Square Finally Closes $200 Million Round at a $3.25 Billion Valuation
Square has finally closed its fourth round of funding, which values the three-year-old company at a jaw-dropping $3.25 billion. — The payments company is perhaps best known for allowing small businesses …
Context & Ripple Effects
The close ends a summer of leak-driven negotiation: DealBook reported in late July that Square was seeking new financing at a loftier value, and the confirmed $200 million at $3.25 billion lands well above the $1 billion Kleiner Perkins-led round from June 2011 — itself the subject of a bidding-up episode where Square floated a $2 billion figure before settling. In fourteen months the company's paper valuation has more than tripled.
The raise follows a busy August for the payments company: a confirmed partnership with Starbucks to process payments, then a monthly flat-rate pricing option with zero per-swipe fees for small businesses. It also comes after Square sent a cease-and-desist to rival mPowa over an imitated product image, a sign the card-reader niche is crowded enough to fight over. The story's pickup across eight outlets — including an AllThingsD interview in which COO Keith Rabois predicted retailers would swap registers for iPads within 18 months — shows how far the valuation debate traveled beyond venture circles.
First-order effects
- Square banks $200 million in growth capital at a $3.25 billion valuation, giving it runway to scale the Starbucks partnership and subsidize the zero-per-swipe monthly plan it launched in August 2012.
- Direct competitors in mobile card acceptance — mPowa among them, already on the receiving end of Square's cease-and-desist — now face a rival with tripled valuation and cash to spend on distribution.
Second-order effects
- Starbucks' decision to route payments through Square becomes a reference sale other large retail chains will be pressured to match, shifting merchant-acquisition economics toward bundled flat-rate pricing rather than per-swipe fees.
- Rival readers and POS vendors must either cut pricing to compete with Square's zero-fee tier or differentiate on hardware and software features, compressing margins across the small-business payments market.
Third-order effects
- If Rabois's register-to-iPad prediction holds even partially, the point-of-sale hardware business migrates toward commodity tablets running software subscriptions, and the durable asset becomes the payment network and merchant relationship rather than the terminal.
- A tripling of private valuation in fourteen months reinforces the pattern of late-stage capital concentrating in a few consumer-facing fintech names, raising the stakes for whichever exit path — IPO or acquisition — eventually validates the price.
The trend: Late-stage venture capital is concentrating in mobile payments platforms, where billion-dollar private valuations are being reset upward within months on the strength of retail partnerships.