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http://blogs.wsj.com/digits/2014/10/06/square-raises-150-millio
Square Inc. has raised $150 million from a foreign investor as the mobile-
payment startup seeks to fend off growing threats from Apple Inc., Amazon.
com Inc. and eBay Inc.’s PayPal division.
The investment arm of the government of Singapore led the new round of
funding, which valued Square at $6 billion, according to a person familiar
with the deal. Previous investors Goldman Sachs Group Inc. and Rizvi
Traverse Management also participated in the funding, the person said.
The cash extends the lifeline for Square, which has already burned through
hundreds of millions of dollars in venture funding as it struggles to turn a
profit from its credit-card reading devices for smartphones.
In recent years, as losses have widened, Square has sought to expand beyond
payments to new areas, such as food delivery, and held talks about a
possible sale to deep-pocketed acquirers including Apple, EBay and Google
Inc., people familiar with the matter told the Wall Street Journal in April.
The company recorded a loss of roughly $100 million in 2013, broader than
its loss in 2012, people familiar with the matter have said.
At $6 billion, investors are valuing Square at slightly more than earlier
this year, when insiders sold shares on the secondary market valuing the
company at close to $5.2 billion, a person familiar with the matter said.
But the unlikely source of the new capital – the Government of Singapore
Investment Corporation – suggests the company struggled to attract top tech
investors at the higher price.
“Some of the marquee investors are beginning to become a bit hesitant as it
relates to Square’s future,” Jordan McKee, a senior analyst at Boston-
based 451 Research.
A spokesman for Square confirmed that the company closed a Series E round of
financing with new and existing investors, but declined to provide further
detail. The New York Times earlier reported that Square had raised the
funding.
Square has now raised roughly $500 million from a large group of investors,
not including the more than $100 million credit line it secured from banks
earlier this year.
Square’s fundraising comes on the heels of Apple announcing its own
ambitious new foray in digital payments. Apple Pay will let shoppers pay for
goods using their smartphones and a technology known as near-field
communication, or NFC, potentially replacing the need for plastic credit
cards.
Over time, that could pose a threat to Square, which relies on credit-card
transactions for the bulk of its revenue. Square’s credit-card readers are
used by nearly one million merchants, who attach them to their smartphones
or tablets, allowing them to accept credit or debit-card payments anywhere.
Last year, the startup processed more than $20 billion in transactions,
yielding revenue of about $550 million, people familiar with the company’s
performance said earlier this year.
While Apple is not the first tech company to attempt mobile payments with
NFC chips, its massive base of smartphone owners and long list of
partnerships with banks and credit card issuers could make it the first such
system to be adopted on a mainstream scale. NFC readers are being used by
fewer than 10% of merchants, according to Gartner analyst Mark Hung.
Even Keith Rabois, the former Square operating chief who at a tech
conference in 2011 dismissed NFC as more a subject of “cocktail chatter”
than a realistic alternative to credit cards, said the simplicity of Apple
Pay could make it a success.
“Apple Pay addressees many of the historical deficiencies with NFC,” Mr.
Rabois, who is now a partner at Khosla Ventures, said in an email. “Apple
Pay has potential versus every other NFC scheme historically.”
Square could also face more competition from PayPal as the online payment
leader splits from eBay and becomes an independent, publicly-traded business
. PayPal, which has challenged Square directly with its own credit-card
reading devices, will be freed up to do more acquisitions and could lean on
the business connections of its next leader, American Express veteran Daniel
Schulman, to accelerate a push into brick-and-mortar stores.
Amazon in August unveiled its own mobile-payment service and smartphone-
compatible credit-card reader that takes direct aim at Square, by targeting
mom-and-pop shops and food trucks. The service, called Local Register,
offers an initial 1.75% fee, a full percentage point below Square’s, a
meaningful difference for small retailers.
Amazon, like Square, is seeking to mine data and pull in new revenue from
consumers’ spending in physical stores, where more than 90% of commerce is
still conducted today.
It’s unclear how much time the new round of funding buys Square before it
runs out of cash. During the first quarter of 2014, a Square executive told
a potential acquirer that the company had nine months before it would hit a
predetermined “cushion” of funds set aside as a last resort, a person with
knowledge of the conversation has said.
If the startup fails to find a clear path to profitability, it could once
again attract the interest of potential buyers like PayPal, Mr. McKee said.
“I think they are increasing becoming an attractive acquisition target,”
Mr. McKee said. “Square has a really nice story to tell as it relates to
what PayPal is trying to do in payments.”
