5 ms·

In raising cash, Square heads for $6B valuation: sources

15 points by lsh123 12y ago

dang 12y ago
Url changed from http://www.businessinsider.com/square-is-raising-200-million-at-a-6-billion-valuation-2014-8 http://www.businessinsider.com/square-is-raising-200-million..., which points to this.
- ChuckMcM 12y ago
  I find this an interesting trend: "A recent valuation of $5 billion was reported earlier this year after investors bought shares from employees." Basically if you're an engineer and you're looking for part of your pay as equity, that doesn't work if there is no exit of some form. But you can 'buyback' the the option pool (kind of like an internal Second Market type of deal) which lets you keep the cap table pretty stable but both bring in new investors and keep your employees incented.
  - AndrewKemendo 12y ago
    Seems like this would be tricky to structure in a term sheet to make sure parties were happy - I know investors generally aren't in favor of option pools that are not in their favor. Am I off base on that thought?
    - ChuckMcM 12y ago
      All of that is really specific to a specific company. So it is hard to make any specifically applicable comments without access to the terms under which the stock was issued. That said, typically employee stock is Common stock and Investor stock is Preferred stock. The difference is usually how it is treated in a change of ownership. So buying back employee Common stock probably doesn't change either the investor share or their voting rights or their basic return. It does however give them a 'kick' if their stock converts to common after liquidation preferences are met and it participates in the remaining distribution. The trend though is to keep employees motivated even when an IPO isn't on the near horizon. I've known people who were really 'trapped' in that they had an equity position but couldn't afford the tax hit of exercising their options[1] and holding them for some future event. If you let them sell their shares in a round (possibly at a discount against preferred shares) you give them some share of the success to date. In California that can be the difference between keeping your key players and losing them to a place indicating a faster exit.
Shinkei 12y ago
Can somebody ELI5 why Square wouldn't develop infrastructure to 'cut-out' Mastercard/Visa from this transaction? I mean, it seems like they could issue a credit card to begin competing with existing brands. I guess I just don't understand enough about these 'interchange' fees. So does the customer's bank or storefront's bank pay for this transfer? If this is infrastructure similar to broadband lines, are they monopolistic or could a competing company lease bandwidth on the same lines?
- lsh123 12y ago
  This diagram summarizes interchange fees really well: http://rortybomb.files.wordpress.com/2009/11/interchange_fee.jpg http://rortybomb.files.wordpress.com/2009/11/interchange_fee... While Square can develop the technical infrastructure, it might be tough from business perspective. This is a two-sided market and right now Square has penetration on the merchant side. The Square's P2P payments app might be an attempt to get into consumer market. It will be interesting to see how it will go. In the past similar attempts failed and the only recent example of a widely adopted 2-sided payments network is PayPal. Mobile is a very interesting space but nobody figured it out yet.
  - johnrob 12y ago
    That diagram doesn't show how Visa/Mastercard make their money (unless they act as issuers or acquirers). Where is their cut?
    - lsh123 12y ago
      Right. Both issuer and acquirer banks pay per-transaction and/or annual fees to Visa/MC to participate in the network. These deals are highly custom but it is roughly 0.1% of payment volume.
- jsonne 12y ago
  This is essentially the approach Dwolla has taken versus other payment gateways. The issue is does Square want to be in the business of being a credit card company or a POS provider?
kolev 12y ago
Are you kidding me? Just about of Snapchat's? This comes to tell us how ridiculous the valuations are nowadays!
- skizm 12y ago
  Why? Facebook just paid 19 billion for WhatsApp. Investors are hoping Snapchat produces similar results.

15 points by lsh123 12y ago

dang 12y ago

Url changed from http://www.businessinsider.com/square-is-raising-200-million-at-a-6-billion-valuation-2014-8 http://www.businessinsider.com/square-is-raising-200-million..., which points to this.

ChuckMcM 12y ago
I find this an interesting trend: "A recent valuation of $5 billion was reported earlier this year after investors bought shares from employees." Basically if you're an engineer and you're looking for part of your pay as equity, that doesn't work if there is no exit of some form. But you can 'buyback' the the option pool (kind of like an internal Second Market type of deal) which lets you keep the cap table pretty stable but both bring in new investors and keep your employees incented.
- AndrewKemendo 12y ago
  Seems like this would be tricky to structure in a term sheet to make sure parties were happy - I know investors generally aren't in favor of option pools that are not in their favor. Am I off base on that thought?
  - ChuckMcM 12y ago
    All of that is really specific to a specific company. So it is hard to make any specifically applicable comments without access to the terms under which the stock was issued. That said, typically employee stock is Common stock and Investor stock is Preferred stock. The difference is usually how it is treated in a change of ownership. So buying back employee Common stock probably doesn't change either the investor share or their voting rights or their basic return. It does however give them a 'kick' if their stock converts to common after liquidation preferences are met and it participates in the remaining distribution. The trend though is to keep employees motivated even when an IPO isn't on the near horizon. I've known people who were really 'trapped' in that they had an equity position but couldn't afford the tax hit of exercising their options[1] and holding them for some future event. If you let them sell their shares in a round (possibly at a discount against preferred shares) you give them some share of the success to date. In California that can be the difference between keeping your key players and losing them to a place indicating a faster exit.

Shinkei 12y ago

Can somebody ELI5 why Square wouldn't develop infrastructure to 'cut-out' Mastercard/Visa from this transaction? I mean, it seems like they could issue a credit card to begin competing with existing brands. I guess I just don't understand enough about these 'interchange' fees. So does the customer's bank or storefront's bank pay for this transfer? If this is infrastructure similar to broadband lines, are they monopolistic or could a competing company lease bandwidth on the same lines?

lsh123 12y ago
This diagram summarizes interchange fees really well: http://rortybomb.files.wordpress.com/2009/11/interchange_fee.jpg http://rortybomb.files.wordpress.com/2009/11/interchange_fee... While Square can develop the technical infrastructure, it might be tough from business perspective. This is a two-sided market and right now Square has penetration on the merchant side. The Square's P2P payments app might be an attempt to get into consumer market. It will be interesting to see how it will go. In the past similar attempts failed and the only recent example of a widely adopted 2-sided payments network is PayPal. Mobile is a very interesting space but nobody figured it out yet.
- johnrob 12y ago
  That diagram doesn't show how Visa/Mastercard make their money (unless they act as issuers or acquirers). Where is their cut?
  - lsh123 12y ago
    Right. Both issuer and acquirer banks pay per-transaction and/or annual fees to Visa/MC to participate in the network. These deals are highly custom but it is roughly 0.1% of payment volume.
jsonne 12y ago
This is essentially the approach Dwolla has taken versus other payment gateways. The issue is does Square want to be in the business of being a credit card company or a POS provider?

kolev 12y ago

Are you kidding me? Just about of Snapchat's? This comes to tell us how ridiculous the valuations are nowadays!

skizm 12y ago
Why? Facebook just paid 19 billion for WhatsApp. Investors are hoping Snapchat produces similar results.