Weekly Wrap #60: Square Sandwich, SPAC Peg and Startups Spreading in ANZ
Weekly Wrap #60: Square Sandwich, SPAC Peg and Startups Spreading in ANZ
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The future of finance
Unless you’ve been living under a rock this week, you’d know that Square is buying Afterpay for A$39B in an all stock deal. It will be the biggest M&A transaction in Australian history, resulting in LOADS of deal coverage in the media. In fact, Afterpay has featured in not one but 38 AFR articles since Monday’s announcement.
Take your pick of opinions on the deal: The short-sighted view - “Square overpa[id]”; The insider view - “this combination is a winner”; and (paraphrasing) “the banks are screwed”, which has this pearler of a paragraph:
Bankers say they’re getting nervous that these (mostly) US payment companies could win retailer relationships with snazzy software and devices, then offer banks’ customers loans without having to comply with the full gamut of banking regulation and investment in maintaining critical local infrastructure.
Bold added to accentuate ridiculousness, lack of accountability and entitlement. Snazzy software!!
Sure, big banks, that’s definitely the problem. Not the historic lack of innovation culture, blinkered view of customers’ needs, short-term investment mindset, low sense of urgency, and fear of risk that, together, results in underserved customers wanting to shop around for a holistically better experience.
Anywhoo, here’s our tl;dr version of the Square/Afterpay deal and the bull case, if you need it:
This is a huge bet by Square. At the time of the announcement the price represented: a value of around 25% of Square’s market cap; ~30% over Afterpay's closing price on Friday; and 42 times Afterpay’s 2021 revenue.
Why would it pay such a premium?
Square is unbundling traditional banks and credit cards and, essentially, creating a next gen bank from scratch.
It started life in 2010 as a mobile payment solution, enabling merchants to accept credit card payments by connecting to a mobile device’s audio jack. Square has since expanded to offer a suite of financial services to millions of merchants (primarily SMBs) and, via its Cash App, 36 million monthly active consumers.
More recently, it has been making some bigger plays. This year it officially became a business bank in the US, formed a new Bitcoin business unit named TBD and bought a majority stake in Tidal, the streaming service backed by Jay Z, Beyoncé and friends.
So Square has a strong consumer business, and a solid small merchant business. But it hasn’t been able to marry the two ends and capture all the value in between—clip of a bigger pie and more valuable data—when the two sides transact.
Afterpay may be just the glue it is looking for. Afterpay has been masterful at acquiring and retaining both merchants and consumers, in one product. It also enables Square to tap into to ecommerce and bigger retailers. Meanwhile, Square provides Afterpay an instant 36+ million customer base.
Magic.
Other mind blowing data points:
Square’s CEO Jack Dorsey is also CEO of Twitter. Both companies combined were worth US$16b in 2016. They’re now worth US$180b.
Afterpay launched in 2014 and listed on the ASX in 2016. Incredible value creation in less than 7 years.
The $39b price tag is still around 22% below the company’s February all-time high of $160 per share. It closed this week at $132 - a market cap of a little over $38b.
Tencent bought a 5% stake in Afterpay around April 2020 at an average price of $22.63 (h/t Alan Tsen).
Afterpay gets a board seat. We envy the person—likely to be Chair Elana Rubin (rather than the founders who will become Square execs)—who gets to sit alongside Square’s hugely talented board, including Jay Z (who took a board seat as a part of the Tidal acquisition), Larry Summers (former US Treasury secretary & influential economist), Amy Brookes (Chief Innovation Officer at NBA) and the queen of the internet herself, Mary Meeker (Bond Capital). What a line up!
Bonus watch: The Afterpay founding story.
ANZ expansion & launch bonanza
Baby steps. Xplor acquired Discover for an undisclosed amount. Discover is NZ’s leading childcare centre management solution. Xplor Technologies provides administrative software across education, health and fitness, boutique wellness, field services and personal verticals. The deal expands Xplor’s childcare customer base to more than 8,500 centres across ANZ. This deal is close to our hearts (and brains) - advising Xplor on its NZ expansion strategy and product due diligence was one of our favourite projects of 2020.
Crypto card. CoinJar is launching Australia's first cryptocurrency Mastercard, allowing you to spend your crypto like cash.
Carbon conscious. CoGo is launching in Australia with an Experian partnership. Banks who use Experian’s ‘Look Who’s Charging’ transaction categorisation solution will offer consumers the ability to track their carbon emissions directly via their banking apps.
There’s a Xero app for that. Xero launched a new App Store, replacing the existing app marketplace. It is designed to make it easier for Xero’s customers discover and purchase apps, while also helping Xero’s app partners grow on the platform. Taking a leaf out of Apple’s App Store playbook, it will charge a commission of 15% (excl fees) on subscriptions for new customers that sign up through the Xero App Store.
