Jin Lee/Bloomberg NewsSquare, a credit card reader made for smartphones, is plugged into an iPhone.
Square, the fast-growing mobile payments company, does not suffer from a lack of buzz.
Helmed by Jack Dorsey, one of the founders of Twitter, it is garnering significant attention for its bite-size credit card reader, which facilitates payments on mobile devices. The company, based in San Francisco, processes almost $4 million in transactions a day for individuals and small businesses like limousine drivers and beauty salons. It’s also attracting capital from the largest investment firms in Silicon Valley.
Early Wednesday, the start-up announced the completion of a $100 million financing round, led by Kleiner Perkins Caufield & Byers, a leading venture capital firm that has backed Google and Amazon. The round values the company at $1.6 billion, according to two people briefed on the matter.
Square’s valuation has soared in a short period of time. In January, the company raised $27.5 million in a financing round led by Sequoia Capital. The deal, which also included several private and strategic investors — like Khosla Ventures and Jeremy Stoppelman, Yelp’s chief executive — valued the start-up at $240 million. In late 2009, Khosla Ventures invested $10 million in Square, at a modest $45 million valuation.
Even as Square’s war chest rapidly grows, it remains unprofitable. According to one person who has reviewed the company’s financials projections, Square is on track to notch gross revenue of about $40 million. But its adjusted operating income is expected to be in the red, at negative $20 million. The hope, the person said, is for Square to reach profitability in 2012 with gross revenue of at least $200 million.
A lack of profit is not a unique to Square, a young start-up that opened its service to the public late last year. Groupon, the popular social shopping site, recorded $713 million in revenue last year, but its loss topped $450 million, according to its latest filing. Pandora, which went public earlier this month, posted a loss of $1.8 million last year.
To get to profitability, the company is banking on hockey-sticklike growth. Earlier this year, Mr. Rabois told DealBook, he hoped to “end the year processing billions of dollars of transactions on an annual basis, with millions of businesses in the U.S.”
The company is trying to broaden its appeal by targeting various pain points in payments processing. In addition to its marquee card reader, Square has introduced Register, an application that turns the iPad into a digital register for merchants, and Card Case, an application for consumers that helps them find local businesses and pay through online accounts.
Still, analysts have expressed caution on Square, because it is operating in the highly competitive market of mobile payments. The technology giant Google, which has some $37 billion in cash on hand, recently introduced Wallet, a mobile application that lets users pay by swiping their smartphones at retail terminals. Another rival, Intuit, sells GoPayment, a similar service to Square’s original card reader.
As its competitors bulk up, Square is trying to build on its momentum by stacking its board with well-known figures in the technology community. The company announced on Wednesday that a Kleiner Perkins partner, Mary Meeker, once called the Queen of the Internet, is joining Square’s board. She joins Mr. Dorsey; the company’s chief operating officer, Keith Rabois; a Sequoia Capital partner, Roelof Botha; Lawrence H. Summers, a former Treasury secretary; and the venture capitalist Vinod Khosla.
An earlier version of this post misspelled the name of the venture capital firm that led a $100 million financing round in Square. It is Kleiner Perkins Caufield & Byers.