Dropbox buys HelloSign (YC W11) for $230M
techcrunch.com
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I don't really know anything about HelloSign, but can someone tell me roughly why they might have come up with the $230M number?
let's say $10m in ARR * a 23x multiple
The way you get to the multiple is a combination of how fast the revenue is growing, how long you think that will keep up, and the margin of the revenue.
Craftsman Tools, for example, was probably not growing much or shrinking and likely had low margin revenue but I don't know.
So once the accounting statements are reviewed, then most of the acquisition talk is just a discussion over a multiplier?
Most likely a lot of the additional factors for the valuation multiple calculation are going to be around efficient customer acquisition, sales cycle payback periods, and different income percentages (operating, net). X factor would be if other competitors of the acquirer are also bidding on the acquiree.
You know, you can have a crazy revenue, and still lose money, and your company can be bankrupt in a few months.
Revenue * multiple is just a common way of talking about it, especially because companies within the same industry tend to have similar multiples. In reverse if you notice two public (since the information is easy to find)companies with seemingly-similar businesses that have very different multiple, you can start looking into why, and the quarterly financial reports with high-level numbers like cash burn, outstanding debt, profits, or net income would be a great place to start :)
This is the common way media talks about it, either because they are (1) uniformed or (2) they only hear of top line revenue.
Companies are typically acquired for EBITDA * Multiple. However when their is a "strategic" acquisition (which this one is) then there is all sorts of weird math that potentially goes on.
Examples: (napkin math)
- Company being acquired has $100M in revenue, and $20M in EBITDA. Post close, they realize $20M in synergies, so they might buy the company at 20x * $40M Adjusted EBIDTA ($20M EBITDA + $20M new EBITDA from synergies)
- Company being acquired has $100M in revenue, and $20M in EBITDA. The acquirer is going to remove 100 engineers post close (100120k/yr = $12M) and therefore the new EBITDA is going to be $32M, and the company gets bought at 20x $32M EBITDA
At the end of the day, the ROI is really what matters.
It's also worth noting - most M&A does not realize the hypothesized deal value. So yes people are right to be critical, but without full details, being precise about what the true value of a company is nigh impossible.
The EBITDA calculation is at best a sanity check for the acquirer.
I'm just using industry nomenclature. When people sell to a PEG, they don't say "we're selling to a strategic".
Revenue is the proper starting point as it is the thing that can or can not be optimized and grown. Profitability of the revenue (now vs. future) is obviously a huge driver but it is not the right starting point.
1) How much would it cost for Dropbox to build and acquire/steal those users?
2) Even if 1) is not that high, what is the opportunity cost for dropbox to do so? Yes, they could move a bunch of engineers and PMs to work on it, but then they wouldn't be working on other more important parts of Dropbox.
3) It's not always about how much you get by buying a competitor, it's sometimes about how much you will lose in the long-term if that competitor doesn't go away. Think Instagram and Facebook. $1B sounded crazy back then, but how much would have Facebook lost if instagram kept growing and growing?
It's hard to extrapolate rapid growth correctly, but it can lead to very high present values (ie ~20x sales, depending growth curve of expenses & current margins).
The same formula, given a 10% discount rate zero growth implies a ~9x multiple on earnings, a pretty low valuation.
Craftsman Tools was a brand, if I recall correctly (made by Danaher?). So while asset light and potentially higher margin, there probably wasn't as much liquidation value there. If growth rate wasn't high or decreasing the predicted valuation on earnings might have been low.
Then you just run into human factors like fomo/bidding wars (maybe, like Nicira, Heptio?), things that impact valuation like perceived higher or low risk free rates that might impact the discount rates that are used, et cetera.
This gives Dropbox something to anchor against. Both Google and Microsoft improve every quarter, while Dropbox is mostly the same, with the same premium pricetag. I could move my whole company to Dropbox for a couple of million, OneDrive is $0.
We were using this in our app when it suddenly became ridiculously cost prohibitive to do so, so we had to remove it.
Dropbox seems to be hyper-focused on a market of graphics and other professionals where the speed to sync is their primary benefit. That seems like an unwise strategy to me, but I can see where those users would benefit from an esignature solution.
M&A guy here. Generally companies are valued at EBITDA * Multiple. However when it's a strategic acquisition (which this is) then they tend to adjust EBITDA around an investment thesis. For tech companies, this adjustment can be fairly drastic and multiples can get crazy (general market is about 9x right now, but 15x+ for software providers). There are too many theses to enumerate here, but some commons examples cost takeout, customer cross-sell, resource consolidation, etc.
The reality is that the buyer pays an amount they think they can make back in some reasonable timeframe by some means.
You're correct - there is some ROI associated with the acquisition price, and that ROI is generally driven by earnings potential, and hence the adjusted EBITDA.
DropBox has ~300k paid business accounts. HelloSign is ~$500/yr for their basic small-business (not solopreneur) plan (I believe HelloFax is separate and starts at ~$100/yr).
