Square, the payments provider that turns any smartphone into a credit card terminal, is in the process of raising capital at a $6 billion valuation, according to sources familiar with the matter.
The San Francisco-based company, led by Twitter co-founder Jack Dorsey, is aiming to reel in about $200 million, with part of it coming from the Government of Singapore Investment Corporation (GIC), said the sources, who asked not to be identified because the deal hasn't closed.
Asian investors have been piling into the U.S. technology market, backing hot start-ups such as ridesharing service Lyft, video-calling app Tango and texting service Snapchat. It's part of the latest Silicon Valley rush that has lifted dozens of private companies into the billion-dollar club, and pushed some valuations passed $10 billion.
Square, founded in 2009, was valued at $5 billion earlier this year in a secondary stock sale that let early employees and investors divest some of their shares. Demand from investors exceeded supply, sources familiar with the deal said.
Aaron Zamost, a spokesman at Square, declined to comment. Calls to GIC in Singapore and New York weren't immediately returned.
Square is a hot-button topic in tech land. There's no doubting its popularity. Millions of people, including taxi drivers, food stand owners and yoga instructors, attach the little white dongle to their iPhone or Android device so they can accept credit cards and debit cards, providing a boon to businesses that previously only accepted cash and checks. With increased frequency, the Square Stand (an iPad on a stand) is showing up in coffee shops and restaurants, replacing old clunky registers. The company processes tens of billions of dollars a year in transactions.
But industry experts wonder how profitable a company can be when its business is based on charging a transaction fee (typically 2.75 percent) and then paying much of that back in the form of interchange costs to Visa and MasterCard. Square's gross margin, or what's left after those fees, is 34 percent, a number first reported in May by Fortune magazine.
That's far below the high gross margins that Internet investors like to see—Google hovers near 60 percent and Facebook tops 75 percent. With about 1,000 employees and a headquarters in the very expensive Bay Area, Square burns through a lot of cash, and it's also got to pay for all of that hardware it ships. Still, Roelof Botha, a Square board member and partner at Sequoia Capital, told Fortune that "the gross profits we earn on transactions already pay for the non-growth expenses of the company."
Another hurdle for Square is a fierce set of competitors. PayPal, Google and Amazon are all deep-pocketed rivals that are vying for a bigger piece of the payments pie. Meanwhile, popular services like Uber and Airbnb bake the payment process into their apps, eliminating the need for Square in some areas where online and mobile commerce is growing the fastest.
For now, Square is showing it can cash in on its momentum. As long as the funding floodgates are open, there's plenty of investor demand to fund its growth while Square claws toward a profit, which it expects to hit by mid-2015.
Prior to the current round, Square has raised over $350 million, from investors including Sequoia, Khosla Ventures, Kleiner Perkins Caufield & Byers and Starbucks. The Starbucks deal in 2012, which valued the company at $3.25 billion, was part of a broader arrangement to outfit coffee shops with Square's payment systems.
—By CNBC's Ari Levy