Square Inc. has raised $150 million from a foreign investor as the mobile-
payment startup seeks to fend off growing threats from Apple Inc., Amazon.
com Inc. and eBay Inc.’s PayPal division.
The investment arm of the government of Singapore led the new round of
funding, which valued Square at $6 billion, according to a person familiar
with the deal. Previous investors Goldman Sachs Group Inc. and Rizvi
Traverse Management also participated in the funding, the person said.
The cash extends the lifeline for Square, which has already burned through
hundreds of millions of dollars in venture funding as it struggles to turn a
profit from its credit-card reading devices for smartphones.
In recent years, as losses have widened, Square has sought to expand beyond
payments to new areas, such as food delivery, and held talks about a
possible sale to deep-pocketed acquirers including Apple, EBay and Google
Inc., people familiar with the matter told the Wall Street Journal in April.
The company recorded a loss of roughly $100 million in 2013, broader than
its loss in 2012, people familiar with the matter have said.
At $6 billion, investors are valuing Square at slightly more than earlier
this year, when insiders sold shares on the secondary market valuing the
company at close to $5.2 billion, a person familiar with the matter said.
But the unlikely source of the new capital – the Government of Singapore
Investment Corporation – suggests the company struggled to attract top tech
investors at the higher price.
“Some of the marquee investors are beginning to become a bit hesitant as it
relates to Square’s future,” Jordan McKee, a senior analyst at Boston-
based 451 Research.
A spokesman for Square confirmed that the company closed a Series E round of
financing with new and existing investors, but declined to provide further
detail. The New York Times earlier reported that Square had raised the
funding.
Square has now raised roughly $500 million from a large group of investors,
not including the more than $100 million credit line it secured from banks
earlier this year.
Square’s fundraising comes on the heels of Apple announcing its own
ambitious new foray in digital payments. Apple Pay will let shoppers pay for
goods using their smartphones and a technology known as near-field
communication, or NFC, potentially replacing the need for plastic credit
cards.
Over time, that could pose a threat to Square, which relies on credit-card
transactions for the bulk of its revenue. Square’s credit-card readers are
used by nearly one million merchants, who attach them to their smartphones
or tablets, allowing them to accept credit or debit-card payments anywhere.
Last year, the startup processed more than $20 billion in transactions,
yielding revenue of about $550 million, people familiar with the company’s
performance said earlier this year.
While Apple is not the first tech company to attempt mobile payments with
NFC chips, its massive base of smartphone owners and long list of
partnerships with banks and credit card issuers could make it the first such
system to be adopted on a mainstream scale. NFC readers are being used by
fewer than 10% of merchants, according to Gartner analyst Mark Hung.
Even Keith Rabois, the former Square operating chief who at a tech
conference in 2011 dismissed NFC as more a subject of “cocktail chatter”
than a realistic alternative to credit cards, said the simplicity of Apple
Pay could make it a success.
“Apple Pay addressees many of the historical deficiencies with NFC,” Mr.
Rabois, who is now a partner at Khosla Ventures, said in an email. “Apple
Pay has potential versus every other NFC scheme historically.”
Square could also face more competition from PayPal as the online payment
leader splits from eBay and becomes an independent, publicly-traded business
. PayPal, which has challenged Square directly with its own credit-card
reading devices, will be freed up to do more acquisitions and could lean on
the business connections of its next leader, American Express veteran Daniel
Schulman, to accelerate a push into brick-and-mortar stores.
Amazon in August unveiled its own mobile-payment service and smartphone-
compatible credit-card reader that takes direct aim at Square, by targeting
mom-and-pop shops and food trucks. The service, called Local Register,
offers an initial 1.75% fee, a full percentage point below Square’s, a
meaningful difference for small retailers.
Amazon, like Square, is seeking to mine data and pull in new revenue from
consumers’ spending in physical stores, where more than 90% of commerce is
still conducted today.
It’s unclear how much time the new round of funding buys Square before it
runs out of cash. During the first quarter of 2014, a Square executive told
a potential acquirer that the company had nine months before it would hit a
predetermined “cushion” of funds set aside as a last resort, a person with
knowledge of the conversation has said.
If the startup fails to find a clear path to profitability, it could once
again attract the interest of potential buyers like PayPal, Mr. McKee said.
“I think they are increasing becoming an attractive acquisition target,”
Mr. McKee said. “Square has a really nice story to tell as it relates to
what PayPal is trying to do in payments.”
