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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
TheĀ teamĀ hasĀ theĀ background,Ā provenĀ trackĀ recordĀ andĀ visionĀ toĀ succeed
Jack Dorsey ā Co-Founder, CEO Successfully Managing
ļ§Co-Founder, Chairman of Twitter
ļ§Advisor at Ustream
Keith Rabois ā COO
VP f St t & B i
Successfully Managing
ļ§VP of Strategy & Business
Development for Slide
ļ§VP of Business & Corporate
Development at LinkedIn
EVP f B i D l t dļ§EVP of Business Development and
Policy for PayPal
Bob Lee ā CTO
ļ§Founder at Twubble
Jim McKelvey ā Co-Founder
ļ§Owner at Mira
Other Key Advisors
Gideon Yu
Roelof Botha
Ryan Gilbert
Founder at Twubble
ļ§Software Engineer at Google
ļ§Owner at Mira
ļ§Co-founder at Third Degree Glass
Factory
2
Alyssa Milano
Greg Kidd
Andrew Rasiej
4. The Market
MobileĀ paymentsĀ isĀ aĀ massive,Ā rapidlyĀ growingĀ butĀ underpenetratedĀ industry
$214$250
$81
$119
$162
$214
$100
$150
$200
CAGR ā10 ā ā14: 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
ļ§ Traditional card readers
are unwieldy & expensive
ļ§ Difficult for small business
owners to use card services
ļ§ Rapidly burgeoning interest
in mobile payments
ļ§ NFC tech adoption but
credit card usage prevails
Square Positioning
ļ§ First mover advantage
ļ§ Scalable across
multiple platforms
Low costs address
3
ļ§ Alternative online services
are expensive
ļ§ Capturing a loyal user base
has huge revenue potential
ļ§ Low costs address
target customer needs
*Source:Ā Aite Group
5. The Product
SquareĀ satisfiesĀ buyersĀ andĀ vendorsĀ throughĀ anĀ easyātoāadoptĀ platform
Consumer DesiresConsumer Desires
ļ§ Use credit cards
ļ§ Swipe and go
Vendor Desires
Designate amount
Swipe credit carde do es es
ļ§ Accept credit cards
ļ§ Save on processing fees
ļ§ 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
SquareĀ offersĀ theĀ simplestĀ andĀ mostĀ compellingĀ wayĀ toĀ acceptĀ creditĀ 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 + 30Ā¢ flat rate;
Expensive update and
Up to 3.5% variable rate
+ 30Ā¢ flat rate
C
Flat 2.75% fee pe s e upda e a d
maintenance fees
30Ā¢ 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
ThroughĀ wideĀ exposure,Ā SquareĀ targetsĀ anyoneĀ thatĀ seeksĀ easyĀ payment
Target CustomerTarget Customer
ļ§ Small businesses, independent workers, individuals selling goods
ļ§ Market: anyone who accepts payments
S ā C t i i t f d dļ§ Squareās Cost: gaining customer awareness + free card reader
Advertisement
ļ§ Social media and
internet advertising
Selling Points
ļ§ Easy convenient
everyday usage
Retail
ļ§ Selling through
online registrationg
ļ§ Traditional
mediums with max
exposure/min cost
ļ§ No surprise fees
ļ§ Adaptable across
multiple devices
g
and Apple stores
ļ§ Follows razor blade
retail model
6
Acquiring 100,000+ customers per month
8. Competition and Defensibility
ItsĀ establishedĀ Ā presenceĀ andĀ nicheĀ marketĀ giveĀ SquareĀ aĀ competitiveĀ edge
Square
ļ§ Established clienteleļ§ Similar technology
Characteristics
Square
Advantages
Direct Competitors:
as first mover
ļ§ No credit check
ļ§ No monthly fees
ļ§ Device compatibility
ļ§ Apple partnership
gy
application
ļ§ Higher fees and rates
for certain options
ļ§ Intuit or VeriFone
service support
GoPayment, PAYware
Emerging Market:
N Fi ld
ļ§ Built-in hardware for
ļ§ Apple partnershipservice support
ļ§ POS experience
Near Field
Communications
Built in hardware for
phones
ļ§ Potentially eliminate
use of credit cards
ļ§ Cross interaction with
th h
POS experience
ļ§ Compatible across
differing hardware
ļ§ Unique market focus
ļ§ Can integrate NFC
t h l
7
other phone apps technology
9. Financial Model and Projections
SquareĀ willĀ makeĀ forĀ aĀ lucrativeĀ investmentĀ evenĀ withĀ conservativeĀ 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
ā¢ Investment: $20m
ā¢ Stake: 20%
ā¢ Hurdle Rate: 15%
$40
$60
$80
$100
IRR of 55%$-
$20
$40
2011E 2012E 2013E 2014E 2015E
8
ā¢ Sale or IPO at 2.5x
2015 Revenue
2011E 2012E 2013E 2014E 2015E
Best Base Worst
10. Why Invest Now
AdditionalĀ investmentĀ willĀ generateĀ outsizeĀ returnsĀ dueĀ toĀ growthĀ prospectsĀ
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
SquareĀ willĀ haveĀ multipleĀ exitĀ opportunitiesĀ thatĀ willĀ resultĀ inĀ aĀ highĀ ROI
Highly Viable M&A Prospects IPO ConsiderationsHighly Viable M&A Prospects
ļ§ Multiple buyers possible ļ competitive bidding
ļ§ Valuable user base with recurring revenue stream
IPO Considerations
ļ§ Depends on user base
expansion success and
consideration of M&A
ļ§ Clear fit into product portfolios
consideration of M&A
ļ§ 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
IndexĀ ofĀ PresentationĀ andĀ AppendixĀ Slides
Presentation Slides Appendix SlidesPresentation Slides
1. The Square Proposition
2. Management Team
3 h k t
ppe d S des
ā¢ Financial Assumptions
ā¢ Financial Model
A ti f3. The Market
4. The Product
5. Value to User
ā¢ Assumptions from
Comparables
ā¢ Future Valuation Perspective
C d R6. Customer Acquisition
7. Competition and
Defensibility
ā¢ Concerns and Responses
ā¢ Partnerships
ā¢ Company Vision
8. Financial Model and
Projections
9. Why Invest Now
ā¢ Market Analysis
10.Exit Strategies
13. Financial Assumptions
GrowthĀ expectedĀ toĀ scaleĀ exponentiallyĀ andĀ valuationĀ willĀ increase
Growth Assumptions
ļ§ Expected to process $40 million in transactions in Q1 of 2011
ļ§ Currently signing up 100,000 merchants per month
M
O
D
R y g g p , p
ļ§ Compare to 30,000 monthly signups last Fall.
ļ§ $1 million in payments per day
ļ§ Processing a few million in mobile transactions per week as of last fall
O
D
E
R
I
V
Valuation Assumptions
ļ§ Valued at $240m after last round of funding in January 2011 ($27.5m)
E
L
V
E
g ( )
ļ§ Valued at $40m at first round of funding in December 2009 ($10.0m)
Sources
R
S
Sources
ļ§ DealBook, TechCrunch, Wall Street Journal, VentureBeat, Capital IQ
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