of innovation.
Every time I hear of a company being acquired, it feels like it's only a matter of time before the company is gutted or killed. It seems rare that everyone has their happy ending when it comes to acquisitions.
Without the acquisition culture, many of these companies would never exist or be able to raise the funds to grow to the point where they could have so many happy customers in the first place.
Anyone building a card processing business is going to have trouble finding long-term cash flow because the margins are razor thin. For example, Visa processed $6.7 trillion in transactions and made $10.4bn in revenue.
I'd rather do business with someone like Balanced, who has a larger product vision than "well paypal sucks".
Ha, wouldn't we all :) My point is only that it's damn hard to get to that number, and if you're a startup who's raised many rounds of capital, after a few years of grinding an acquisition by a company like paypal (read: ebay) starts to look like a nice option.
To put that Visa number into perspective, according to various reports Square did $15bn in transaction volume last year. So, if you use the same ratio of transaction volume to revenue (0.16%) that would put Square's revenue at $23.2mln. For what it's worth, that's probably a generous ratio, as companies like Square and Braintree are all use Chase payments tech as their processor, which itself has to pay out to Visa and other processors. So these firms' margins are likely much lower than Visa's.
As either a customer or a partner of one of these companies, I'd prefer doing business with a company that's building a base that doesn't essentially require acquisition if they can't grow to Visa's size.
My apologies, I mis-quoted the annual number, which is about $10.4 bln, which is still only about .16%.
Still, your question, "Who gets the other 1.95% of that?", is valid. My guess: the card issuers themselves, who operate the networks (Visa, MC, Amex, Discover). Throw a little on top for Chase PaymentTech and the like.
Not sure that's a good comparison. They are basically a merchant account as a service. Retail rate is 2.9% + $0.30. Businesses with strong transaction history and good volumes can get much lower than that from the traditional providers.
The merchant account business has higher numbers than Visa processing business.
The percentage that Visa charges should be much lower than what Stripe / Braintree charge. Visa can afford to stay in business at a fraction of a percent because they make it up in Volume.
Balanced, Stripe, Braintree, and a host of other companies are trying to build a great payments platform. What makes Balanced any different from the others in this case? Isn't Balanced also based on the premise that "well paypal sucks"?
Balanced's mission is to increase the global economy by enabling new commerce. Our current mechanism to do that is with payments [1].
So we don't actually want to build a processing company, per se, but we're finding that's the best way to accomplish our mission right now.
At some point, it's likely that we'll have to make changes to our mechanism, but until then we feel building the world's first open source payments infrastructure company [2] is a great way to accomplish our goal.
I don't see how Braintree and Square are interchangeable for anything other than physical point-of-sales use cases ... which doesn't seem like Braintree's sweet spot
Ah I thinking Stripe because Stripe is the credit card processing API, Square is the Point of Sale dongle for your mobile device. I don't if switching from PayPal or Braintree to Square would even work :)
Looking at the numbers and making some estimates...
$10 billion in transactions probably turns into about 1% in fees, so we'll say revenue is about $100 million. Being generous, let's say they are running on a 30% margin. That would put profits around $30 million a year.
That's pretty good, but when you look at that number it would be a 10 year payback period at $300 million. At $1 billion, that is a 30 year payback period.
Given the $69 million in outside funding, I'm sure they are pushing for a 10x return, so $690 is probably the ballpark of the asking price. They are probably asking for $1 billion in hopes of a counter around $750 million.
If I were a company looking to acquire a merchant services provider, I would look at the cost of acquiring that $10 billion a year in transaction volume. Is it less than $1 billion? Probably. That is probably why MasterCard built this: https://www.simplify.com/commerce/ instead of dropping $1 billion to buy stripe or Braintree.
If you didn't have a big strategic need, the right price for Braintree is probably more like $200-300 million. Braintree won't sell at that valuation because they have raised too much money and it wouldn't be a big enough return.
I could see PayPal buying Braintree, just for some of the more developer focused company culture, but I don't see why Square would buy them.
My guess is Square and Stripe end up merging at some point. It almost feels inevitable.
I have also thought that square and stripe could merge but I think both companies have enough potential upside on their own to keep forging ahead without it.
I think it's relevant to point out the former CTO explicitly stated earlier today in the thread that the founder wasn't kicked out:
"I'm the former CTO of Braintree and one of the founding employees. I was there when Bryan Johnson hired Bill Ready as CEO and decided to move to Chairman. The authors of the TechCrunch article were either misinformed or speculating when they said that Bryan "lost his position" and that Bill joining was a "decision made by Accel." Bryan made the decision to hire Bill and move into the Chairman role without pressure from anyone."
