

In raising cash, Square heads for $6B valuation: sources - lsh123
http://www.cnbc.com/id/101949094

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dang
Url changed from [http://www.businessinsider.com/square-is-
raising-200-million...](http://www.businessinsider.com/square-is-
raising-200-million-at-a-6-billion-valuation-2014-8), which points to this.

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ChuckMcM
I find this an interesting trend:

 _" A recent valuation of $5 billion was reported earlier this year after
investors bought shares from employees."_

Basically if you're an engineer and you're looking for part of your pay as
equity, that doesn't work if there is no exit of some form. But you can
'buyback' the the option pool (kind of like an internal Second Market type of
deal) which lets you keep the cap table pretty stable but both bring in new
investors and keep your employees incented.

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AndrewKemendo
Seems like this would be tricky to structure in a term sheet to make sure
parties were happy - I know investors generally aren't in favor of option
pools that are not in their favor. Am I off base on that thought?

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ChuckMcM
All of that is really specific to a specific company. So it is hard to make
any specifically applicable comments without access to the terms under which
the stock was issued.

That said, typically employee stock is Common stock and Investor stock is
Preferred stock. The difference is usually how it is treated in a change of
ownership. So buying back employee Common stock probably doesn't change either
the investor share or their voting rights or their basic return. It does
however give them a 'kick' if their stock converts to common after liquidation
preferences are met and it participates in the remaining distribution.

The trend though is to keep employees motivated even when an IPO isn't on the
near horizon. I've known people who were really 'trapped' in that they had an
equity position but couldn't afford the tax hit of exercising their options[1]
and holding them for some future event. If you let them sell their shares in a
round (possibly at a discount against preferred shares) you give them some
share of the success to date. In California that can be the difference between
keeping your key players and losing them to a place indicating a faster exit.

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Shinkei
Can somebody ELI5 why Square wouldn't develop infrastructure to 'cut-out'
Mastercard/Visa from this transaction? I mean, it seems like they could issue
a credit card to begin competing with existing brands. I guess I just don't
understand enough about these 'interchange' fees. So does the customer's bank
or storefront's bank pay for this transfer? If this is infrastructure similar
to broadband lines, are they monopolistic or could a competing company lease
bandwidth on the same lines?

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lsh123
This diagram summarizes interchange fees really well:

[http://rortybomb.files.wordpress.com/2009/11/interchange_fee...](http://rortybomb.files.wordpress.com/2009/11/interchange_fee.jpg)

While Square can develop the technical infrastructure, it might be tough from
business perspective. This is a two-sided market and right now Square has
penetration on the merchant side. The Square's P2P payments app might be an
attempt to get into consumer market. It will be interesting to see how it will
go. In the past similar attempts failed and the only recent example of a
widely adopted 2-sided payments network is PayPal. Mobile is a very
interesting space but nobody figured it out yet.

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johnrob
That diagram doesn't show how Visa/Mastercard make their money (unless they
act as issuers or acquirers). Where is their cut?

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lsh123
Right. Both issuer and acquirer banks pay per-transaction and/or annual fees
to Visa/MC to participate in the network. These deals are highly custom but it
is roughly 0.1% of payment volume.

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kolev
Are you kidding me? Just about of Snapchat's? This comes to tell us how
ridiculous the valuations are nowadays!

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skizm
Why? Facebook just paid 19 billion for WhatsApp. Investors are hoping Snapchat
produces similar results.

