If you don't follow the tech IPO scene across the pond then you may not know Square. In brief, it's a mobile payments platform that made a lot of noise back in 2012 when it inked a deal with Starbucks (SBUX:NDQ) in the US. That went very pear-shaped and the contract was ditched late last year after the coffee chain splashed $25 million on the tech.

Now Square has its eyes on its own New York Stock Exchange IPO, but there's a bitter pill here. As flagged by Shares last week, the company, founded and run by Twitter (TWTR:NYSE) founder Jack Dorsey, revealed an indicative pricing range of $11.00 to $13.00 per share, effectively valuing the business as low as $4.2 billion. That’s a massive $1.8 billion below the valuation of its last private equity financing round struck in October 2014, and Square's had to lower the price again, it's now looking at flogging shares at $9.00, or barely $4 billion.

Square Mobile payments reader

The problem is its ratchet agreement with existing investors. They backed the firm at its last fund raise that valued the business at $6 billion-odd. And they have a guarantee, if the price falls below the level promised, they get more shares for free. Experts reckon this could cost new investors 10.3 million extra stock, worth $93 million. This is no easy market for loss-making Unicorns, and Square's growth is slowing. No wonder there's limited appetite. In truth, the best thing for Square to do would be to ditch the IPO and wait. Better to get the business into better shape, when it can dangle profits in the faces of new investors.

But existing investors have no reason to call off the IPO, which means it's almost certain to happen. And if it does, the backcloth will be pretty tough and early share performance could well be very poor. There's already concern over Jack Dorsey's twin CEO rolls, at Square and Twitter, an awful lot to mount on a single executive's plate. It wouldn't surprise me to find the shorters out in force on Square.

Issue Date: 19 Nov 2015