The Simplest Way to Make Money

Elizabeth Cheng | Jing-Jing Li | Irwin Liu | Jessica Lukrich

The Square Proposition

Huge market
opportunity
in mobile
payments

Inspiring and
experienced
management
team

Simple pricing:
2 75% per swipe
2.75%

Zero friction: no
commitment and
daily deposit
High future
valuation
and ROI
even with
later stage
investment

Solid
S
lid
business
model with
high revenue
generation
g
Defensible
business and
strong
execution
strategy

Free iPhone, iPad,

Android app and
card
ca
d reader
eade

The simplest way

to make money
1

Management Team
Theteamhasthebackground,proventrackrecordandvisiontosucceed
Jack Dorsey Co-Founder, CEO
Co-Founder, Chairman of Twitter
Advisor at Ustream

Successfully Managing

Keith Rabois COO

VP off Strategy
St t
& Business
B i
Development for Slide
VP of Business & Corporate
Development at LinkedIn
EVP off Business
B i
Development
D
l
t and
d
Policy for PayPal
Bob Lee CTO
Founder at Twubble
Software Engineer at Google
Jim McKelvey Co-Founder
Owner at Mira
Co-founder at Third Degree Glass
Factory

Other Key Advisors

Gideon Yu
Roelof Botha
Ryan Gilbert
Alyssa Milano
Greg Kidd
Andrew Rasiej
2

The Market
Mobilepaymentsisamassive,rapidlygrowingbutunderpenetratedindustry
$250
$200

$214

CAGR 10 14: 68%

$162

$150
$100
$
$50

$16

$46

$81

$119

$0
2010

2011

2012

2013

2014

2015

Dollar Amount of Mobile Payments In The U.S. (billions)*

Opportunity

Market Changes

Traditional card readers

are unwieldy & expensive

Rapidly burgeoning interest

in mobile payments

Difficult for small business

owners to use card services

NFC tech adoption but

credit card usage prevails

Alternative online services

are expensive

Capturing a loyal user base

has huge revenue potential

*Source:Aite Group

Square Positioning
First mover advantage
Scalable across
multiple platforms
Low costs address
target customer needs
3

The Product
Squaresatisfiesbuyersandvendorsthroughaneasytoadoptplatform
Consumer Desires

Designate amount

Use credit cards

Swipe and go

Swipe credit card

Vendor
e do Desires
es es
Accept credit cards
Save on processing fees
Simple and intuitive
interface

Enter tip and sign

with finger on-screen
Transaction
completed

The Technology
Transaction

Magnetic reader that plugs into headphone jack of smartphone

Data Conversion

Once card is swiped, data is converted into an audio signal

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

Value to User

Online Card
Processing

Scan and go;

Intuitive interface

Requires some training;

Problems require technician

Tied to computer;
Manual input
of card information

C
Costs

Free card reader;

Flat 2.75%
2 75% fee

Expensive reader;
Up to 5% variable + 30 flat rate;
Expensive
pe s e upda
update
ea
and
d
maintenance fees

Up to 3.5% variable rate

+ 30 flat
a rate
ae

Saves money;
Saves time;
Accessible across
multiple devices

Familiar to user;
Technical support

Cheaper than traditional;

Only requires computer and
internet

E
Ease of
Use

Traditional Card
Processing Firms

Ben
nefits

Squareoffersthesimplestandmostcompellingwaytoacceptcreditcards

Customer Acquisition
Throughwideexposure,Squaretargetsanyonethatseekseasypayment
Target Customer
Small businesses, independent workers, individuals selling goods
Market: anyone who accepts payments
Squares
S
C
Cost:
t gaining
i i
customer
t
awareness + free
f
card
d reader
d

Selling Points

Advertisement

Retail

Easy convenient
everyday usage
No surprise fees
Adaptable across
multiple devices

