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Square: $10M VC investment turned into $40B. Square's initial pitch deck

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The Simplest Way to Make Money
Elizabeth Cheng | Jing-Jing Li | Irwin Liu | Jessica Lukrich
The Square Proposition
Inspiring andHuge market
Simple pricing:
2 75% per swipeInspiring and
experienced
management
team
Huge market
opportunity
in mobile
payments
2.75% per swipe
Zero friction: no
S lidHigh future
Zero friction: no
commitment and
daily deposit
Solid
business
model with
high revenue
generation
High future
valuation
and ROI
even with
later stage
Free iPhone, iPad,
Android app and
card readerg
Defensible
business and
strong
investment
ca d eade
The simplest way
1
strong
execution
strategy
The simplest way
to make money
Management Team
The team has the background, proven track record and vision to succeed
Jack Dorsey – Co-Founder, CEO Successfully Managing
Co-Founder, Chairman of Twitter
Advisor at Ustream
Keith Rabois – COO
VP f St t & B i
Successfully Managing
VP of Strategy & Business
Development for Slide
VP of Business & Corporate
Development at LinkedIn
EVP f B i D l t dEVP of Business Development and
Policy for PayPal
Bob Lee – CTO
Founder at Twubble
Jim McKelvey – Co-Founder
Owner at Mira
Other Key Advisors
Gideon Yu
Roelof Botha
Ryan Gilbert
Founder at Twubble
Software Engineer at Google
Owner at Mira
Co-founder at Third Degree Glass
Factory
2
Alyssa Milano
Greg Kidd
Andrew Rasiej
The Market
Mobile payments is a massive, rapidly growing but underpenetrated industry
$214$250
$81
$119
$162
$214
$100
$150
$200
CAGR ‘10 – ’14: 68%
$16
$46
$0
$50
$
2010 2011 2012 2013 2014 2015
Dollar Amount of Mobile Payments In The U.S. (billions)*
Opportunity Market Changes Square Positioning
 Traditional card readers
are unwieldy & expensive
 Difficult for small business
owners to use card services
 Rapidly burgeoning interest
in mobile payments
 NFC tech adoption but
credit card usage prevails
Square Positioning
 First mover advantage
 Scalable across
multiple platforms
Low costs address
3
 Alternative online services
are expensive
 Capturing a loyal user base
has huge revenue potential
 Low costs address
target customer needs
*Source: Aite Group
The Product
Square satisfies buyers and vendors through an easy‐to‐adopt platform
Consumer DesiresConsumer Desires
 Use credit cards
 Swipe and go
Vendor Desires
Designate amount
Swipe credit carde do es es
 Accept credit cards
 Save on processing fees
 Simple and intuitive
interface
Enter tip and sign
with finger on-screen
Transaction
completed
Transaction Magnetic reader that plugs into headphone jack of smartphone
Data Conversion Once card is swiped, data is converted into an audio signal
The Technology
Information Processing Processors route signal to Square software application
Transmission Encrypted data sent through Wi-Fi or 3G to back-end servers
Communication No info stored on devices, auto-communication with payment network 4
Value to User
Square offers the simplest and most compelling way to accept credit cards
Traditional Card
Processing Firms
Online Card
Processing
Easeof
Use
Scan and go;
Intuitive interface
Requires some training;
Problems require technician
Tied to computer;
Manual input
of card information
E
Costs
Free card reader;
Flat 2 75% fee
Expensive reader;
Up to 5% variable + 30¢ flat rate;
Expensive update and
Up to 3.5% variable rate
+ 30¢ flat rate
C
Flat 2.75% fee pe s e upda e a d
