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The mega IPOs are shooting out of the gates again.
One big takeaway from the filing: Canadian e-commerce titan Shopify could stand to gain handsomely from the IPO. Shopify is listed as a party that owns over 5% of the business founded by PayPal co-founder Max Levichin.
In fact, Shopify could be set to become the company’s third-largest investor, leapfrogging venture firms including Khosla Ventures, Founders Fund, and Lightspeed Venture Partners, each of which hold a hefty stake in Affirm and have invested in the company far longer, according to the S-1. Also, Shopify will pay very, very little for its shares.
I wondered a month ago how pandemic winners like Zoom or Shopify could use their lofty stock valuations to snap up or invest in other companies. But in this case, Shopify didn’t use its stock price or balance sheets—no, the company leveraged its massive network of merchants to ink out a deal with Affirm.
As part of a July agreement, Shopify will offer Affirm as a payment option on its platform, and also receive warrants to buy about 20.3 million in shares for a nominal penny a share. (Or as tech Twitter likes to call such agreements, free shares!) Shopify has already exercised a quarter of those warrants, while the rest is set to convert upon the IPO.
The TL;DR? In aggregate, Shopify’s 20.3 million in shares will be half-Class A and half-Class B—which also gives it that rare thing called voting power.
The fintech is paying a lot for access to Shopify’s merchants. It also indicates a turning point for Affirm that the company has yet to achieve: The company isn’t trying to simply be an installment plan lender. It wants to replace debit and credit cards for the next generation, not only lending funds to pay for that $2,000 couch or stationary bike, but also facilitating the banal payments. So far, its progress has largely been in the former.
“We have successfully demonstrated how our solutions can enable and accelerate commerce for larger, more considered purchases,” the S-1 read. “A key principle of our next phase of growth is expanding into higher frequency purchases which we believe will position us to increase engagement with consumers and merchants.”
And Affirm believes those higher-frequency purchases can come from Shopify.
“We expect that our commercial agreement with Shopify… will increase the mix of our shorter duration, low average order volume products.”