Shopkeep, a New York-based startup that builds point-of-sale software for mobile devices, has raised $25 million in its third round of funding. The new capital thrusts the company to the forefront of a busy pack of upstarts looking to rethink the point-of-sale. It also sets the stage for a drawn-out fight between a handful of well-funded startups, the legacy point-of-sale providers who control much of the market, and a number of other tech giants looking in.

With the rapid growth of Shopkeep and competitors like Boston-based Leaf, which raised $20 million earlier this year, it’s clear that cloud computing is really making an impact on the business technology industry. By building software which runs remotely, rather than on a servers located in a store, these startups can dramatically reduce costs, opening up new markets and erasing much of the maintenance and service fees that drive a large portion of legacy firms’ revenue.

ShopKeep was founded in 2008 by Jason Richelson, who owned a independent grocery store and an accompanying wine shop in Brooklyn, serving the borough’s growing professional class. The store was a success, but the back office was a mess, he says, and he wanted to create a better way to manage the store’s inventory. So, in 2009, he left the grocery businesses, hired a developer and began to build his own POS system.

Fast forward three years, and the company’s software is now used by over 10,000 businesses across the U.S.. In January, the company rolled out a iPhone and iPod touch version of its application to help it serve food truck vendors and other more-mobile service providers, with whom Square has become synonymous.

To date, the company has focused on small, independent retailers with under $1 million in annual revenue — a market, which Richelsen says remains overlooked by some of the larger institutional players and underserved by existing resellers who peddle often outdated PC-based software.

“Shopkeep has built a big brand around customer service for smaller merchants, and that’s why we’ve been able to acquire these smaller business that (Micros and NCR) don’t want,” said Richelson.“[The small business market] has always been attacked by value-added resellers, but that’s really a broken model.”

The company plans to use the funding to expand its existing footprint internationally, and build out additional features unique to a cloud service. For instance, Richelsen says some of the capital will go toward building out an analytics products for merchants, which could algorithmically identify potential theft or missing inventory.

However, the company faces an increasingly crowded and complex competitive landscape, anchored by legacy point-of-sale companies such as Micros and NCR, which remain flush with cash and which are increasingly aware of the opportunity in these new markets, and the potential threat of the startups opening them. Both firms have invested heavily in cloud-based point-of-sale technology in an attempt to stem the tide of startups like Shopkeep and Square, and expand their products a previously unserved segment of very-small and mobile businesses.

“The difficulty cloud-based POS startups will have moving forward is that Micros and NCR have not been asleep at the wheel,” said Alan Hayman, a former Micros executive who now runs Hayman Consulting Group, about the shakeup in the industry. “Moving up market will be much harder for POS startups because operators are much more savvy, the competitors are extremely capable, and their solutions are very comprehensive”

What’s still unclear is whether these companies can fully themselves off of a business model, which traditionally relied on large upfront sales and large service and maintenance revenues. Cloud-based software reduces a lot of the hands-on service costs, removing potential complications with the hardware in-store and allowing the provider to maintain software remotely.

Meanwhile, another competitor, Square, faces challenges of its own. The mobile payments company, which has pressed its own software into more established retail environments, appears to be hemorrhaging cash and has shopped around for a potential buyer, according to a recent report by the Wall Street Journal. The article, which the company has denied, says the company recorded a loss of roughly $100 million dollars in 2013.

Square’s struggles appear to validate the decision by Shopkeep, and other tablet POS startups like Leaf, not to build a payment-processing business. The company works with a number of payment processors, and in doing so, has been able to not only avoid, but profit, on the price wars, which appear to be draining the capital of many in the industry.

Adding to the chaos, reports surfaced in January that Amazon planned to offer retailers a check-out system that uses the company’s Kindle tablets. The project remains in its early stages, but a potential entry of Amazon and Apple into mobile payments complicates what already is a confusing and fluid industry.

Square competitor ShopKeep POS has raised $25 million in new funding, led by Thayer Street Partners with participation from existing investors Canaan Partners, Tribeca Venture Partners, TTV Capital and Contour Venture Partners. It’s now raised a total of $37.2 million.

New York-based ShopKeep sells iPad point-of-sale and retail management software, but unlike Square, Shopify and other startups that are turning the tablet into register, ShopKeep isn’t processing payments. Instead it’s acting more like a traditional point-of-sale equipment vendor – just one that runs its services in the cloud. It’s selling small businesses the transaction tools to ring up sales, track inventory and manage staff. But it’s letting businesses pick their own financial partners to handle the actual card transactions, rather than stay locked down to another all-in-one provider’s set rates.

ShopKeep’s small business-facing iPad interface (Source: ShopKeep)

According to ShopKeep that model has proven popular to 10,000 businesses in the U.S. and Canada so far, tripling both its customer base and revenues between 2012 and 2013. It’s software is now managing $1.8 billion in transactions a year, the company said, compared to the $30 billion Square is processing annually.

Originally published on mashable.com. 

“I don’t have a credit card,” Jason Richelson’s roommate told him. “I can’t spend any money on this Internet thing.”