Social media and

internet advertising
g
Traditional
mediums with max
exposure/min cost

Selling through
online registration
g
and Apple stores
Follows razor blade
retail model

Acquiring 100,000+ customers per month

6

Competition and Defensibility

ItsestablishedpresenceandnichemarketgiveSquareacompetitiveedge

Direct Competitors:
GoPayment, PAYware

Emerging Market:
N
Near
Field
Fi ld
Communications

Characteristics

Square
Advantages

Similar technology
gy
application
Higher fees and rates
for certain options
Intuit or VeriFone
service support

Established clientele
as first mover
No credit check
No monthly fees
Device compatibility
Apple partnership

Built
Built-in
in hardware for
phones
Potentially eliminate
use of credit cards
Cross interaction with
other
th phone
h
apps

POS experience
Compatible across
differing hardware
Unique market focus
Can integrate NFC
t h l
technology

Financial Model and Projections

Squarewillmakeforalucrativeinvestmentevenwithconservativeprojections
By Year End
y
Processed Per Day
y ($
($mm))
Payments
Growth Rate
Annual Revenue
EBITDA
g
EBITDA Margin
EBIT
EBIT Margin

2011E
1.1
1000%
$ 10.59 $
0.53
5%
0.32
3%

2012E
2012E
2014E
2015E
7.7
23.1
41.6
49.5
600%
200%
80%
19%
74.11 $ 222.34 $ 400.21 $ 476.25
4.45
20.01
44.02
52.39
6%
9%
11%
11%
2.96
13.34
28.01
33.34
4%
6%
7%
7%

$120
$100
$80
$60
$40
$20
$-

Assumptions
p
Investment: $20m
Stake: 20%
Hurdle Rate: 15%

2011E 2012E 2013E 2014E 2015E

Best

Base

Worst

IRR of 55%
Sale or IPO at 2.5x
2015 Revenue
8

Why Invest Now

Additionalinvestmentwillgenerateoutsizereturnsduetogrowthprospects
Need 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 return

Competitive pressures
increasing

Customer adoption will

scale up exponentially

Expected
pec ed spe
spend
d in
advertising and
customer acquisition

The key
y to success will
be in locking in a loyal
customer base early

$27.5
$20.0

$10.0
$
Series A

Series B

Proposed
Series C

* Additional
capital from
Sequoia and
new investor
consortium
co
so u

Exit Strategies
SquarewillhavemultipleexitopportunitiesthatwillresultinahighROI
Highly Viable M&A Prospects

IPO Considerations
Depends on user base
expansion success and
consideration of M&A
High standalone potential

Multiple buyers possible competitive bidding

Valuable user base with recurring revenue stream
Clear fit into product portfolios

Large Companies
Competing in
Mobile Space
Service Providers
and Hardware
Manufacturers

Potential Valuation

Rev

EBITDA1

Payment Processors

$700mm-$1.4bn

$450mm$800mm
$800

0
$400

500
$700

1000
$1000

($mm)

1500
2000
$1300
$1600

10

Appendix
IndexofPresentationandAppendixSlides

Presentation Slides

ppe d S
des
Appendix
Slides

1. The Square Proposition

Financial Assumptions

2. Management Team

Financial Model

3 The
3.
h Market
k t

Assumptions
A
ti
from
f
Comparables

5. Value to User

Future Valuation Perspective

6. Customer Acquisition

C
Concerns
and
d Responses
R

7. Competition and
Defensibility

Partnerships

Company Vision

8. Financial Model and

Projections

Market Analysis

4. The Product

9. Why Invest Now

10. Exit Strategies

Financial Assumptions
Growthexpectedtoscaleexponentiallyandvaluationwillincrease

M
O
D
E
L

D
R
I
V
E
R
S

Growth Assumptions
Expected to process $40 million in transactions in Q1 of 2011
Currently
y signing
g g up
p 100,000
,
merchants per
p month
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

