Dropbox says it is cash flow positive, in no rush to IPO
techcrunch.com
techcrunch.com
To me, their main strength seems to be that they have the best cross-platform UI/UX right now, but even that may not be the case for long.
Maybe they could evolve/branch into a general-purpose file hosting service, where people can use it to publicly share images (like imgur) and music (like Soundcloud) with the appropriate UI for each case (or spinoff site, e.g. Imagebox and Musicbox) except people would just need one account to comment/vote on everything. Who knows, maybe they can even become an alternative to YouTube..
Let independent developers publish their games and apps from there, bypassing Steam and the other app stores, optionally charging a fee per user, with Dropbox taking a cut.
Maybe even offer a chatroom/messaging system, to compete with Slack/Skype etc.
You can already see Dropbox has transitioned its focus to businesses. Mailbox and Carousel shut down. That is because a single consumer can easily switch to another service based on price alone and can afford to spend his/her own time on figuring out how to migrate their files.
On the other hand, once you have 100 business users which got used to Dropbox, switching to another solution has a real cost for your business. That's why Dropbox is focusing on businesses: they are stickier in the long run.
However, Dropbox will still maintain a strong consumer presence because familiarity is one of the key points for selling Dropbox to businesses. Moreover, every business starts small and every founder is a consumer at heart.
The promise of Dropbox for businesses is in outsourcing the complexity of storage in exchange for a monthly/yearly subscription. Consumer cloud storage is just a step in executing a bigger vision.
Eventually they have you because then you realize that you have so much business information in them that you can't let employees walk out the door with.
Great point! Hadn’t thought of it like that before.
Box also has better security/access controls
Is the business version somehow different? We simply don't all users to run Dropbox, because it eats up local disc space on our terminal servers, or desktops. Unless Dropbox starts working more like a local file server there's a ton of business that will never adopt it.
The default where Dropbox just sucks down files until you run out of disc space, and the on-disc-cache can't be shared between users, needs to change for Dropbox to be truly successful in business.
They're already actively working on and advertising a solution to this problem. Look up Dropbox Project Infinity talked about here a few weeks ago
It's strange but it seems like others aren't trying hard enough or simply aren't interested in making a great product. My experience with dropbox has been better than with any other cloud backup service. For instance, I can move my cloud folder around without forcing a re-sync of the entire data. I can manually copy data to a new computer & it'll be magically sync'd without re-downloading everything. Dropbox also does a great job of incremental updates on binaries.
Some stuff that comes to mind (unfortunately other competitors have gotten a jumpstart on almost all of these):
- Self-hosted solutions (for enterprise). - Privacy features. - Push hard(er) for app integrations. - I like your idea of hosting games / apps. Storage upgrades will then go from a nice-to-have to a must.
In the meantime, their competitors are doing the same thing. Seamless cloud integration for Google Office, MS Office, and iWorks is hard (impossible?) for Dropbox to replicate.
OneDrive is not so great but for same price of Dropbox you get Email, Word and Excel. Same in case of Google Drive.
Yes - there might be some companies going with Dropbox for Business but Microsoft is hard to beat there.
In short, if they do not do something soon they will like SugarSync...
> their main strength seems to be that they have the best cross-platform UI/UX right now
and they will continue until Apple treats Android as a first-class platform, or Google treats Windows as one, or Microsoft figures out who they are anymore.
Google is blocked in China, not all people use Apple products, many people simply don't like Microsoft.
If they're growing revenues at a slow pace – or have a low profit margin – it's more like looking in through an opaque window at bankers doing less with your money than other bankers could. You'd much rather withdraw that money and invest it nextdoor.
Also worth noting that "no rush to IPO" is not the same as "never IPO". As a VC, you're investing with the understanding that an exit is many, many years away (if it ever comes at all), on the hope that this longer time horizon gives founders the flexibility to do crazy unicorn stuff. I can imagine a CEO telling the VCs "hey, we're going to wait an extra 5 years to IPO, but that's because we want to do crazy 10x return stuff that's difficult to pull off as a public company because of required SEC filings, activist shareholders, etc.".
Meanwhile, thousands of smaller tech companies and services exist for decades and reliably serve their customers and make money.
Googles incompetence to stick with a product, not a tech demo.
VCs give money to risky companies so that they can aim for very high growth. If the growth expectations aren't 50% per year or higher, the VCs won't invest. Some won't invest if they don't see an option for getting 100x on the other end. They do this having promised their investors to liquidate the fund after a fixed amount of years, usually 7-10. Everyone knows this going in.
It's both bold and responsible to bootstrap and not require VC funding. Just don't take VC money.
It's ok to hold off a year. It's not ok to say, "We're at a mature size, you can wait all you want."
I think there's sense in the middle. VC funding is expensive. Use it to finance rapid growth across orders of magnitude. If you can't or don't want to grow like that, find a more appropriate funding source.
I am visiting my Dad and we were just talking about bootstrapping vs. venture funded startups this morning. He pays to go to the MIT club's startup talks in San Diego, and really enjoys the presentations (he is in his 90s, and likes to hear what people are working on).
