Notes from the Square S-1 IPO Filing

Earlier today Square, a payment processing and financial technology company, released their S-1 IPO filing to the public. Square is especially unique in that it’s CEO is Jack Dorsey, who’s also the CEO of Twitter (imagine founding and running two billion dollar tech companies at the same time!).

Here are a few notes from the Square S-1:

  • In the 12 months ended June 2015, over two million sellers accepted five or more payments using Square (pg. 2)
  • We define a quarterly cohort of sellers as the group of sellers that are approved to accept card payments with Square in a given quarter. On average, our payback period has been four to five quarters. (pg. 2)
  • Net revenue (pg. 3):
    1H 2015 $560.6 million
    2014 $850.2 million
  • Net revenue without transaction costs and the Starbucks account, which is going away in late 2016 (pg. 3):
    1H 2015 $198.8 million
    2014 $276.3 million
  • Losses (pg. 4)
    1H 2015 $77.6 million
    2014 $154.1 million
    2013 $104.5 million
  • Combining payments, point-of-sale systems, financial services, and marketing services (pg. 7) – Note: Square is really building a small business operating system to run all aspects of the business from payroll to email marketing — that’s a big idea.
  • From Jack: I believe so much in the potential of this company to drive positive impact in my lifetime that over the past two years I have given over 15 million shares, or 20% of my own equity, back to both Square and the Start Small Foundation, a new organization I created to meaningfully invest in the folks who inspire us: artists, musicians, and local businesses, with a special focus on underserved communities around the world. The shares being made available for the directed share program in this offering are being sold by the Start Small Foundation, giving Square customers the ability to buy equity to support the Foundation. I have also committed to give 40 million more of my shares, an additional 10% of the company, to invest in this cause. I’d rather have a smaller part of something big than a bigger part of something small. (pg. 24)
  • Accumulated deficit of $473.2 million (pg. 26)
  • For example, in the three months ended March 31, 2015, we recorded a loss of approximately $5.7 million related to fraud by a single seller using our payments services. (pg. 27)
  • Mr. Morley contends that he was an equal partner with Jack Dorsey and Jim McKelvey in the business enterprise that ultimately evolved into Square, and that Mr. Dorsey and Mr. McKelvey breached their alleged oral joint venture agreement with Mr. Morley by excluding him from ownership in Square. (pg. 39)
  • Founders equity ownership (pg. 176):
    • Jack Dorsey – 24.4%
    • James McKelvey – 9.4%
  • VCs equity ownership (pg. 176):
    • Khosla Ventures – 17.3%
    • Sequoia Capital – 5.4%
    • Kleiner Perkins – 3.0%

Square is an impressive company that’s using payment processing — handling good old fashion credit cards — as the gateway to run many aspects of a regular small business. Look for Square to become more like Intuit (owner of QuickBooks) with a variety of services and less like a credit card processing company over time.

What else? What are some other thoughts on Square’s S-1 IPO filing?

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