Valuation Assumptions
Valued at $240m after last round of funding
g in January 2011 ($27.5m)
(
)
Valued at $40m at first round of funding in December 2009 ($10.0m)

Sources
DealBook, TechCrunch, Wall Street Journal, VentureBeat, Capital IQ

Financial Model
By
ByYear
Year End
End
Payments
yy
ProcessedPer
PerDay
Day
(($mm)
Processed
y y($
($mm)
) )
Payments
Growth
Rate
Growth Rate
Annual Revenue
Revenue
Annual
EBITDA Margin
EBITDA
EBITDA
EBITDA Margin
EBIT Margin
ag
EBIT
EBIT
EBIT Margin

2011E
2011E
1.1
1.1
1000%
1000%
$$ 10.59
10.59 $$
5%
0.53
$
0.53
5% $
0 3%
0.32
32
$
0.32 $
3%

Growth Assumptions
Best Case
Base Case
Worst Case

2011E
1000%
1000%
1000%

EBIT
Best
Base
Worst

NPV & IRR Calculation

$

NPV @ 15%
IRR

$
$
$

(20 00) $
(20.00)

2011E
0.32 $
0 32 $
0.32
0.32 $

2011E
0 06 $
0.06

$ 79.95
55%

2012E
2012E
2014E
2015E
2012E
2013E
2014E
2015E
7.7
23.1
41.6
49.5
7.7
23.1
41.58
49.4802
600%
200%
80%
19%
600%
200%
80%
19%
74.11 $$ 222.34
222.34 $$ 400.21
400.21 $$ 476.25
476.25
74.11
6%
9%
11%
11%
4.45
20.01
44.02
52.39
4.45
20.01
44.02
52.39
6% $
9% $
11% $
11%
4%
%
6%
7%
2 96
2.96
13 34
13.34
28 01
28.01
33 7%
33.34
34
2.59 $
13.34 $
29.22 $
34.77
4%
6%
7%
7%
2012E
800%
600%
200%

2013E
400%
200%
100%

2014E
100%
80%
20%

2012E
3.34 $
2 59 $
2.59
1.11 $

2013E
28.59 $
13 34 $
13.34
3.81 $

2014E
69.56 $
29 22 $
29.22
5.56 $

2012E
0 52 $
0.52

2013E
2 67 $
2.67

* represents 20% stake

2014E
5 84 $
5.84

2015E
50%
19%
5%
2015E
104.34
34 77
34.77
5.84

2015E
6 95 $
6.95

Sale
238 12
238.12

Assumptions from Comparables

Marginprojectionsderivedfrommedianofcomparablecompanies
Company Name

Ebay Inc.
Gerber Scientific Inc.
Iltron Inc.
Inc
Iteris Inc.
Mastercard Incorporated
PAR Technology Corp.
Perceptron Inc.
VeriFone Systems Inc.
Inc
Veritec Inc.
Visa Incorporated
Summary Statistics

High
Low
Mean

Median

LTM Gross

LTM EBITDA

LTM EBIT

Margin %

Margin %

Margin %

72.0%
30.7%
30 9%
30.9%
43.5%
100.0%
26.1%
37.3%
37 7%
37.7%
60.8%
84.4%

31.0%
4.5%
14 0%
14.0%
8.3%
53.3%
2.7%
0.8%
14 8%
14.8%
(64.2%)
60.0%

22.7%
2.9%
8 2%
8.2%
6.4%
50.7%
1.6%
(1.0%)
11 3%
11.3%
(67.8%)
56.8%

LTM Gross
M
Margin
i %

LTM EBITDA
M
Margin
i %

LTM EBIT
M
Margin
i %

100.0%
26.1%
52.3%

60.0%
(64.2%)
12.5%

56.8%
(67.8%)
9.2%

40.6%

11.2%

7.3%

LTM Net

LTM Total

Income Revenues, 1 Yr
Margin %

Growth %

19.7%
(3.0%)
4 6%
4.6%
(8.3%)
33.3%
1.3%
1.9%
11 3%
11.3%
(86.5%)
37.0%

4.9%
21.0%
33 9%
33.9%
(1.2%)
8.6%
7.6%
30.4%
24 3%
24.3%
108.0%
17.0%

LTM Net
LTM Total
I
Income
Revenues, 1 Y
R
Yr
Margin %
Growth %
37.0%
108.0%
(86.5%)
(1.2%)
1.1%
25.5%

