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Square’s IPO Terms Put Valuation Below Latest Funding Round

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Re: Square’s IPO Terms Put Valuation Below Latest Funding Round

#81

Post by x0x0 »

TheSpiceIsLife wrote: post #80
x0x0 wrote: post #39

Earlier quoted context omitted.

Seeing a business' cash flow should give you great insight into their ability to repay. Just a few of the things you can calculate that a bank can't: microtrends in income, repeat customers (and trends thereof), changes in transaction size as well as volume, etc. Plus it's easier to collect on that loan.

I don't follow why a bank can't see cash flow? I live in Australia, and here almost everyone is using PayPass by MasterCard or PayWave by VISA - both are contactless PINless card payments. All those transactions have to go in to the merchants bank account.

Um, sure -- but they get bulk deposited, not individual transactions. The merchant account is what sees the individual transactions, and that bank generally isn't the one businesses go to for loans afaik.

Re: Square’s IPO Terms Put Valuation Below Latest Funding Round

#82

Post by TheSpiceIsLife »

x0x0 wrote: post #81
TheSpiceIsLife wrote: post #80

Earlier quoted context omitted.

I don't follow why a bank can't see cash flow? I live in Australia, and here almost everyone is using PayPass by MasterCard or PayWave by VISA - both are contactless PINless card payments. All those transactions have to go in to the merchants bank account.

Um, sure -- but they get bulk deposited, not individual transactions. The merchant account is what sees the individual transactions, and that bank generally isn't the one businesses go to for loans afaik.

Oh yeah, true. Excuse my ignorance. Although in Australia the merchant banks also do business lending.

Re: Square’s IPO Terms Put Valuation Below Latest Funding Round

#83

Post by wgx »

sliverstorm wrote: post #64
notJim wrote: post #55

Earlier quoted context omitted.

I think the problem is that though Square really did change things there (I agree w/ you), the space now is very competitive with a lot of different players, and it's not clear what Square can do that their competitors can't. It doesn't seem like there's really much lock-in or network effects that are helping them out.

At least for a while they had powerful brand name recognition and a head start. Bigger, badder competitors (i.e. VISA) seem like they haven't been interested in competing with Square, and you can leverage momentum & recognition against smaller newcomers.

VISA are investors in Square.

Re: Square’s IPO Terms Put Valuation Below Latest Funding Round

#84

Post by 7Figures2Commas »

numlocked wrote: post #36
JonFish85 wrote: post #34

To me the biggest question is what, exactly, Square does? Years ago they were the company that made it easy for people to accept credit card payments who otherwise wouldn't want to / be able to (mom & pop stores, farmers' markets, etc). But you don't build a multi-billion dollar company just there, it seems that the margins are too thin and the volume just isn't there to make up for it. Since then, they've done their…

Re: their small business 'loans' -- with the caveat that I am not an expert: The "loan" distinction is important not for semantic reasons but practical one -- they are offering small businesses cash advances . These are different from loans because they are not secured . There are no assets put up as collateral. However Square believes they can do this better than other services because they can effectively secure th…

> However Square believes they can do this better than other services because they can effectively secure the advance by taking a piece of each card swipe at the merchant's point of sale system.

Payment processors have been active in the merchant cash advance space for a long time. What you describe (split withholding) is not new, nor is it something that only Square does. Where split withholding isn't available, merchant cash advance providers set up lock box accounts. This is not a complicated process.

Also of note is the fact that according to Square's S-1, it "fund[s] a significant majority of these advances from arrangements with third parties that commit to purchase the future receivables related to these advances."

Re: Square’s IPO Terms Put Valuation Below Latest Funding Round

#85

Post by 7Figures2Commas »

x0x0 wrote: post #39
numlocked wrote: post #36

Earlier quoted context omitted.

Re: their small business 'loans' -- with the caveat that I am not an expert: The "loan" distinction is important not for semantic reasons but practical one -- they are offering small businesses cash advances . These are different from loans because they are not secured . There are no assets put up as collateral. However Square believes they can do this better than other services because they can effectively secure th…

Seeing a business' cash flow should give you great insight into their ability to repay. Just a few of the things you can calculate that a bank can't: microtrends in income, repeat customers (and trends thereof), changes in transaction size as well as volume, etc. Plus it's easier to collect on that loan.

I consult in this space. A few points:

1. Square provides merchant cash advance. This is not a loan.

2. Payment processors like Square have knowledge of a company's credit card receipts but cannot determine a company's cash flow unless they obtain additional documentation from the merchant. Calculating cash flow requires not just incomings but outgoings of cash. Payment processors obviously don't have the latter.

3. Merchant cash advance is a last-resort financing option for small businesses. Despite your implied suggestion that merchant cash advance providers have underwriting advantages over banks, there's a reason merchant cash advance is frequently the most expensive form of small business financing.

Re: Square’s IPO Terms Put Valuation Below Latest Funding Round

#87

Post by MichaelGG »

jonknee wrote: post #69
MichaelGG wrote: post #37

Earlier quoted context omitted.

Oh, interesting. I looked up recent IPOs on Nasdaq and ones from last month have options now. First Data (FDC) has been trading only 3 weeks and has options. But really low volume and ridiculous spreads. RACE has been trading only 3 weeks for less time and has more options. Perhaps they are exceptional due to their size? Not that this would help with FB a whole lot since it'd have dropped a fair amount by the time yo…

The rules aren't based on time, but basically on diversity of shareholders (there need to be a lot of shareholders and a lot of shares outstanding) which makes sense. You need 7m publicly held shares outstanding (many IPOs don't do this, a lot of shares are controlled by underwriters and insiders who can't sell at the IPO) at least 2,000 shareholders and some minimum trade volume. There's a minimum share price too, b…

Do you know where I can get the official docs on how options are controlled?

Re: Square’s IPO Terms Put Valuation Below Latest Funding Round

#88

Post by jonknee »

MichaelGG wrote: post #87
jonknee wrote: post #69

Earlier quoted context omitted.

The rules aren't based on time, but basically on diversity of shareholders (there need to be a lot of shareholders and a lot of shares outstanding) which makes sense. You need 7m publicly held shares outstanding (many IPOs don't do this, a lot of shares are controlled by underwriters and insiders who can't sell at the IPO) at least 2,000 shareholders and some minimum trade volume. There's a minimum share price too, b…

Do you know where I can get the official docs on how options are controlled?

CBOE probably has them, or possibly through your broker, but they handle compliance so the nuance of the rules isn't terribly important (if you can buy or sell options for a security through your broker they have already met the standard).

The numbers I mentioned are in the Federal Register, but quite a while ago. The numbers are still current, though other parts may have changed:

http://www.gpo.gov/fdsys/pkg/FR-1994-02-07/html/94-2716.htm

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