2018 saw a bevy of financing rounds for first generation cloud POS companies. People rightfully maintain a health dose of skepticism at the numbers raised. Is a company that started a few years ago with only a few thousand merchants really worth tens or hundreds of millions of dollars?
We thought to put your mind at ease and give you our prognosis on the expected survivability of these POS companies. Entries are limited to those in the restaurant vertical that have raised serious amount of capital:
- Revel
- Shopkeep
- Square
- Toast
- Touchbristro
- Upserve
Revel blew through $130M like Tony Montana through a mountain of coke. In what can only be described as a fire sale to Welsh Carson, Revel’s founders were thrown out and the company torn down. A revolving door of management followed but has now slowed and the company is working on a cohesive vision. Revel’s greatest flaw was arguably hubris: a belief that their POS could work across segments, across verticals, and even across geographies. Insiders describe the product roadmap as one flippantly driven by investors who just assumed that cloud POS could be horizontalized.
Welsh brought in adults to run the business and things have been turning around (more on this in a coming article). According to a former employee, Revel reached its first profitable month in late 2018 and they’re doubling down on enterprise restaurants. That said Welsh needs to earn a return so they’re going to be shopping Revel at all possible opportunities. Survivability 7.5/10 because changing ownership has inherent cultural risks and any sale by Welsh will bring instability.
Shopkeep started as a lightweight cloud retail POS and purchased a cloud restaurant POS along its way to gobbling north of $70M. They’ve similarly churned through c-suite executives and kicked out their founder, Jason Richelson (not a good thing to do for culture purposes). Shopkeep has seemingly come to grips with the narrative that it will be forever reliant on the long tail of the payments ecosystem to sell its systems. In other words Shopkeep is lightweight and out of R&D dollars to change that.
That said using merchant acquirers as their distribution engine might be the only realistic option left given the amount of churn Shopkeep experiences in the long tail of micro merchants. We don’t see how Shopkeep gets the capital necessary to mature its feature set or acquire a solution that has the functionality to serve larger and more stable merchants. Survivability 5/10 because Shopkeep feels like it could be folded into a major ISO pretty easily (they’re actively looking to sell according to our sources), though most certainly at a heavy discount to their latest valuation.
Square just keeps ripping along no matter what the fundamentals say. We ascribe this to the fact that Square is (mostly) competing against incumbent merchant acquirers who have yet to convince the market they have any software or data DNA. For quick reference First Data gave up on Clover and had to hire Palantir to build Insightics, arguably their only real software product.
Slotted against this competition Square looks pretty good: software has higher margins, is highly scalable, and requires IQ and IP. Hard to say the same thing about processing and hardware (sorry, not sorry).
Square has yet to turn out a truly profitable quarter (we’re not counting Q3 2018 which saw a boost from their investment in Eventbrite) but their revenues are steadily climbing. They can borrow cash cheaply and even grabbed $300M in debt which they’ve yet to put to work. So even if Square free falls in the public markets we think they’re at a point where they can squeeze profitability if they really wanted to. Square still isn’t a real competitor in larger merchants but Survivability is 9/10 because even the US Federal Government can go to zero.
Toast has kept to an operating plan that Revel surely envies. Toast discovered how to increment its ARPU by locking down the payments processing but has moreover focused on the domestic restaurant vertical. This has given Toast domain expertise and a way to build a scalable model. We’re not sure how profitable that model is or will be, but there are far fewer moving parts than there would otherwise be by focusing on multiple verticals and multiple geographies.
Toast’s focus is definitely helpful to its survivability. But we’re concerned over Toast’s desire to build everything, however, as that mission might detract from its ability to successfully acquire merchant accounts. Toast has also raised a very large amount of money at a very high (and public) valuation. This can prove more problematic than it may seem as it limits the number of parties that can subsume Toast’s assets should they fall short of an implied IPO.
But there are too many desperate payments players out there to let Toast totally disappear and Toast has a good amount of revenue – surely more than 2x Shopkeep’s revenue. Survivability 7/10 but don’t be shocked if Toast answers to a different master in two years.
Touchbistro has padded its war chest recently but unlike Revel and Toast Touchbistro hasn’t spent with reckless abandon. Revel had over 500 employees and Toast has over 1,000. Touchbistro, on the other hand, has a modest 300. According to their CEO they’re close to profitability and are ensuring positive economics on their accounts. Because Touchbistro has more cautiously allocated capital it doesn’t need a trillion-dollar exit to satiate investors either, which makes smaller outcomes workable.
Touchbistro hasn’t yet made deep inroads with strategic partners, which is a bit concerning since larger merchants are going to want more mature features, but Touchbistro says they’re working on these efforts. Survivability 8/10 because they’ve proven responsible capital allocation and will have many suitors when the time comes.
Upserve, which was formerly Breadcrumb POS owned by Groupon, was basically given away to Swipely (now rebranded as Upserve) a few years back. Upserve pivoted its business model many times (selling to brick and mortar is really hard if you don’t already know) and found a home with private equity investors Vista Equity Partners last year.
Upserve is now operating under what is arguably the most successful technology private equity company to ever exist. Vista will force its VSOPs to streamline operations and make the asset sing. They’ve already started to beef up ARPU with acquisitions and because Upserve locks in the payments processing like Toast they command pretty high revenue per account.
Upserve needs to work on its feature set – this was always a shortcoming of Breadcrumb – but will no doubt find EBITDA under Vista. Survivability 8/10 and while Upserve might look slower going than Toast don’t count out Vista to really turn some heads in a few years.
We’re throwing Lightspeed in as a bonus but not adding it to the table of contents. Why? Lightspeed was on the right track but then it had some material leadership turnover. After those changes we haven’t paid as close attention as Lightspeed seemed to want to build more things in-house. (We know how this ends.) Their cloud restaurant POS was an acquisition made in Belgium a few years ago and they’re still adding features to stand it upright in North America. Lightspeed with shortly IPO and the financials will openly tell us the direction they’re heading.
Add comment