The archive · Money & Fintech · Financial decision · 2014
Square's $150M GIC-led round at $6B funded its bet on independent merchants over Apple Pay
Square, six years in, closed a $150M round at a $6B valuation as Apple Pay, PayPal and Amazon all moved into card payments.
Square
What the business is
Square sells card readers and payment processing to small and medium businesses at 2.75% per transaction, and around that core has built Square Capital cash advances, Caviar food delivery for restaurants and a monthly-fee appointment-booking service.
Starting capital：A $150m venture round at a $6b valuation, led by GIC, closed in early October 2014; a September 12 filing had disclosed plans to raise at least $100m at the same valuation.
How it started
Square spent its first six years giving free card readers to small and medium businesses and taking 2.75% of each transaction; the small square dongle became especially popular with merchants that had conducted mostly all-cash operations. In May 2014 it introduced Square Capital, a cash-advance program for small businesses, had acquired and continued to run Caviar, a food-delivery service for restaurants that do not otherwise offer it, and offered an appointment-booking service for a monthly fee.
What happened
In the months before the round the payments industry convulsed: Apple introduced Apple Pay along with the iPhone 6 and 6 Plus, eBay said it would spin off PayPal, and Amazon introduced its own card reader with lower processing fees. A September filing disclosed Square planned to raise at least $100m at a $6b valuation. In early October Square closed a $150m round at that valuation, led by new investor GIC with earlier investors Goldman Sachs and Rizvi Traverse also participating; a Square spokesman confirmed only that a round had closed, saying the company stands for independent businesses and will continue to invest aggressively in tools that help them grow.
How it ended up
As of the October 5 report the round had closed and Square was still running Square Capital, Caviar and appointment booking; it planned a new EMV-chip-compatible card reader and said it would accept Apple Pay, betting its tools and transaction volume could grow as mobile payments took off.
Background
Square spent its first six years giving away square-shaped credit card readers to small and medium businesses, asking for 2.75% of each transaction; the free dongle became especially popular with merchants that had conducted mostly all-cash operations. Around that core it built Square Capital, a cash-advance program for small businesses introduced in May 2014, acquired and ran Caviar, a food-delivery service for restaurants, and offered appointment booking for a monthly fee.
The competitive field changed fast in late 2014: Apple introduced Apple Pay with the iPhone 6 and 6 Plus, eBay announced it would spin off PayPal, and Amazon introduced its own card reader with a lower processing fee. A September filing disclosed that Square planned to raise at least $100m at a $6b valuation. In early October the company closed a $150m round at that valuation, led by new investor GIC, with earlier investors Goldman Sachs and Rizvi Traverse participating; Square's spokesman confirmed a round had closed but would not comment on the amount or valuation.
Square said it stands for independent businesses and would invest aggressively in tools that help them grow. It was also preparing an EMV-chip-compatible card reader and planned to accept Apple Pay, hoping the new payment form would increase transaction volume. The $6b valuation put Square in the company of Pinterest and Spotify at a moment when Apple, PayPal and Amazon all had far more money to back their competing efforts.
What has to be true
- Square's wedge was merchants the giants did not serve well - small and mostly cash-only businesses - and the free dongle at 2.75% brought them onto electronic payments.
- Diversifying into lending, delivery and bookings turned each swipe into a relationship Apple, PayPal and Amazon would find hard to replicate.
- The round was raised while private-market valuations were still high, letting Square stockpile capital for aggressive investment just as three better-funded giants entered.
- Accepting Apple Pay rather than only fighting it hedged Square's dependence on its own hardware as the industry moved toward chip cards and mobile wallets.
- GIC, a new investor, led the round - evidence the growth story still sold to sophisticated outsiders despite the intensifying competition.
What can be applied
When better-funded giants enter your market, a startup can still win by out-building for the segment they ignore - independent merchants - and a big private round is the fuel.
Aftermath
As of 2014-10-06 Square had closed a $150m round at a $6b valuation, led by GIC with earlier investors Goldman Sachs and Rizvi Traverse participating; the company itself confirmed only that financing had closed. It continued running its payments business, Square Capital, Caviar and appointment booking, and was preparing an EMV chip reader and Apple Pay acceptance as it invested aggressively in tools for independent businesses.
Sources
- Square Raises $150 Million at a $6 Billion Valuation
- Square to Raise $100 Million at a $6 Billion Valuation
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