Venture capital firm General Catalyst Partners today announced the creation of a $10 million fund to invest in companies building businesses and applications on the Stripe Connect platform.
General Catalyst is an investor in Stripe, a fast-growing Web and mobile payments provider. According to General Catalyst managing partner Hemant Taneja, the firm set up its fund to capitalize on a rare opportunity. "It's not often that we see the formation of an important new application platform — there are only a few in each decade. Facebook, Google, Apple, Salesforce, Microsoft. ... When it works, it's a massively potent force. In Stripe Connect, we see the potential to build entirely new classes of services that enable businesses to better leverage their payments capabilities and data."
Stripe's rapid rise in the highly competitive payments market is the result of its developer-centric approach. By offering a suite of well-designed and easy-to-integrate APIs, the company has been able to lure business away from incumbents like PayPal. Using the Stripe Connect platform, third parties can build applications that integrate seamlessly with their users' Stripe accounts using OAuth authentication.
"Stripe's intention is to increase the GDP of the Internet by making it easy for new types of commerce to move online," says Stripe co-founder and CEO Patrick Collison. "As online business models diversify, new tools will be needed to run them."
General Catalyst's GC Stripe Platform Fund is targeting investment in seed-stage companies that are building those tools. Specifically, the company is looking for "startups that are building valuable extensions to the Stripe platform and add value to other Stripe users ... and marketplaces or platforms that are built atop Stripe Connect." The fund will typically invest between $250,000 and $500,000 and is open to companies in the United States and abroad. For qualified companies, General Catalyst promises an investment decision within a week of a first meeting.
Rewards and Risks
While General Catalyst isn't the first venture firm to set up a fund like this, it's far more typical to see platform companies themselves create such funds. Salesforce.com, for instance, recently launched a $100 million fund to invest in companies building apps for its Salesforce1 platform.
What's particularly interesting about the GC Stripe Platform Fund is that Stripe, as a platform, is not a distribution channel like, say, Facebook. Or is it?
Take Baremetrics, the GC Stripe Platform Fund's first portfolio company. It's a software-as-a-service analytics platform for Stripe customers. The company could have built a payment-processor-agnostic SaaS analytics service, but by focusing exclusively on SaaS businesses using Stripe for payments, Baremetrics carved out a niche that one might argue has been key to its early success. Had the company not focused on Stripe, it simply may have found it more difficult to stand out.
The big question, of course, is whether upstarts can thrive long term by building an entire business on the Stripe platform. Right now, Stripe seems content to let companies like Baremetrics serve its customers, and Stripe investors like General Catalyst are willing to help fund the growth of the Stripe ecosystem.
If all goes well, companies like Baremetrics might be rewarded with a favored place in the Stripe ecosystem, or possibly even an acquisition. But as we have seen, symbiotic developer relationships can become contentious as platform providers grow and evolve their business models, so today's proposition isn't without some risk.