After Square’s IPO, nobody wants to follow in its footsteps

Abroad, card-reader clones start to sound a little desperate “You can see that their market is actually quite limited”

A year ago, Vancouver startup Payfirma’s nickname, the Square of Canada, was a badge of honor. Payfirma’s smartphone-compatible credit card readers were in high demand, and local investors supplied $13 million in funding. Like Jack Dorsey, the chief executive officer of Square (and Twitter), Payfirma CEO Michael Gokturk said he was aiming for “hypergrowth.” Gokturk doubled his staff to 80, including a chief operating officer formerly at Intuit, and started talking about an initial public offering.

Whoops. In November, Square went public with a market value of about $2.9 billion, less than half its private valuation from a year earlier. In the runup to the IPO, analysts began questioning whether the card-reader maker should really be priced like a highflying tech company in an era of mobile payment apps. Its stock price is hovering at about $13, right where it was after its first day of trading. Square declined to comment.

“Now that they started going through the rigors of a public market, you can see that their market is actually quite limited,” says Gil Luria, an analyst at Wedbush Securities. “It’s going to be much harder going forward for companies that try to emulate their model to raise capital.”

At Payfirma, Gokturk says he was forced to admit that recruiting 40 people didn’t help with the company’s stalled U.S. expansion—or much else. “We were still doing the same results, from a sales perspective, from a revenue perspective, with a doubled staff,” he says, declining to provide revenue figures. “We made the mistake of overhiring and hoping that we were going to raise more money.”

Eventually, Payfirma cut 30 of its 80 employees. Afterward, Gokturk published a blog post on the company website asking Vancouver’s other businesses to hire the workers who’d been

let go, including a list of names, skills, and contact information. The list has since been removed, but Gokturk says the effort helped three-quarters of his former employees find jobs.

There was no such goodwill program when the lights went out at Powa Technologies, the U.K. Square clone once valued at $2.7 billion. Powa filed for administration, the rough British equivalent of bankruptcy protection, in February. The board removed founding CEO Dan Wagner, who last year said he wanted to build the “biggest tech company in living memory.” It brought in accounting firm Deloitte to consult, which resulted in 72 jobs being cut at Powa’s London headquarters. In March, pieces of the company were sold off.

Swedish Square look-alike IZettle has shielded itself from much of the cardreader-related fallout because it avoided hype in the first place, says CEO Jacob de Geer. “We ended up with a very good European valuation, I would say, but having the same type of business in the U.S., I’m pretty sure it would have been significantly higher,” he says. A person familiar with the company’s private valuation pegged it at about $500 million; de Geer declined to comment.

Square has been pushing beyond card readers as it looks for ways to grow, selling add-on services such as cash advances and software tools to analyze sales data. It’s also bringing in larger customers, which it said in its first post-IPO earnings statement will help it turn a profit this year.

Gokturk says Payfirma is focusing on its strategy of bundling card readers, traditional checkoutcounter hardware and software, and online sales tools as a monthly subscription package, aimed at businesses slightly larger than Square’s and IZettle’s clients. Payfirma also has a referral deal with CIBC, one of Canada’s largest banks, which helps bring in customers without having to hire salespeople. “We’ve extended our runway,” Gokturk says, “to the point where we can now get to profitability with the cash on our balance sheet.”