Assume DropBox can sell e-signing to a third of their business customers, that means HelloSign would be (relatively quickly) worth $50mm/yr in revenue to DropBox. This is before accounting for any sell-through of HelloSign to their ~11mm paid individual accounts, or any sales at all at HelloFax. (I'm sure both of these are a part of an actual investment thesis.)
Also note this assumes HelloSign comes into the deal with zero non-DBX customers, which is obviously not true. HelloSign is also doing valuable new work, so I would expect these numbers to be on the low side of expected outcomes.
Is $50mm/yr worth it? DBX currently trades ~7x revenue, so that $50mm in incremental revenue is, all things equal, worth about $350mm in market cap for DBX. So their backstop is they are buying $350mm++ in market cap for $230mm.
A company can have an incredible product and weak distribution (and not be very valuable per se), but the company’s value can be multiplied by a lot if the product can be folded into a very strong distribution channel (salesforce, for example).
Great thoughts on CAC, etc. certainly a fair way to value a sale.
1. An intrinsic, detailed "bottoms up" approach by projecting future cash flows and discounting their value back to the present day. There might be 2 stages, the first years of explicit growth assumptions and the second along some kind of long term growth rate.
2. A market based, "top down" approach where you find comparable transactions and make adjustments for different levels of investment, leverage, to try to get an apples to apples comparison.
In either case, you also factor in gains you'd get from a strategic acquisition like eliminating redundant departments. Compare this to an acquisition by a PE firm, that doesn't do anything other than buy and sell equity in companies.
What I realized was it wasn't a science. Sure it deals mainly with numbers. And from an outside party you think it's this really rigorous, matter of fact assessment. But there's lots of areas where there are just guesses, albeit with a lot of money.
It's a natural fit with everything else that they are doing with Dropbox Paper.
Now they just need to add a direct integration for something like eFax and it will be on the short list of indispensable SMB tooling.
EDIT: Didn't realize HelloSign had the fax capability already...so all around great news. This is probably the most well aligned acquisition I can recall seeing.
HelloSign has demonstrated competencies Dropbox has not. Great that Dropbox nailed sync, desktop integration and sharing years ago; but since then they've done little to show any vision or execution in marketing, sales or product direction.
As a Dropbox shareholder and user I am hoping the Dropbox team will give their HelloSign colleagues the freedom and authority needed to save Dropbox from almost certain failure. The sync, store and search ship sailed long ago.
There are two more acquisitions I'd like to see Dropbox make this year of private companies to round out the product line.
I store sourcecode in my dropbox, and I really would prefer a way to not sync certain junk-files from compiling-process. Or let it automatically commit to a git-repo if there are changes in certain folders. Something like IFTTT for files seems a sane solution that dropbox seem to miss for a long time now.
[1]: http://inotify.aiken.cz/?section=incron&page=about&lang=en
exclude_folders=$(find . -type d -name "node_modules")
dropbox exclude add $exclude_folders
dropbox exclude list # Sanity checkPlease dont mess up HelloSign like you did with the parent company!
Think putting shards of encrypted data together and then decrepyting it by hand to get to the actual file. That's definitely (highly senior) dev level access and a lot of manual work.
The security pattern of a URL with a random string is security-equivalent to a pubic username and a random string password, and also equivalent to the security pattern of a bearer token: so long as the URL is shared only with authorized users, it's the same security hardness.
The pattern can tune the security by using more randomness, such as more characters. There are implementation areas to consider, such choosing a random number generator with high quality randomness like /dev/urandom. There are some access control areas to consider, such as all the people having the same bearer token, which means there's no way to do finer-grained permissions per-user or per-role or per-attribute. There are some user interface areas to consider, such as if a user/agent doesn't treat the URL as secret, because it shows content rather than masking characters such as "*".
For comparison, "security by obscurity" means there's a weakness in how the security is built, such that if you saw the source code, or the physical insides of a lock, then you would understand more about how to crack the security.
In URL pattern, an example of security by obscurity would be if the URL string was not actually random but instead was simply incrementing, or was based on a reversible function of the time or username, etc. If you read the source code, you would discover that there's guessable sequence or guessable trick, and thus become much more likely to break the security.
Edit: I strongly favor higher security, and fine-grained access control, and multi-factor authentication, and UI/UX masking, etc. This post is just to look at security by obscurity.
(i much prefer the google docs method of being able to limit to specific orgs or people)
> The sync, store and search ship sailed long ago.
Perhaps. But that ship appears quite capable of generating well over a billion dollars a year in revenue, so...
Its no less secure than faxing signed documents.
The reason you sign something is to show clear intent that you intended to agree to something.
Nobody’s under the impression a paper signature cannot be forged either. It’s no different.
It’s social not mathematical.
>Why do we need them at all?