That thought helped pave the way for InternetCash, a financial technology company that offered prepaid cards for online shopping. InternetCash was a failure. The company launched in 1999, just before the Dot Com bubble burst. It hired too many people, purchased unnecessarily expensive software systems and invested “crazy amounts” in marketing that didn’t work.

“We made every mistake in the book,” Richelson, one of the company’s four co-founders, recalls. “InternetCash went out of business like everyone else back then.”

When Richelson decided to launch ShopKeep, another financial tech startup, nearly a decade later, he tried to apply many of the lessons he learned from the mistakes at InternetCash. Chief among those lessons: focus on growing “slowly and measured.”

Richelson started ShopKeep, a service that provides iPad point-of-sale systems to independent retailers and restaurants, in 2008 after struggling with the point-of-sale software available for the two wine shops and a grocery store in Brooklyn that he operated at the time. The startup was privately funded for the first two and a half years and was staffed with contractors. Then in late 2011, it pulled the trigger, raising outside funding for the first time and broadening its customer base.

On Thursday, ShopKeep announced that it raised a $25 million Series C round of funding. The round was led by Thayer Street Partners and brings the startup’s total funding to more than $37 million.

ShopKeep currently processes more than $1.8 billion in payments annually and is used by more than 10,000 businesses in the U.S. and Canada.

The goal, according to Richelson, is to use the latest round of funding to open up a new office on the West Coast, expand its presence in the U.S. this year through additional investments in marketing and its product teams, and later expand its operations in Europe.

Though the company is sometimes compared to Square, a mobile payments service, Richelson is quick to point out the difference.

“Square has done a really great job of making it easy to accept credit cards,” he says. “Our service is to support retailers and restaurants and help them run a better business.. Credit card processing is just one thing.”

With its latest $25 million financing, ShopKeep POS has come a long way from being the cobbled together point of sale software service for a single wine shop in Brooklyn’s leafy Ft. Greene neighborhood.

The company’s history began six years ago with Jason Richelson’s frustration over finding a good enough point of sales software to run his expanding empire of wine shops and high-end grocery stores.

From those humble beginnings the company has grown to become the software vendor managing point of sale transactions for over 10,000 stores with over $1.8 billion in receipts.

“We used the city’s resources to get started, and after building a prototype in my wine store we moved to a city-sponsored co-working space called The Hive to get on our feet,” Richelson said.

For the company’s first two-and-a-half years Shopkeep was backed by receipts from Richelson’s wine businesses and grocery stores, before raising a $2.2 million seed round from Tribeca Venture Partners, TTV Capital, and Contour Venture Partners. A $10 million Series A followed in 2012 led by Canaan Partners.

Now Thayer Street Partners has come on to lead the Series C, with participation from all of the company’s previous investors and additional support from individual investors Tom Glocer, the former chief executive of Thomson Reuters and a Thayer Street advisory board member, and Matt Coffin, the founder of LowerMyBills and a frequent Thayer Street collaborator.

The company has also expanded beyond its Brooklyn borders to fancy new digs in Manhattan’s SoHo neighborhood and even opened an office in Belfast to begin its international expansion. Richelson says a West Coast office is also in the cards, given the company’s most recent round of funding.

Beyond customer acquisition and geographic expansion, ShopKeep has also been busy with launching new products. In January it started selling its mobile point of sale software and released a new design interface for iPad point of sale software.

“What we’ve done with ShopKeep is we’ve moved all of your data into the cloud and in the cloud you have the ability to do a whole bunch of data analytics,” Richelson says. “An example of what we’re doing there is very simply our dashboard app. Now in the palm of your hand you can see how much you’ve rung up in sales, and how much is in your cash drawer. Storeowners understand in real time how their business is running.”

“In my store, if I wanted to understand my inventory turns I had to go down to my basement run a report and export it into excel.”

ShopKepp charges $49 per month for each register that uses its software and the company also sells all the point of sale equipment a small business would need to get off the ground including a stand, a swiper, a receipt printer. “We see it as a service,” says Richelson. “We just sell it to our customers and deliver it and help them set it up remotely.”

One of the biggest opportunities Richelson sees for ShopKeep and other point of sale software vendors going forward is the imminent demise of support for Windows XP. “There are millions and millions of transactions that run on Windows XP and are going to have to get replaced,” he says. “Small brick-and-mortar retailers are going to have to take some time to understand what’s going to happen with Windows XP,” since Microsoft ended its support for the operating system.

As ShopKeep continues to expand, Richelson has his eye firmly set on one prize. “I’m really happy to have been able to start this business in New York City,” he says. “There are no billion dollar software as a service businesses that have been born in NYC. That’s our goal.”

While Square Inc. is suffering losses and looking for a possible acquirer, venture investors are plowing more money into companies that offer point-of-sales (POS) and payment technology.

ShopKeep.com Inc. in New York has raised a fresh, $25 million in venture funding, says founder and Chief Executive Jason Richelson, to help independent merchants ditch their old-school cash registers and deliver an in-store experience that customers might expect from an Apple store.