maintenance fees
30¢ a a e
nefits
Saves money;
Saves time;
Accessible across
Familiar to user;
Technical support
Cheaper than traditional;
Only requires computer and
Ben
Accessible across
multiple devices
Technical support
internet
5

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Square: $10M VC investment turned into $40B. Square's initial pitch deck

  • 1. The Simplest Way to Make Money Elizabeth Cheng | Jing-Jing Li | Irwin Liu | Jessica Lukrich
  • 2. The Square Proposition Inspiring andHuge market Simple pricing: 2 75% per swipeInspiring and experienced management team Huge market opportunity in mobile payments 2.75% per swipe Zero friction: no S lidHigh future Zero friction: no commitment and daily deposit Solid business model with high revenue generation High future valuation and ROI even with later stage Free iPhone, iPad, Android app and card readerg Defensible business and strong investment ca d eade The simplest way 1 strong execution strategy The simplest way to make money
  • 3. Management Team The team has the background, proven track record and vision to succeed Jack Dorsey – Co-Founder, CEO Successfully Managing Co-Founder, Chairman of Twitter Advisor at Ustream Keith Rabois – COO VP f St t & B i Successfully Managing VP of Strategy & Business Development for Slide VP of Business & Corporate Development at LinkedIn EVP f B i D l t dEVP of Business Development and Policy for PayPal Bob Lee – CTO Founder at Twubble Jim McKelvey – Co-Founder Owner at Mira Other Key Advisors Gideon Yu Roelof Botha Ryan Gilbert Founder at Twubble Software Engineer at Google Owner at Mira Co-founder at Third Degree Glass Factory 2 Alyssa Milano Greg Kidd Andrew Rasiej
  • 4. The Market Mobile payments is a massive, rapidly growing but underpenetrated industry $214$250 $81 $119 $162 $214 $100 $150 $200 CAGR ‘10 – ’14: 68% $16 $46 $0 $50 $ 2010 2011 2012 2013 2014 2015 Dollar Amount of Mobile Payments In The U.S. (billions)* Opportunity Market Changes Square Positioning  Traditional card readers are unwieldy & expensive  Difficult for small business owners to use card services  Rapidly burgeoning interest in mobile payments  NFC tech adoption but credit card usage prevails Square Positioning  First mover advantage  Scalable across multiple platforms Low costs address 3  Alternative online services are expensive  Capturing a loyal user base has huge revenue potential  Low costs address target customer needs *Source: Aite Group
  • 5. The Product Square satisfies buyers and vendors through an easy‐to‐adopt platform Consumer DesiresConsumer Desires  Use credit cards  Swipe and go Vendor Desires Designate amount Swipe credit carde do es es  Accept credit cards  Save on processing fees  Simple and intuitive interface Enter tip and sign with finger on-screen Transaction completed Transaction Magnetic reader that plugs into headphone jack of smartphone Data Conversion Once card is swiped, data is converted into an audio signal The Technology Information Processing Processors route signal to Square software application Transmission Encrypted data sent through Wi-Fi or 3G to back-end servers Communication No info stored on devices, auto-communication with payment network 4