Wild creations. Blackbird Foundation launched a new program awarding $1,000 cash grants to people aged 16-25 working on creative projects in ANZ. Apply here.
Acoustic is expanding into Australia, opening a new local data centre and hiring across Sydney and Melbourne. Its marketing cloud product (spun out of IBM) helps marketers gain insight, plan, and execute personalised, data driven experiences across channels.
Rate me 5 stars. Podium is ramping up in Australia, hiring 65 staff. Podium’s messaging app helps small & medium businesses ask customers for reviews, collect payments, communicate with customers, and capture leads.
Fun fact, both Podium (above) and Acoustic’s exec teams are all male and (mostly) white. Guyzzz. Sometimes it feels like we’re making sloth-like progress.
Local raising news
No new unicorns this week. But props to the busy bee team at Equity Venture Partners (EVP) - three announcements in one week!
v2food raised $72m to ramp up expansion into China and Europe and scaling manufacturing of its ‘mince’ that is made from legumes. v2food is a plant protein joint venture between Hungry Jacks billionaire Jack Cowin and the CSIRO. V2food launched in October 2019, and has now raised $185m.
TechLend secured $50m venture debt from Partners for Growth. TechLend’s bridging loans let borrowers buy a house before they have sold their existing one. Customers can access between $250,000 and $3m for up to six months. It is interest-free for the first 90 days, but has a “set-up cost” of 1.99%+ for the initial three-month term.
MGA Thermal raised $8m led by Main Sequence. It was also the first investment by a new VC, NZ’s Climate Venture Capital Fund. Energy storage remains one of the key challenges in clean energy. Electricity produced by burning fossil fuels can be scaled up or down in response to fluctuating demand. But you can’t control when the sun shines or how hard the wind blows - it needs to be produced whenever possible and then stored for later use. MGA Thermal is using patented material ‘miscibility gaps alloys’ to build blocks that can store excess energy generated by renewable power stations. Founder Erich Kisi explains:
“Think of a block as being like a choc-chip muffin heated in a microwave. The muffin consists of a cake component, which holds everything in shape when heated, and the choc chips, which melt. The energy that goes into melting the choc chips is stored and can burn your mouth when you bite into the muffin… Melting energy is more intense than merely heating something up and that melting energy is concentrated near the melting temperature so energy can be released in a consistent way.”
Pendula raised $6.75m for its automated conversational texting product. Led by MA Financial Group and EVP.
Foodbomb raised $4.5m for its order management platform. Good name. The round was backed by EVP, Athletic Ventures, Aura Ventures, Tony Gandel’s family investment vehicle, Tahmedia, and Platform Advisory Partners.
Barcats raised $2.4m for its hospitality jobs and training site.
Operata raised $2.2m from investors including Tidal Ventures, Black Nova VC, Flying Fox Ventures and Aprill and Matt Allen. Built exclusively on AWS, Operata helps contact centres (e.g. Telstra, Boral and AMP) measure, optimise and maintain voice performance.
Programa raised $2m co-led by EVP and Investible. Programa’s marketplace brings together both interior designers and brands with a single site. It also offers designers tools to manage their projects, workflow, products and purchasing.
Wool+Aid raised NZ$1.5m for its biodegradable woollen plasters and bandages.
Currently raising? OpenVC lists 4,500+ VCs by thesis (h/t AirTree).
Inspired but don’t think you have the expertise to start a startup in a particular field? Check out this advice from the founder and CEO of Bowery Farming, an indoor farming company that recently announced a US$300m round.
Around the world
SPAC Peg. Kredivo is the largest and fastest growing BNPL platform in Indonesia. Its parent, FinAccel, is listing in the U.S. through a merger with blank-check company (aka a SPAC). The company is merging with VPC Impact Acquisition Holdings in a deal valued at US$2.5bn. Square Peg is an existing investor and is also backing the SPAC. That makes two SPACs in two weeks for Square Peg. Another of its portfolio, Singapore-based online real estate marketplace PropertyGuru, announced a $1.8bn SPAC last week.
Twitter will pay you to find bias in its AI, offering a cash prize for those who best evaluate and uncover problems with its image-cropping algorithm.
Mixing it up. Rather than our usual quarterly reporting, we present… FATMAAN revenue figures in seconds.
Airbnb mafia. Airbnb alumni have founded over 100 companies, including Coinbase, Tilt and Landis. Some of those alumni are now pooling capital together to form a $20m early-stage angel syndicate, AirAngels.
Here’s some handy guidance for their investment committee conversations:
That’s a wrap! We hope you enjoyed it.
Bex, Gavin and the team at Ignition Lane
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