Coffee chain Starbucks caught the mood when it invested $25m in US-based mobile payments company Square as part of a strategic tie-up and this year’s winner of the Global Corporate Venturing Award for Large Investment.
The deal was a rare step into corporate venturing by Starbucks, but this did not restrain the ambition of the deal, in which Starbucks invested and in return looked to roll out Square across its coffee chain, makes the $200m round raised by Square a worthy winner of our deal of the year.
That the deal was also backed by Citi Ventures, the corporate venturing unit of the US bank, shows the importance Square has placed on strategic links in the latest deal.
The pair joined credit card company Visa, which had been a prior backer of
Square.
The deal appears to make more likely a second stellar success for Jack Dorsey, Square’s chief executive, who co-founded social network Twitter. It seems easy to imagine Square becoming the ubiquitous tool for mobile payments, and winning Starbucks as a client and investor seems to make this result more likely.
With mobile payment rapidly becoming one of the hottest areas for new start-ups, it will be interesting to see how big the company will now become.
As part of the deal, Starbucks chief Howard Schultz joined Square’s board in a sign of how seriously Starbucks is taking the investment.
This marks a bit of a change for Schultz, who until now appeared to have separated his interactions with start-ups from his day job. Schultz’s venture activities with Maveron, a venture fund with $800m under management where he is co-founder, gives him contact with darlings of the start-up world.
Schultz joined the board of daily deals site Groupon in 2011 after Maveron invested in the company, although he left that board in June. He has also worked on the board of former Maveron portfolio companies eBay, the auction website, Drugstore.com, a US-based online pharmacy, and made-to-order sandwich company Potbelly Sandwich Works, as well as continuing to serve on the board of yogurt company Pinkberry.
Like many interesting investments , there are still hurdles to be overcome.
The deal has perhaps achieved the ultimate accolade of being taken to task by the media for its implementation.
Starbucks’ chief digital officer Adam Brotman explained what the deal was trying achieve to magazine Fast Company after it wrote an article criticising the user experience of Square at Starbucks.
Brotman reportedly said: “We don’t want to wait on innovation. Because if we waited until we could make it perfect across every single experience of every single store, we would have to move much more slowly for the vast majority of our customers. So we have taken an approach that is not always perfect, but we think it is the best thing for our brand and customers.”
To our mind this willingness to get things wrong in corporate venturing is even more important.
Working with startups, after all, is never a seamless process, but it is easy to imagine Citi Ventures, Starbucks and Visa generating impressive strategic and financial returns, making the deal a worthy winner of our large investment of the year.
Shortlist
360Buy – $700m
SurveyMonkey – $444m
Nook – $300m
Xiaomi – $216m
Intarcia – $210m
Square – $200m
Trendy – $200m
Flipkart – $200m
Sapphire Energy – $200m
Pinterest – $200m
GoPro – $200m
Box – $125m
Spotify– $100m
Nest – $80m
Quantenna – $80m