How Square Is Now Valued at $3.25 Billion

So much for new-age virtual technology companies being at risk of more scrutiny for investors. AllThingsD and the FT have both reported that a pending fourth round of venture capital has been taken on by mobile payments company Square. The $200 million investment was said to be at a $3.25 billion valuation.

Square is now said to handle some $8 billion in payments each year and Second Market’s web site shows that Kleiner Perkins Caufield & Byers, Visa Inc. (NYSE: V), Sequoia Ventures, Khosla Ventures and others have all put money into Square.

As far as how you would value square, you just have to come up with a rough annual payments projection and factor in that Square’s smartphone card-swipe attachment is free but it takes 2.75% of a transaction. If you straight-line the math of 2.75% on $8 billion without considering growth and without considering any competition down the road, then that would come to $220 million in annualized sales and that would put this latest valuation at close to 15-times sales.

JON C. OGG