5 reasons Square deserves its $1billion valuation
Having only just recently raised $27.5 million in funding seven months ago, Square have just announced a new round of funding of a huge $100 million, with a market valuation of $1 billion. For those of you who haven’t heard of Square – they offer merchants a unique way to accept credit card payments, through a small reader that can be attached to iPhones, Androids and iPads. It offers an easy way for anyone to set themselves up as a merchant, and the company is already seeing huge success. Square is backed by Jack Dorsey, co-founder of Twitter, who is currently CEO at the company. The product is completely revolutionary in the way it facilitates credit card payments, which goes a long way to explaining the recent funding. But there’s more to it than that. As well as just having a good product, there is a lot about Square that is shaking things up a bit and showing others that it’s not all about having a fancy social network – that sometimes there is huge money to be made in what might seem like a completely closed off area. So just what are Square doing right, and why do they deserve a $1 billion valuation?
Smart backing
There is certainly no shortage of talent at Square. Firstly you can count Jack Dorsey, co- founder and CEO as a pretty useful asset to the company. Jack’s experience here is unique because he has cut his teeth at one of the big 3 of social networks. Twitter has certainly not been without its troubles and Jack knows what it’s like to launch a company or service within a niche that no-one has spotted. Just as Facebook was the main social network, cash registers were the main way for merchants to accept physical payments. Jack knows how to shake things up and give people what they want before they even know they want it. But there’s more to Square than Jack alone, and they count a powerhouse of investors and board members at their disposal. They have former CFO at Facebook – Gideon Yo – advising them, which you could argue is a near invaluable asset given the market that they’re operating in. And among their board members they can count a former U.S. Treasury Secretary Larry Summers, seasoned silicon VC Vinod Khosla and most recently the celebrated analyst Mary Meeker. This doesn’t even take into account all the high-profile talent backing, investing and advising in Square, and it shows that as well as a good idea and great execution, the team at the higher levels of the organisation are the ones that are going to eventually see it to success. It’s worth the valuation in their boardroom alone!
Investing in hardware
Square is also a valuable company because it’s producing something that we don’t see come out of social media stars very much : hardware. Jack has turned his attention from a purely online business, to something that involves an actual product. This is an interesting move that many others are missing, in the race to revolutionise mobile payments. While many mobile payment solutions are being explored, these are focusing on what happens within the phone itself. Square, however, recognises the fact that this is not a workable solution for many merchants. They’re not going to throw out their cash register for a revolutionary online form of payment – we’re still along way of that becoming the mainstream, if it ever will. But they may well throw out their cash register for a minimal investment in a small, square piece of plastic that lets them do their job as they did before, only better. And Square are quick to ramp up their hardware solutions. Originally launching just with the device for iPhones, they’ve now launched an iPad version, which is proving a success for the company.
Scalable
One of the reasons that Square is such a good investment with a bright future, is that it is so easily scalable. The solution that they’re offering doesn’t fit just one type of person or one type of business, but is flexible and adaptable across small to large businesses, and even individual merchants. It is a business solution that can be easily distributed worldwide and as well as offering a solution to existing merchants that are looking for something more flexible, it opens up new audiences as well, through the innovative solution it provides. Where once smaller business owners may have been forced to keep their payments online because they had no other method of processing card payments, they can now easily expand and go door to door. It’s also perfect timing, as the jobs market becomes increasingly difficult, more and more people are starting up their own ventures. Square fits in perfectly and with one piece of plastic, solves what is a very real problem for millions of vendors. And of course, the more people swipe, the more Square earns.
A million transactions
For those that might be in doubt about the potential success of Square, despite only being in existence for just over 2 years is carrying out a million transactions per month and have shipped over 500,000 readers. That translates at approximately $3million in transactions every day. With Swipe charging 2.75% per transaction, that’s some pretty impressive revenue for the startup.Those numbers are significant for such a young company and they prove that they haven’t just offered a quirky new way of doing things, but they’ve offered a quirky new way of doing things that people actually want.
Straightforward monetisation
When it comes to monetisation of a new product or concept, no-one has had to face more difficult questions than the guys at Twitter, who are seemingly just starting to get around to this now. But with Square it’s different. While they don’t make any direct money off the readers themselves, which are currently shipped out for free, they have a basic, age-old but genius monetisation model. The more you use the product, the more the company gets. Operating on a charge per transaction model works for Square just as well as it works for merchants, because it’s a model that they’re used to, but the charges are likely to be more favourable than their existing credit card solution. With so many new technologies and new routes to monetisation, Square is proving a smart investment because the way they make money is so simple. And by offering an easy solution, they’re actually creating more transactions than would have typically taken place, particularly for small vendors. Where once in order to pay your builder you had to make sure you had cash in or go to the ATM, now you can just pay with your credit card. This is the true genius of the product and it’s hard to see where their growth curve will stop.
So some might say that the valuation is a crazy figure plucked out of thin air, but at the centre of it is a serious, smart money-making business that will only continue to grow.
