Why Paydiant is selling to PayPal

PayPal today announced that it has agreed to purchase Paydiant, an East Coast startup that provides white-label mobile payment systems for such retailers and banks as Wal-Mart (WMT), Subway and Capital One (COF).

No financial terms were disclosed, but Fortune has learned the sale price was around $300 million ($285m of equity, and $15m in founder earnouts). This represents a nice return for the venture capital firms that pumped nearly $35 million into Paydiant over the past four years, given that the post-money valuation on its Series B and Series C rounds were $55 million and $117 million, respectively.

For PayPal, which is in the process of spinning off from eBay (EBAY), this move makes total sense. The company has struggled to create mobile payment solutions for physical retailers and banks, at the same time that later-arriving rivals like Apple (AAPL) and Google (GOOG) have gained traction. The better question, however, is why Paydiant would sell out just as its industry is beginning to garner mainstream attention.

Here is the explanation from Jim Moran, a venture capitalist whose firm, North Bridge, originally funded and incubated Paydiant:

“The reality is that mobile payments is still a zero billion dollar industry. While we had very big contracts with some very big merchants, the actual dollar values and volumes were just kicking in. And then you have what Apple is doing, which shined a big light on what we were doing but it caused a lot of boards to stutter-step on mobile payments. Apple’s solution is very simple and requires NFC-capable point-of-sale systems which aren’t very common yet, but they do have hundreds of millions of loyal customers and great phone. Plus, they’re Apple and they could buy a small country.

So we mapped the capital requirements against time and projected volume — which equates the the revenue register ringing for us — and we felt the partnership with PayPal made a lot of sense. Particularly since its incoming CEO, Dan Schulman, knew us from his time at American Express (AMEX) and that our platform is industrial strength. He wants this to become a very big division of PayPal, and the [Paydiant] team was all on board… When a team tells you it’s time, it’s not my place to say it isn’t.”

In addition to North Bridge, Paydiant backers included General Catalyst, Stage 1 Ventures, Sands Capital Ventures and West Capital Management.

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