That may very well be true - if he wants the company sold, why not, especially if he wants to avoid getting tied into working for an acquiring company for years.
That said, I've also been involved in a company (as co-founder) where finding C-level execs to parade around to state that the CEO (one of my co-founders) left voluntarily would be easy enough.
Most of them wouldn't know differently either, not having been privy to the conference calls where the investors made it clear they'd find an excuse to fire him for cause and tie him up in court over his shares for the next few years if he didn't "volunteer" to take 6 months pay, put on a brave face and leave. What most of them saw was the show my co-founder put on to get the best deal possible and leave gracefully.
I'll hasten to add that I don't know this guy, so for what I know he was in the room for every conversation Bryan Johnson had with the investors at Braintree or otherwise actually did have the inside track. Just pointing out that it's also easy to think you have the inside track on these types of things without having a clue about what actually went on.
Second this. There can be many layers of understanding to things like this and it is all too easy to think you were an eyewitness to a real life event when in fact you were just watching a well-choreographed ballet.
It's pretty selfish of me, but I hope that Square and Stripe stay separate because I think they both keep their competitors, er... competitive, and honest. Both companies are a pleasure to work with, so I have a[n irrational?] fear that they'll become less customer focused by merging and becoming a large force in the payment arena.
Braintree has a major advantage over Stripe: their terms of service. Did you actually read through all the prohibited businesses[1] in Stripe's ToS? Most of them are common-sense bad, but some of the descriptions are very general, and there are 56 of them.
Are you sure your business isn't providing "personal computer technical support"? Offering any "extended warranties" with goods your business is selling? Maintaining "quasi-cash or stored value"? Or maybe one your web site's users posted "sexually-oriented or pornographic products or services"? Stripe prohibits accepting payments "in connection" with those things.
Yes I did, I wasted time with braintree who didnt accept my hosting business (7 year company is high risk apparently) while stripe has no problems
actually looking at that list all card processors prohibit whats on that list, for example 2co one is very similar, and i doubt braintree would allow anything on it either
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[ 0.22 ms ] story [ 92.9 ms ] thread> According to industry sources, Braintree has been asking for $1 billion, which seems unrealistic.
It would seem that other suitors are trying to pressure Braintree to lower their target
How is Square valued at $4b and BrainTree can't sell for $1b?
Square has a bit of a different opportunity than BrainTree as they are focusing on simplifying a real-world payments platform vs online and mobile payments. There seems to be less competition and a larger market for Square vs. Braintree I think.
The value Square adds to that market is much more substantial: free POS system, mobile wallet app, promotion in their marketplace, Jack Dorsey's autographed photo, etc.
Braintree (and Stripe) target ecommerce startups. Their value-add is streamlined APIs and tailored customer service. That value-add is nice but relatively smaller and less scalable to boot. As soon as those sites get big they will negotiate for lower rates they can get from a commodity processor. No doubt the big customers in their portfolio already have and we just don't know it.
Square's got a whole world of small business to expand into, a much larger market than ecommerce startups. And their margins are more sustainable; it takes an awful lot of growth for a merchant to justify switching out all their POS systems and other Square lock-in, just to shave a few basis points off their processing rate.
Bad: Paypal as a potential suitor will make some existing and potential customers very nervous and that won't be good for customer acquisition. Other potential suitors may see other heavyweights passing on the deal as a negative.
Good: The attention may increase the pool of suitors.
The thought of forcing thousands of customers to re-enter billing information makes me throw up in my mouth a little.
This would be similar to Oracle acquiring MySQL.
“Without outside capital, we have to make do with less ... Constraints are a beautiful thing because they force creativity and precision. We don’t have the resources to throw after hit-or-miss hires or strategies. Bootstrapping a business requires a different mentality. It’s taught us to be frugal, hire slowly, and exercise caution as we grew the business. While companies that take funding can do those things, people have a tendency to behave differently when it’s not their money on the line.”
This was about 1 year before they raised a massive round from NEA/Accel. From "Bootstrapped, profitable, and proud" on 37signals blog: http://37signals.com/svn/posts/2800-bootstrapped-profitable-...
I sincerely hope Braintree finds a way to keep its independence and continues standing on its own. We need a degree of competition and fragmentation in all industries so these companies keep up the pace of innovation.
Every time I hear of a company being acquired, it feels like it's only a matter of time before the company is gutted or killed. It seems rare that everyone has their happy ending when it comes to acquisitions.