Redemption Clause basically says "if the company does not IPO or get acquired in X years, the company has to pay the investors back their money, plus a hefty interest".
It is a relatively unusual term, but not rarely-seen.
(Source: I used to work for a VC.)
It allows nasty investors to put a gun to the head of the company to either bankrupt the company or (in reality) force a crazy negotiation for more equity when an exit isnt found within enough time.
Avoid like the plague.
So, good for Dropbox.
I somewhat empathise with VCs who put the clause in the term sheet, as VCs themselves have huge and constant time pressure to make money for their investors (LPs), which likely can only happens when their portfolio companies has a big liquidation event (IPO or acquisition).
Yes I agree that the Redemption Clause does not align with entrepreneurs' interest, but I understand the reason behind it.
I don't think the parent was questioning the reasoning behind, he/she was just saying it's a bad deal, and entrepreneurs should actively avoid it. It's good advice and a good strategy for a founder.
Let's turn your statement around a bit. You can probably see how there really isn't an equally fair way to play this game:
I somewhat emphasize with founders who don't understand such clauses in the term sheet, as founders themselves make huge sacrifices and are constantly under pressure to perform for their investors (VCs), which likely can only happen when their company has a big liquidation event (IPO or acquisition).
Why start a firesale/-IPO, if you can sit the cold winter out?
OneDrive is a bit rougher on a couple of edge cases, but it works well enough. Well enough, at any rate, that I'm not prepared to quadruple my spend for the difference.
(On edit) The point being, not that I think that Dropbox will stand or fall on my opinion of their services, but for Joe and Jane average "I can get OneDrive and Word and Excel and Powerpoint on my Windows laptop and my Xperia phone and my iPad for the whole family same price as Dropbox on its own is a pretty compelling choice. The missing features like Linux support aren't really going to factor in for most people.
With Office 365, it's a steal.
Oh and there's the nonsense "magic" it does with OneNote notebooks. In fact, I'm pretty sure I accidentally deleted a OneNote notebook earlier today when scrolling through my OD account with the Mac client.
It shows file extensions for me.
Wow, this is a new development in the last 4-6 weeks. A very welcome one and I'm happy to have been wrong. Thanks for the heads up.
One of the best features you get with OneDrive is full Office integration. You can either access your documents using Office Online, which are full-blown browser versions of Office apps, or you can open your files in Office on your computer. Changes you make to the document are live synced and versioned, so it's great for collaboration.
I'm curious: what did you think of Google Drive vs. Dropbox? I precisely felt that Dropbox was doomed when I switched to Google Drive last year because I couldn't see any competitive advantage to it anymore.
Cash flow positive - normal situation where the cash inflows during a period are higher than the cash outflows during the same period. Positive cash flow does not necessarily means profit, and is usually due to a careful management of cash inflows and expenditure.
So, while bring "cash-flow positive" means that the company's cash balance isn't decreasing, it doesn't mean that it's profitable.
I think they have to IPO, and they would have already if it were good news. Not that every tech company needs to IPO, but Dropbox customers have no switching costs and little feature differentiation, so at some point low prices or great support is going to win the market -- implying scale to me. To achieve competitive scale (of operations, not userbase), you need financing, and Dropbox isn't going to issue AAA rated bonds or anything, so it's a matter of time.
Secondly, they have raised a ton of VC cash and those VCs are looking for an exit. So keep the company cash flow positive makes it look very attractive for larger companies and especially PE firms.
This means the fundamentals are a shitshow and that they couldn't even if they wanted to. Investors believe they can get a better valuation via private sale than risk letting the public market provide a reality check. (See also: Sam Altman.)
They're getting bought; it's just a matter of when and how bad things get first.
by who, though? There's not many companies that could acquire dropbox unless their valuation drops dramatically. Microsoft, Apple, and Google, and Amazon all have worthy competitors already, and don't seem too interested in investing a lot more in them. I can't see why facebook would be interested. Who else out there is acquiring companies with multi-billion dollar valuations - Maybe yandex or alibaba?
I further wonder whether or not people leaving have a 90 day window to either exercise or forfeit their options.
When the last startup employing me (I was an entry level dev/A-round hire) exited, exercising my options left me with a paltry sum of money, a giant corporation i had no intention of being part of, and a product doomed for eternal stagnation. Overall a really bad exchange.
Apple/Google/Facebook/etc has market salary and equity (and/or bonus). So if you take away the equity the salary needs a significant bump to be comparable.
A startup with no plans for an exit seems to not be a good thing for employees.
That way people still get the big payoff but get to keep control of the place they like working at.
Unless the ability to exercise such a “discounted” stock option is limited to certain predetermined events or specified dates, the option is taxed as soon as it vests, regardless of when it is exercised or whether it was intended to be a non-qualified or incentive stock option.
Now, you could try backdating, but that's probably ruled out by the option plan, and could be viewed as fraudulent depending on circumstances.