3.3%

19.0%

Future Valuation Perspective

Squaresvaluationwouldpriceatpremiumtomultiplesduetoearlystage
Company Name

TEV/Total TEV/EBITDA LTM

Revenues LTM -

- Latest

TEV/EBIT LTM -

NTM

NTM

NTM Forward

Latest

TEV/Forward

TEV/Forward

P/E

Total Revenue

EBITDA

Latest
Ebay Inc.
G b S
Gerber
Scientific
i tifi Inc.
I
Iltron Inc.
Iteris Inc.
Mastercard Incorporated
PAR Technology Corp.
Perceptron Inc.
Inc
VeriFone Systems Inc.
Veritec Inc.
Visa Incorporated
Summary
y Statistics

3.83x
0 49
0.49x
0.71x
1.18x
5.46x
0.29x
0 53x
0.53x
4.49x
4.03x
6.12x

12.34x
10 95
10.95x
8.55x
8.47x
10.23x
10.73x
67 04x
67.04x
30.27x
NM
10.21x

16.88x
16 80
16.80x
11.10x
14.51x
10.77x
17.98x
NM
39.89x
NM
10.80x

3.3x
05
0.5x
0.7x
1.2x
4.9x
0.3x
0 5x
0.5x
4.0x
5.5x

9.4x
79
7.9x
6.3x
7.7x
9.0x
7.9x
9 7x
9.7x
19.3x
8.6x

15.9x
21 9
21.9x
16.5x
13.0x
15.8x
23.7x
37 3x
37.3x
29.6x
15.3x

TEV/Total
/
TEV/EBITDA
/
LTM

TEV/EBIT
/
LTM -

NTM

NTM

NTM Forward

Latest

TEV/Forward

TEV/Forward

P/E

39.89x
10.77x
17 34x
17.34x
15.66x

Total Revenue
5.5x
0.3x
2 3x
2.3x
1.2x

EBITDA
19.3x
6.3x
9 5x
9.5x
8.6x

37.3x
13.0x
21 0x
21.0x
16.5x

Revenues LTM High

Low
Mean
Median

Latest
6.12x
0.29x
2 71x
2.71x
2.51x

- Latest
67.04x
8.47x
18 75x
18.75x
10.73x

Concerns and Responses

Concern
NFC will overtake credit
card use

Response
Credit cards too engrained in
daily life to become outdated
in the near future

Large companies will

leverage ability to
provide at lower prices

Square has a different

target audience and has
the first mover advantage

Consumer concerns over

security on a newly
introduced platform

Partner bank verifies service

and secure server makes
security claims unfounded

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

Partnerships
ThereareamultitudeofpartnershipopportunitiesforSquare

Present

Future

Company Vision
Square: 0 to $60 in under 10 seconds
Target consumers are
small business

Free app for iPhone,

iPad
iP d & Android
A d id

Daily deposit to your

bank account

Simple pricing, free

shipping

Vision is to create zero friction and

complexity around payments
Emphasis on simplicity & efficiency

The simplest way to

make money

Market Analysis
Strong market growth and advantageous company position

Market

Position

Expanding &
unsaturated
marketplace

First Mover Advantage

Few comparable
competitors
Currently underfunded

Large Competitors

Competitors

Ie. Google, Apple

Not focused enough to
drive Square out of its
niche market

High growth
potential

Small Competitors
Ie. VeriFone, Intuit
Lack first mover
advantage