I'd rather do business with someone like Balanced, who has a larger product vision than "well paypal sucks".
I don't care how thin the margins are, I'd love to have $3B of revenue.
To put that Visa number into perspective, according to various reports Square did $15bn in transaction volume last year. So, if you use the same ratio of transaction volume to revenue (0.16%) that would put Square's revenue at $23.2mln. For what it's worth, that's probably a generous ratio, as companies like Square and Braintree are all use Chase payments tech as their processor, which itself has to pay out to Visa and other processors. So these firms' margins are likely much lower than Visa's.
As either a customer or a partner of one of these companies, I'd prefer doing business with a company that's building a base that doesn't essentially require acquisition if they can't grow to Visa's size.
Though all I know is the headline rates quoted for most common processors where <2% seems very aggressive. Who gets the other 1.95% of that?
Still, your question, "Who gets the other 1.95% of that?", is valid. My guess: the card issuers themselves, who operate the networks (Visa, MC, Amex, Discover). Throw a little on top for Chase PaymentTech and the like.
The merchant account business has higher numbers than Visa processing business.
Balanced's mission is to increase the global economy by enabling new commerce. Our current mechanism to do that is with payments [1].
So we don't actually want to build a processing company, per se, but we're finding that's the best way to accomplish our mission right now.
At some point, it's likely that we'll have to make changes to our mechanism, but until then we feel building the world's first open source payments infrastructure company [2] is a great way to accomplish our goal.
[1] https://www.balancedpayments.com/about [2] http://www.fastcolabs.com/3008944/open-company/why-i-made-my...
if paypal acquires them, we'd probably switch to square.
I don't see how Braintree and Square are interchangeable for anything other than physical point-of-sales use cases ... which doesn't seem like Braintree's sweet spot
$10 billion in transactions probably turns into about 1% in fees, so we'll say revenue is about $100 million. Being generous, let's say they are running on a 30% margin. That would put profits around $30 million a year.
That's pretty good, but when you look at that number it would be a 10 year payback period at $300 million. At $1 billion, that is a 30 year payback period.
Given the $69 million in outside funding, I'm sure they are pushing for a 10x return, so $690 is probably the ballpark of the asking price. They are probably asking for $1 billion in hopes of a counter around $750 million.
If I were a company looking to acquire a merchant services provider, I would look at the cost of acquiring that $10 billion a year in transaction volume. Is it less than $1 billion? Probably. That is probably why MasterCard built this: https://www.simplify.com/commerce/ instead of dropping $1 billion to buy stripe or Braintree.
If you didn't have a big strategic need, the right price for Braintree is probably more like $200-300 million. Braintree won't sell at that valuation because they have raised too much money and it wouldn't be a big enough return.
I could see PayPal buying Braintree, just for some of the more developer focused company culture, but I don't see why Square would buy them.
My guess is Square and Stripe end up merging at some point. It almost feels inevitable.
"I'm the former CTO of Braintree and one of the founding employees. I was there when Bryan Johnson hired Bill Ready as CEO and decided to move to Chairman. The authors of the TechCrunch article were either misinformed or speculating when they said that Bryan "lost his position" and that Bill joining was a "decision made by Accel." Bryan made the decision to hire Bill and move into the Chairman role without pressure from anyone."
https://news.ycombinator.com/item?id=6338053
That said, I've also been involved in a company (as co-founder) where finding C-level execs to parade around to state that the CEO (one of my co-founders) left voluntarily would be easy enough.
Most of them wouldn't know differently either, not having been privy to the conference calls where the investors made it clear they'd find an excuse to fire him for cause and tie him up in court over his shares for the next few years if he didn't "volunteer" to take 6 months pay, put on a brave face and leave. What most of them saw was the show my co-founder put on to get the best deal possible and leave gracefully.
I'll hasten to add that I don't know this guy, so for what I know he was in the room for every conversation Bryan Johnson had with the investors at Braintree or otherwise actually did have the inside track. Just pointing out that it's also easy to think you have the inside track on these types of things without having a clue about what actually went on.
Braintree's business is not worth anything, they are neither innovative nor streamlined nor work as well as Stripe
Are you sure your business isn't providing "personal computer technical support"? Offering any "extended warranties" with goods your business is selling? Maintaining "quasi-cash or stored value"? Or maybe one your web site's users posted "sexually-oriented or pornographic products or services"? Stripe prohibits accepting payments "in connection" with those things.
[1] https://stripe.com/us/terms#prohibited-businesses
actually looking at that list all card processors prohibit whats on that list, for example 2co one is very similar, and i doubt braintree would allow anything on it either