Square, Inc.: Financing a Unicorn
(4 pages of text)
Case (Pub Mat)
In 2014, mobile payment company Square, Inc., based in San Francisco, California, was one of an increasing number of venture capital financed firms with valuations above US$1 billion, which had become known as unicorns. By September 2014, the company had raised $371 million over five rounds of venture capital financing. Since the first funding round had been almost five years previous, it was possible that venture funding investors would be pushing for an exit. The firm considered an acquisition offer and an initial public offering, but it was apparent that neither option would yield its desired $6 billion exit value. With $139 million in cash on hand, Square, Inc., was on track to use $138 million of cash in 2014. It approached venture capital investors for a sixth round of financing. It was then up to the investors to determine if they could agree to suitable terms.
The case is suitable for core corporate finance courses at the undergraduate and graduate level. It illustrates the venture capital fundraising process and complements a module on raising equity and the initial public offering process. The case is also suitable for courses in entrepreneurship, venture capital, valuation, and mergers and acquisitions. After working through the case and assignment questions, students will be able to do the following:
- Explain how venture capital limited partnerships operate and how private equity funds are structured.
- Describe how to construct a capitalization table after a round of financing.
- Describe common provisions in venture capital term sheets and their effects on shareholder returns.
- Summarize the state of the venture capital market in 2014 and the rise of unicorns.
Finance and Insurance
United States, Large, 2014
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