  • 6. Value to User Square offers the simplest and most compelling way to accept credit cards Traditional Card Processing Firms Online Card Processing Easeof Use Scan and go; Intuitive interface Requires some training; Problems require technician Tied to computer; Manual input of card information E Costs Free card reader; Flat 2 75% fee Expensive reader; Up to 5% variable + 30¢ flat rate; Expensive update and Up to 3.5% variable rate + 30¢ flat rate C Flat 2.75% fee pe s e upda e a d maintenance fees 30¢ a a e nefits Saves money; Saves time; Accessible across Familiar to user; Technical support Cheaper than traditional; Only requires computer and Ben Accessible across multiple devices Technical support internet 5
  • 7. Customer Acquisition Through wide exposure, Square targets anyone that seeks easy payment Target CustomerTarget Customer  Small businesses, independent workers, individuals selling goods  Market: anyone who accepts payments S ’ C t i i t f d d Square’s Cost: gaining customer awareness + free card reader Advertisement  Social media and internet advertising Selling Points  Easy convenient everyday usage Retail  Selling through online registrationg  Traditional mediums with max exposure/min cost  No surprise fees  Adaptable across multiple devices g and Apple stores  Follows razor blade retail model 6 Acquiring 100,000+ customers per month
  • 8. Competition and Defensibility Its established  presence and niche market give Square a competitive edge Square  Established clientele Similar technology Characteristics Square Advantages Direct Competitors: as first mover  No credit check  No monthly fees  Device compatibility  Apple partnership gy application  Higher fees and rates for certain options  Intuit or VeriFone service support GoPayment, PAYware Emerging Market: N Fi ld  Built-in hardware for  Apple partnershipservice support  POS experience Near Field Communications Built in hardware for phones  Potentially eliminate use of credit cards  Cross interaction with th h POS experience  Compatible across differing hardware  Unique market focus  Can integrate NFC t h l 7 other phone apps technology
  • 9. Financial Model and Projections Square will make for a lucrative investment even with conservative projections By Year End 2011E 2012E 2012E 2014E 2015E Payments Processed Per Day ($mm) 1.1 7.7 23.1 41.6 49.5y y ($ ) Growth Rate 1000% 600% 200% 80% 19% Annual Revenue 10.59$ 74.11$ 222.34$ 400.21$ 476.25$ EBITDA 0.53 4.45 20.01 44.02 52.39 EBITDA Margin 5% 6% 9% 11% 11% Assumptions$120 g EBIT 0.32 2.96 13.34 28.01 33.34 EBIT Margin 3% 4% 6% 7% 7% p • Investment: $20m • Stake: 20% • Hurdle Rate: 15% $40 $60 $80 $100 IRR of 55%$- $20 $40 2011E 2012E 2013E 2014E 2015E 8 • Sale or IPO at 2.5x 2015 Revenue 2011E 2012E 2013E 2014E 2015E Best Base Worst
  • 10. Why Invest Now Additional investment will generate outsize returns due to growth prospects  Need for Additional Investment High Potential for GrowthNeed for Additional Investment High Potential for Growth Additional resources needed to maintain first mover advantage Potential for growth will allow new investors to see an outsized returnfirst mover advantage Competitive pressures increasing Expected spend in see an outsized return Customer adoption will scale up exponentially The key to success willpec ed spe d advertising and customer acquisition y be in locking in a loyal customer base early $10.0 $27.5 $20.0 * Additional capital from Sequoia and new investor consortium 9 Series A Series B $ Proposed Series C co so u
