Square secures credit in ‘low hundreds of millions’
Mobile payments company Square has secured a new revolving credit facility as the burgeoning startup seeks more permanent capital to grow. Goldman Sachs led the deal, which was inked over the weekend, and Morgan Stanley, JPMorgan Chase …
Context & Ripple Effects
Square's capital history has been a steady climb: a $100 million round at a $1 billion valuation led by Kleiner Perkins in June 2011, followed by reports in July 2012 that it expected new financing at a loftier value. Then in late February 2014 the company postponed its IPO indefinitely, with sources indicating it was not ready to go public this year.
The weekend credit facility — in the low hundreds of millions, led by Goldman Sachs with Morgan Stanley and JPMorgan Chase participating — fills that gap. Rather than dilute at a contested private valuation or rush an unready listing, Square is borrowing against its future. That Wall Street's three biggest names are underwriting a five-year-old payments startup also fits Goldman's posture this year: in February it published a client-driven assessment of Bitcoin, part of big finance's turn toward the same territory Square occupies.
First-order effects
- Square gains low-hundreds-of-millions in working capital without selling equity, funding the growth push already visible in its February moves: ramped hiring for sales roles, more custom pricing deals for merchants, and a Square Pickup pre-order pilot with San Francisco restaurants.
- Goldman Sachs, Morgan Stanley and JPMorgan Chase each establish lending relationships with one of payments' most prominent private companies — positioning themselves inside a franchise before any future listing.
Second-order effects
- With the IPO shelved indefinitely, the major banks now have an incentive to court Square through credit and advisory work rather than wait for underwriting fees — deepening competition among Goldman, JPMorgan and Morgan Stanley for the company's banking mandate.
- Square can sustain aggressive merchant acquisition and custom pricing against rivals like PayPal and Intuit without an equity raise, pressuring competitors to match spending on small-business sales forces.
Third-order effects
- The deal is a data point in the shift of late-stage financing away from the public markets: highly valued consumer-tech companies deferring IPOs are turning to bank credit facilities as bridge capital, which lengthens the private phase and concentrates exit risk on later investors.
- If payments startups keep scaling on borrowed capital alongside their transaction volumes, the boundary between Silicon Valley lenders and Wall Street balance sheets keeps eroding — the same convergence Goldman signaled with its early move on digital currency.
The trend: Late-stage private technology companies are increasingly substituting bank credit facilities for IPO proceeds as they defer public listings.