Square Raises $27.5 Million
Square Inc., the mobile payments service co-founded and led by Twitter co-founder Jack Dorsey, has just closed a new $27.5 million round of funding led by Sequoia Capital. — The funding, which also is set to include some strategic and individual investors …
Context & Ripple Effects
Square enters 2011 on an operational tear: back in September 2010 it was already producing 10,000 card readers a day, and today's confirmed $27.5 million round — led by Sequoia Capital with strategic and individual investors joining — gives Jack Dorsey the capital to turn that manufacturing pace into national distribution.
The competitive frame was set by the same-day syndicated pickup in Fortune, headlined 'Intuit takes a swipe at Square,' which frames this as a fight between a startup dongle play and an incumbent financial-software giant. Dorsey's position is unusual: he is running Square while Twitter, which he co-founded, closed its own $200 million round at a $3.7 billion valuation led by Kleiner Perkins just weeks earlier in December 2010.
First-order effects
- Square gets runway to scale reader production and merchant onboarding beyond the 10,000-a-day clip, with Sequoia's lead signaling top-tier validation of the dongle-plus-app model over rival hardware approaches.
- Intuit, already attacking Square per the Fortune coverage, faces a better-funded opponent in its bid to sign up small merchants for smartphone card acceptance.
Second-order effects
- Incumbent processors and financial-software vendors are pushed to match Square's simple pricing and instant signup rather than compete on traditional merchant-account underwriting, compressing fees across small-business card acceptance.
- Strategic investors in the round gain a stake in a payments rail that could route transaction volume away from conventional acquirers, raising the odds of follow-on capital at step-up valuations if adoption holds.
Third-order effects
- If the pattern holds, smartphone-attached card readers become the default acceptance path for micro-merchants, shifting the industry's chokepoint from bank-issued merchant accounts to software platforms that control onboarding and pricing.
- The round also feeds a broader concentration dynamic: elite funds like Sequoia and Kleiner Perkins are placing parallel bets across Dorsey's two companies, concentrating frontier-stage capital around a handful of founder-platform franchises.
The trend: Mobile card-acceptance is turning into a venture-funded land grab in which startup dongle platforms force incumbent payment processors to compete on signup simplicity rather than underwriting.