  • 11. Exit Strategies Square will have multiple exit opportunities that will result in a high ROI Highly Viable M&A Prospects IPO ConsiderationsHighly Viable M&A Prospects  Multiple buyers possible  competitive bidding  Valuable user base with recurring revenue stream IPO Considerations  Depends on user base expansion success and consideration of M&A  Clear fit into product portfolios consideration of M&A  High standalone potential Large Companies Competing in Mobile Space Potential Valuation Service Providers and Hardware Manufacturers 1 2 $700mm-$1.4bnRev EBITDA $450mm- $800 10 Payment Processors 0 500 1000 1500 2000$400 $700 $1000 $1300 $1600 ($mm) $800mm
  • 12. Appendix Index of Presentation and Appendix Slides Presentation Slides Appendix SlidesPresentation Slides 1. The Square Proposition 2. Management Team 3 h k t ppe d S des • Financial Assumptions • Financial Model A ti f3. The Market 4. The Product 5. Value to User • Assumptions from Comparables • Future Valuation Perspective C d R6. Customer Acquisition 7. Competition and Defensibility • Concerns and Responses • Partnerships • Company Vision 8. Financial Model and Projections 9. Why Invest Now • Market Analysis 10.Exit Strategies
  • 13. Financial Assumptions Growth expected to scale exponentially and valuation will increase Growth Assumptions  Expected to process $40 million in transactions in Q1 of 2011  Currently signing up 100,000 merchants per month M O D R y g g p , p  Compare to 30,000 monthly signups last Fall.  $1 million in payments per day  Processing a few million in mobile transactions per week as of last fall O D E R I V Valuation Assumptions  Valued at $240m after last round of funding in January 2011 ($27.5m) E L V E g ( )  Valued at $40m at first round of funding in December 2009 ($10.0m) Sources R S Sources  DealBook, TechCrunch, Wall Street Journal, VentureBeat, Capital IQ
  • 14. Financial Model By Year End 2011E 2012E 2013E 2014E 2015E Payments Processed Per Day ($mm) 1.1 7.7 23.1 41.58 49.4802 By Year End 2011E 2012E 2012E 2014E 2015E Payments Processed Per Day ($mm) 1.1 7.7 23.1 41.6 49.5y y ($ ) Growth Rate 1000% 600% 200% 80% 19% Annual Revenue 10.59$ 74.11$ 222.34$ 400.21$ 476.25$ EBITDA Margin 5% 6% 9% 11% 11% EBITDA 0.53$ 4.45$ 20.01$ 44.02$ 52.39$ EBIT Margin 3% 4% 6% 7% 7% y y ( ) Growth Rate 1000% 600% 200% 80% 19% Annual Revenue 10.59$ 74.11$ 222.34$ 400.21$ 476.25$ EBITDA 0.53 4.45 20.01 44.02 52.39 EBITDA Margin 5% 6% 9% 11% 11% EBIT 0 32 2 96 13 34 28 01 33 34a g 3% % 6% 7% 7% EBIT 0.32$ 2.59$ 13.34$ 29.22$ 34.77$ Growth Assumptions 2011E 2012E 2013E 2014E 2015E Best Case 1000% 800% 400% 100% 50% Base Case 1000% 600% 200% 80% 19% EBIT 0.32 2.96 13.34 28.01 33.34 EBIT Margin 3% 4% 6% 7% 7% Base Case 1000% 600% 200% 80% 19% Worst Case 1000% 200% 100% 20% 5% EBIT 2011E 2012E 2013E 2014E 2015E Best 0.32$ 3.34$ 28.59$ 69.56$ 104.34$ Base 0 32$ 2 59$ 13 34$ 29 22$ 34 77$Base 0.32$ 2.59$ 13.34$ 29.22$ 34.77$ Worst 0.32$ 1.11$ 3.81$ 5.56$ 5.84$ NPV & IRR Calculation 2011E 2012E 2013E 2014E 2015E Sale (20 00)$ 0 06$ 0 52$ 2 67$ 5 84$ 6 95$ 238 12$(20.00)$ 0.06$ 0.52$ 2.67$ 5.84$ 6.95$ 238.12$ NPV @ 15% 79.95$ IRR 55% * represents 20% stake