Of course, the employer can issue new options based on the current FMV of the company... but for anyone in this situation, that probably means a substantial loss as the new strike price will match the current valuation of the company.
As for paying the employee out, I've never heard of that happening in practice... and it has its own pros and cons, the most obvious being that you're now out of the game if there's a subsequent liquidity event.
But there is a >0 number of people at late stage companies who effectively cannot leave without losing lots of money.
Following FB having so many shares on the secondary market, some companies restricted the sales of their shares.
Usually, if you don't exercise shares within 90 days of leaving a company, they disappear. Let's say you have $100k in shares at your strike price and you exercise them and have the money to do so. Great!
But now in the eyes of the government, you owe taxes on the money you "made" even though they are illiquid. So, you could theoretically be forced to pay taxes on millions and millions of dollars of shares, for which you have to date received $0.
"Goes Under" can mean different things, if it is failing and bought out, you get whatever it is bought for.
If it is dissolved (either in bankruptcy or otherwise), you get whatever the claim against assets in dissolution provided by your shares entitles you to -- which in bankruptcy is likely nothing, because creditors come first, and if there was going to be something left after that, the firm wouldn't be dismantled in bankruptcy.
> Seems like you would get $0 for the shares but already paid taxes on them.
I'm pretty sure you'd have a capital loss from the difference between the value finally realized from the shares and the price at exercise, which is applied against any other capital gains in the same year (and, with limits, against other income, with the excess carrying over to the next year, etc.)
Bankruptcy might also be caused by a few debtors being excessively late in payments, and you have your own debts to pay.
If e.g. my debt of 10K is due at 30.07., and I have 100K outstanding from my customers (and not enough cash flow/reserves to cover), then by 30.07. I am bankrupt, and it may well happen that at 30.08. my debtors pay the 100K - but then it is too late for me.
But it wasn't always this way. After the bust in 2000 lots of people owed real tax liabilities despite no real financial gain and had to pay them off. The credit came later.
Equity is not money.
Annoying that Google and Microsoft don't have official Linux clients for GDrive and OneDrive, but at least their web based support is passable.
Curiously, why?
Also, the logic of directly tying valuations of a private company to the only public direct competitor in the space is flawed (analysis don't use GOOG,MSFT for this). Using the current logic; if Dropbox (private) beats the crap out of Box (public), this would result in reduced growth and reduced quarterly numbers for Box. However, Box's numbers are then used as indicators/benchmarks for the cloud storage space, and then used to price Dropbox.
When you look at Box's valuation, you should be aware that the price is partially because of risk/competition from Dropbox. How much of the price? I have no idea.
* Full disclosure I am an ex-Dropbox employee.
Well, you'd have to apply the same "risk" of [Box, Google ..] that dropbox faces in it's valuation which effectively cancels out that component. If anything, given that Dropbox is private, it probably amplifies those risks and lowers Dropbox's valuation.
Box's P/E is very much a fair indicator of Dropbox's valuation.
You seem to be suggesting that companies within an industry should all have the same price-to-sales multiple. (Or at least they'd "better have" the same multiple. Or else?) This is because, while all the companies have different quantitative and qualitative aspects, the mutual competition "effectively cancels out" those differences when it comes to valuation.
Snark aside, here are things that actually matter for valuing these sorts of companies:
* cost to acquire a customer (Box's S-1 notoriously had sales+marketing which was greater than their revenue)
* customer churn, or relatedly, lifetime value per customer
* subscriber growth
* margins (i.e. storage costs)
Perhaps your conclusion about the relative values of these companies is correct, but the fact that you're not mentioning any of the points above means that it's very difficult to give any credibility to your argument.
A company that can "make a profit and stand on its own" is of no interest to a venture capitalist.
We're just talking about being publically traded here, a company doesn't have to die or be consumed to be able to make its investors whole.
Can you imagine Apple, Google, Facebook existing without the model? Because each needed large capital investments before turning a profit. Equity investment was the only obvious solution for that large upfront capital, as tech companies normally don't have collateral with which to secure debt. Such equity investments are high-risk by nature, so investors want high potential rewards.
Thus, it stands to reason that such companies wouldn't have succeeded if there weren't a mechanism for high-risk, high-reward equity financing. I'd argue that all of these companies are functional and also that they've made consumers' lives demonstrably better.
Maybe few question it because it's worked so well?
I guess I do see your point from a risks perspective. If I was an employee who cashed out because of IPO and invested all that money in index funds, then my risks would be greatly reduced.
mega.nz does not have the great desktop/device UI that dropbox has, and also Kim Dotcom has stated it can no longer be trusted after the company was seized by the New Zealand Government. But it offers 50GB to any new account. How do they manage to do this? And what is stopping someone from just registering a bunch of accounts on mega.nz and using that as their primary cloud backup? (maybe with the addition of encfs or something)
Accounts payable for SaaS businesses is the new VC on the block. Gold.
<insert platitude about open systems here>
That said Google drive is missing some Dropbox features, but it meets my needs.
I realize the same can be said of Dropbox as well. But like Gmail is to Google, cloud storage is to Dropbox.