How Jack Dorsey grew Square from start-up to payments powerhouse

In this weekly series, CNBC takes a look at companies that made the inaugural Disruptor 50 list, 10 years later.

It all started with a tiny square card reader.

Tech entrepreneurs Jack Dorsey and Jim McKelvey set out to find a straightforward way for artists and vendors to accept credit cards. The solution came in the form of a plastic, stamp-sized dongle that could be plugged into an iPhone jack.

The two St. Louis natives launched their start-up in 2009 and rode the wave of smartphones and online payments. In the thirteen years since, Square, now called Block, has grown into a $54 billion financial powerhouse.

“We happened to recognize a problem: more of the U.S. was moving to paying with plastic cards which was great for individuals because it’s convenient, but the problem was, a lot of sellers couldn’t accept cards,” Dorsey said in a recent interview with MicroStrategy’s CEO. “We didn’t realize that was just the tip of the iceberg.”

The early iPhone dongle quickly evolved into an iPad app to get rid of the need for cash registers. Square struck a deal with Apple to sell its hardware in stores, and later with Starbucks, becoming its official card processor. From there, Square started focusing on all things small business, including loans and payroll. It bought food delivery service Caviar, then a few years later sold it to DoorDash.

Block now operates an FDIC-insured bank, consumer payments platform, stock and cryptocurrency trading and physical debit cards. The San Francisco-based company also bought Jay-Z’s music streaming service Tidal and buy-now-pay-later provider Afterpay.

Like most Disruptor 50 companies, Square’s growth was fueled by venture capital dollars.

Its first official round of funding in 2009 was led by Khosla Ventures at a roughly $45 million valuation, according to Pitchbook. Early investors in that $10 million round included Virgin Group founder Sir Richard Branson, former Yahoo CEO Marissa Mayer, Twitter co-founder Biz Stone and Napster’s Shawn Fanning. Later funding brought in the venture capital arms of Visa, Citi, Starbucks, Goldman Sachs, as well as Silicon Valley giants Sequoia and Kleiner Perkins.

An initial public offering came in 2015, with Square listing on the New York Stock Exchange, under the ticker SQ, with Dorsey at the helm. The newly public company was valued at just under $3 billion with shares pricing at $9. Its stock has climbed nearly 900% since.

Square’s consumer facing business grew fast and organically. The Cash App now makes up roughly half of revenue for the company and was one of the biggest drivers of growth during the pandemic as Americans pivoted to digital banking.

In the early days of Cash App though, few people internally thought it was worth pursuing, Dorsey explained recently.

“The Cash App was something that everyone in the company, at the time we started, didn’t think we should be doing,” Dorsey said at the Microstrategy conference in February. “It was a very hard sell… we weren’t seeing much traction in the market, and every day I was losing credibility, which I was hyper-aware of defending this thing. Eventually, the team found a model and made it work.”

Dorsey has applied that experimentation model in other areas of Block’s business — especially bitcoin.

Square started experimenting with cryptocurrency within the Cash App back in 2014, Dorsey said, and enabled online stores to accept cryptocurrency. Square saw few transactions, and it “didn’t really go anywhere.”

The company took it up in earnest again years later, and now facilitates the buying and selling of bitcoin on the Cash App, in addition to equities. In the first quarter last year, bitcoin trading added $3.5 billion to revenue, more than half of the total for the three-month period.

Block now holds bitcoin on its balance sheet as an alternative to cash, and has launched multiple, open-source crypto projects within the company. It’s working on a decentralized cryptocurrency exchange and a mining project and has a bitcoin-focused division of the company, called TBD.

Dorsey has been one of the most high-profile advocates of bitcoin, and often refers to it as the “native currency of the internet.”

He stepped down as the CEO at Twitter late last year, and said he believes the company is “ready to move on from its founders.”

The 45-year-old will have more time to dedicate to Block’s growing portfolio. But Dorsey’s also expected to focus on his well-documented commitment to cryptocurrency.

The rebranding to Block is a nod to the company’s crypto ambitions and a focus beyond its original credit card-reader business.

“We built the Square brand for our Seller business, which is where it belongs,” Dorsey said in a statement. “Block is a new name, but our purpose of economic empowerment remains the same. No matter how we grow or change, we will continue to build tools to help increase access to the economy.”

Block was one of the biggest winners of the pandemic era as investors embraced high-growth tech stocks. But its share price has dropped back to pre-pandemic levels as investors move away from rich valuations, with higher interest rates threatening future growth.

Shares have dropped more than 45% this year alone. The company reports earnings after the closing bell Thursday and investors are closely watching Block’s forecast for 2022, and its plans to execute on the next era of growth.