Original URL: http://www.theregister.co.uk/2011/06/29/square_money/
Square gets $1bn valuation with $100m investment
So hip it has trouble seeing over its pelvis
Square has raised another $100m, giving the payment processor a valuation of $1bn and a new board member in the shape of Mary Meeker, a partner at investor KPCB.
The $100m investment follows $27.5m that was dropped into the business in January, and the original $10m raised on the back of Twitter-founder Jack Dorsey's idea. Based on the investment CNET pegs the value of Square at $1bn, despite the fact that the company has nothing to offer besides ill-fitting and insecure plastic boxes that can be balanced on top of an iPhone to read magnetic stripes on credit cards.
Square did create something of a perfect storm of buzz words when it was launched – iPhone/mCommerce/Twitter – and despite significant embedded competition, Square has managed to convince many people that it invented the idea of using a phone to take credit card numbers, while selling them boxes they can get free from the company's website!
And let's be clear: reading credit card numbers is all that the Square reader does, despite CNET's assertion that it "is being positioned as an alternative to the much-touted but still emerging near-field communication". Square works great in the USA, where magnetic stripes are still the cutting edge of credit card technology, but is next to useless anywhere else.
But America is where the capital is, so that's what matters, and Jack Dorsey's name is a lot more important than having a sensible business model. We know that when Square had 300,000 merchants it was processing about $1m a week in payments, so around $3.30 per merchant. That means each merchant is paying Square about 8 cents a week.
Square now claims to have 500,000 merchants signed up, so at current rates it could realise its valuation in a mere 480 years – though it will have to spend the first six months paying off the cost of the boxes (at $2 a box – our guess).
At a glance, Square would seem to have a business plan that extends hundreds of years into the future, or requires international expansion of a product that has no value outside the USA, not to mention an embedded competition that's price competitive and offers greater security: it's a good thing we're not in a tech bubble or $1bn might seem a trifle optimistic. ®