It's still good to be Jack Dorsey as Square Raises $200 Million

It’s been barely a month since I wrote about Starbucks’ $25 million investment in Square,  the mobile-payments startup run by Twitter co-founder Jack Dorsey.

Now the Seattle coffee juggernaut is back for another serving: On Monday, Square announced it’s closed its fourth funding round, with Starbucks among the investors. And while the bare-bones announcement doesn’t go into detail, a company spokesman tells me the haul was more than $200 million.

 

Photo by Dai Sugano, Mercury News

The spokesguy wouldn’t comment on a report by AllThingsD that the investment values Square at “a jaw-dropping $3.25 billion.” Square’s release said

the company processes more than $8 billion in payments “on an annualized basis,” and the company typically takes 2.75 percent of every purchase it handles. So do the math (admittedly, not my strong suit), and Square’s taking in roughly $220 million per year.

It was only last summer that Square announced its $100 million Series C round, which reportedly valued the company at $1 billion. People around Silicon Valley decried that as an outrage and further proof of a startup valuation bubble. One can only imagine the spit-takes the new number is inducing.

Igor Sill, a venture capitalist at Geneva Venture Partners in San Francisco, tells me a $3.25 billion valuation “is excessively high,” especially considering that Square will likely have to ratchet down its 2.75 percent transaction fees as competition heats up in the mobile payments space. Sill noted that corporate investors “are well-known to pay considerably higher valuations” than venture capitalists, in part because they often see such investments as a step toward an eventual acquisition. According to Square, the other investors in the new round are Citigroup’s Citi Ventures and Rizvi Traverse Management, which last year helped broker Hugh Hefner‘s deal to take Playboy Enterprises private.

Hef

Hef – © Glenn Francis, www.PacificProDigital.com

Monday’s announcement was the first time Square has publicly acknowledged this long-rumored funding round, on which Starbucks’ $25 million last month was essentially a down payment. Sam Hamadeh, the CEO of New York financial analysis firm PrivCo, told me last month the round totals $225 million and values Square at $3 billion pre-money.

Hamadeh claims to be close to Dorsey - the first time Square was ever publicly demoed, he says, was at a party at Hamadeh’s loft two years ago. So if his report of the pre-money valuation is correct, it stands to reason that the company’s now worth $3.25 billion after the new cash infusion. In addition, the round now makes Dorsey himself a billionaire, Hamadeh says. Take that, Ev!

 

Peter Delevett Peter Delevett (184 Posts)

Peter Delevett covers startups and venture capital for the San Jose Mercury News. He's been a journalist in Silicon Valley since the dot-com daze.