Square Worth $40 Million Before Launch

square-flat-logo27Earlier today we wrote about Square, the new payment service cofounded by Jim McKelvey and Twitter creator Jack Dorsey. We also interviewed Dorsey and used Square to buy a coffee.

We knew Square had closed a hyper-competitive venture round. What we didn’t know until recently was the size and valuation of that round. Square is valued at a massive $40 million or more after raising $10 million in funding, and the service is yet to launch publicly for anyone to use.

Khosla Ventures is taking most of the $10 million venture round, we’ve heard from multiple sources. This is Gideon Yu’s (former Facebook CFO) first investment since joining Khosla Ventures in August. Other investors are joining the round as well, and we’re now trying to confirm those individuals and funds.

The feeding frenzy around Square isn’t just because of its celebrity founder, say our sources. This is a bold foray into a huge, and complicated, market: physical payments. “What PayPal was to eBay, Square is to the real world,” said one person close to the company.

Visa, Mastercard and American Express have all agreed to allow Square to take payments. This is notable because, like PayPal, Square allows anyone to have a virtual merchant account and take payments directly. Getting a merchant account isn’t trivial, which is why only actual businesses usually do it. But with Square, people can sell tshirts at football games. Street vendors can take credit cards. We can sell tickets to our events on site, etc. The green field potential is massive.

In fact, there are many similarities between Square and Eventbrite, which just raised $6.5 million from Sequoia Capital. Eventbrite extends ticketing to everyone, and allows people to sell tickets to school plays, church events, local concerts, whatever. TicketMaster never addressed this market because they were so busy with the fat part of the market, big venues. Similarly, Square lets anyone take physical credit card payments with their mobile phone and a cheap attachment to take the swipe.

Eventbrite is already doing $100 million in gross ticket sales annually. It won’t be long, I suspect, before Square is processing that level of payments, too.

Which is why the valuation makes sense. Square will be a huge win or it’ll go out of business. Giving the company this high valuation won’t affect the end ROI much either way. Which is probably why so many people are rumored to be begging to get in on that last open piece of the round.