  • 15. Assumptions from Comparables Margin projections derived from median of comparable companies Company Name LTM Gross LTM EBITDA LTM EBIT LTM Net LTM Total Margin % Margin % Margin % Income Margin % Revenues, 1 Yr Growth % Ebay Inc. 72.0% 31.0% 22.7% 19.7% 4.9% Gerber Scientific Inc. 30.7% 4.5% 2.9% (3.0%) 21.0% Iltron Inc 30 9% 14 0% 8 2% 4 6% 33 9%Iltron Inc. 30.9% 14.0% 8.2% 4.6% 33.9% Iteris Inc. 43.5% 8.3% 6.4% (8.3%) (1.2%) Mastercard Incorporated 100.0% 53.3% 50.7% 33.3% 8.6% PAR Technology Corp. 26.1% 2.7% 1.6% 1.3% 7.6% Perceptron Inc. 37.3% 0.8% (1.0%) 1.9% 30.4% VeriFone Systems Inc 37 7% 14 8% 11 3% 11 3% 24 3%VeriFone Systems Inc. 37.7% 14.8% 11.3% 11.3% 24.3% Veritec Inc. 60.8% (64.2%) (67.8%) (86.5%) 108.0% Visa Incorporated 84.4% 60.0% 56.8% 37.0% 17.0% Summary Statistics LTM Gross M i % LTM EBITDA M i % LTM EBIT M i % LTM Net I LTM Total R 1 YMargin % Margin % Margin % Income Margin % Revenues, 1 Yr Growth % High 100.0% 60.0% 56.8% 37.0% 108.0% Low 26.1% (64.2%) (67.8%) (86.5%) (1.2%) Mean 52.3% 12.5% 9.2% 1.1% 25.5% Median 40.6% 11.2% 7.3% 3.3% 19.0%
  • 16. Future Valuation Perspective Square’s valuation would price at premium to multiples due to early stage Company Name TEV/Total Revenues LTM - Latest TEV/EBITDA LTM - Latest TEV/EBIT LTM - Latest NTM TEV/Forward Total Revenue NTM TEV/Forward EBITDA NTM Forward P/E Ebay Inc. 3.83x 12.34x 16.88x 3.3x 9.4x 15.9x G b S i tifi I 0 49 10 95 16 80 0 5 7 9 21 9Gerber Scientific Inc. 0.49x 10.95x 16.80x 0.5x 7.9x 21.9x Iltron Inc. 0.71x 8.55x 11.10x 0.7x 6.3x 16.5x Iteris Inc. 1.18x 8.47x 14.51x 1.2x 7.7x 13.0x Mastercard Incorporated 5.46x 10.23x 10.77x 4.9x 9.0x 15.8x PAR Technology Corp. 0.29x 10.73x 17.98x 0.3x 7.9x 23.7x Perceptron Inc 0 53x 67 04x NM 0 5x 9 7x 37 3xPerceptron Inc. 0.53x 67.04x NM 0.5x 9.7x 37.3x VeriFone Systems Inc. 4.49x 30.27x 39.89x 4.0x 19.3x 29.6x Veritec Inc. 4.03x NM NM - - - Visa Incorporated 6.12x 10.21x 10.80x 5.5x 8.6x 15.3x Summary Statistics TEV/Total TEV/EBITDA LTM TEV/EBIT LTM - NTM NTM NTM Forwardy / Revenues LTM - Latest / - Latest / Latest TEV/Forward Total Revenue TEV/Forward EBITDA P/E High 6.12x 67.04x 39.89x 5.5x 19.3x 37.3x Low 0.29x 8.47x 10.77x 0.3x 6.3x 13.0x Mean 2 71x 18 75x 17 34x 2 3x 9 5x 21 0xMean 2.71x 18.75x 17.34x 2.3x 9.5x 21.0x Median 2.51x 10.73x 15.66x 1.2x 8.6x 16.5x
  • 17. Concerns and Responses Concern Response NFC will overtake credit Credit cards too engrained in daily life to become outdated card use daily life to become outdated in the near future Large companies will Square has a different leverage ability to provide at lower prices target audience and has the first mover advantage Consumer concerns over Partner bank verifies serviceConsumer concerns over security on a newly introduced platform Partner bank verifies service and secure server makes security claims unfounded Square has a successfully run Square will face execution risks Square has a successfully run and experienced management team No defining industry standard Flexibility of the industry promotes innovation; a standard will soon be reached
  • 19. Company Vision Square: 0 to $60 in under 10 seconds Target consumers are Free app for iPhone, iP d & A d idsmall business iPad & Android Daily deposit to your bank account Simple pricing, free shipping Vision is to create zero friction and complexity around payments The simplest way to Emphasis on simplicity & efficiency The simplest way to make money
  • 20. Market Analysis Strong market growth and advantageous company position Position First Mover Advantage High growth Market Expanding & First Mover Advantage Few comparable competitors Currently underfunded High growth potential Expanding & unsaturated marketplace Competitors Large Competitors Ie. Google, Apple Not focused enough to Small Competitors Ie. VeriFone, Intuit Not focused enough to drive Square out of its niche market Lack first mover advantage