Reading about Square’s latest $100 million in capital raised at a $1 billion valuation, it’s tempting to write another Bubble Story. While it’s undeniable that it would be hard to do that financing in the wake of the recent Sequoia RIP Good Times era, there’s something more interesting to think about here.
First, let me say the Square folks are doing exactly the right thing to raise as much as they can as soon as they can while the Bubble lasts. That was essentially my advice to entrepreneurs in my message to Founders that the Bubble Clock is Ticking. Enough said about Bubbles and Clocks, Square is an interesting deal from another perspective–it’s a “Golden Crumbs” financial scaling on the back of a new paradigm story. Money guys love that story. They love to get into it over and over again.
“Golden Crumbs” is a term I got from Bonfire of the Vanities. It stems from business opportunities that involve taking a very small tax on a very large volume. It’s a beautiful thing to have a Golden Crumbs opportunity, particularly when it is made all the more plausible by prospects of a paradigm shift. We’ve watched first the Internet, then Social Networks, and lately Mobile (Square’s paradigm shift) step up as reasons to believe by way of paradigm shift. The ideal paradigm shift is one the incumbents have a hard time participating in. Such shifts are called “disruptive”, and they give the Golden Crumb harvesters time to get really big before they have to deal with the last generation’s Golden Crumb Landed Gentry.
Couple the sexy business model that is Golden Crumbs, the Team that made Square happen, the Mobile Paradigm Shift that makes it possible to Believe and it’s got to be hard for investors not to like Square. After all, the last deal that was lined up this well was PayPal, wasn’t it? If these guys can really change things with all that capital, the willingness to Believe in them, and the state of the market, they will have earned that valuation.
I can tell you one thing, payment processing is hard for small businesses, and the Internet has changed the landscape in so many ways that help foster small business. Why not fix the payments problems too?
(Cross-posted @ SmoothSpan Blog)