Why not just email the contract, and the person replies back with "I agree to this"? Simpler and cheaper than paying $150/year.
https://www.pcworld.com/article/253523/how_to_make_sure_that...
> The second class of signatures, which Parmar uses all the time in her practice, is signing one's name to a document electronically by typing your name in one of the following formats:
> For submissions to the Federal court system: /s/Angela West
> For submissions to the Patent & Trademark Office: /Angela West/
> Both the // and the /s/ methods are considered to be legitimate signatures under the Federal E-Sign act, and acceptable enough for the legal industry.
Here's proof of that where Federal courts are concerned: https://www.cand.uscourts.gov/ecf/signatures
A formal contract with a real ink signature makes things easier, but it's often not required.
Come to think of it, I remember "signing" pdfs in adobe reader by clicking a form field that produced a signature similar to[1]:
John Smith
Digitally signed by
CN=John Smith
[...]
[1] https://helpx.adobe.com/content/dam/help/en/acrobat/11/using...
[2] https://helpx.adobe.com/acrobat/11/using/signing-pdfs.html#S...
I think docusign has the best sustinct summary of the bare requirements needed for a electronicly signed document to be recognized as legally binding.
https://www.docusign.com/learn/us-electronic-signature-laws-...
Without a tool like HelloSign you need to email the document to each person one by one to get everyone to sign on the same "paper". It's a mess and takes up a lot of time and coordination.
With HelloSign (and other similar tools), you can just send out an email with a link to everyone at once. They can sign the document asynchronously in whichever order they want, and when everyone has done that, you get a notification.
(At a past job I was asked to work on a digital signature product and very much the core and just about only requirement was digital ink square that worked on an iPad. Everything else didn't matter so long as they had some bitmap of some scrawl that someone attempted with a finger or an iPad stylus.)
Want a green check box in reader, provider cumbersome instructions for your end users to trust public cert . Or pay adobe their annual fee for a special signing cert..
Being able to just click-sign through a lease that requires almost every other page to be signed is a godsend. My hand genuinely got tired before, and quite frankly, I've lived here over 11 years, and there's not going to be anything in the lease I don't already know, so I don't really give a shit about going slowly through the damn thing.
In my case, it's better for consistency too. My signature is just a random scribble, so at least with DocuSign it'll now look identical on every page whereas it's different every time if I write by hand. The only thing I really care about is my initials, because I insist on writing my initials as a three-way ligature, and DocuSign is great about that, too. DocuSign will let you either pick one of many fonts or let you mouse-draw it, and you can make that decision separately for your signature and your initials. So I just pick one of their stock fonts for my signature and then mouse-draw my initials.
The best way to see signatures, in my IANAL opinion, is as layers of protection. The goal is that the person who signs the agreement has total understanding of what they are signing, and there is a paper trail of intent to abide by the agreement.
To that degree, if the agreement is important and you have a lot on the line if the counterparty decides to re-neg on the agreement, you should probably not do the above. But going in the opposite direction and insisting on notaries and wet ink might go too far in respect to how much effort is required.
It’s also problematic when you deal with an asshole, as it’s difficult to determine who has the correct version of the message.
The way the law looks at signatures is about the signaling of intent. The way engineers/tech look at signatures is more about trust and identity. There is some overlap of course, but if the agreement to be signed is of any real importance, nobody is going to take the chance that the identity is false or that there were no witnesses or a mis-understanding of what is in the agreement, so signing is done with wet ink.
There is a government appointed 3rd party company that manages the signing keys (BankID). They implement APIs that others, such as banks, telecom and utility companies can integrate with to make use of digital signatures that are legally binding. The signed documents are stored by the service and the initiating party (the bank).
HelloSign makes less than $4 million a year (according to Crunchbase at least).
If Dropbox was buying revenue then by Docusign's multiple they handsomely overpaid for HelloSign. But they're not buying revenue, so who knows if they over or underpaid.
"Dropbox is acquiring HelloSign to improve document workflows for hundreds of millions of users."
These needs may be "unsexy" compared to another social media app but they drive major value in the corporate world while building strong sustainable businesses.
You have no idea what kind of computer or technical expertise is on the other end of situations like this. The value add by e-signature SaaS providers is minimizing the amount of time the accountant employees have to deal with helping people sign docs.
• Your contracts are all in one place • It's easy to make new ones / send them out • You can see if the other person has opened it etc. • It's easier for them to sign
As an individual it's hard to see the benefit of a lot of this software in your own life, just like it's hard to see the benefit of a lot of corporate IT tools to manage two computers at home. But if you have 100 contracts as a company (which is not very many), having an centralised storage function, an easy way to create new ones (say for bringing on a new customer or employee), and analytics that mean you're not asking "what happened to the ACME contract last week."
A lot of enterprise SaaS tools make it easy to organize things that are simple at a small scale, but become very difficult when you increase things by 10-1000x.
I had our co-op built an open-source esignature API, that produces audit logs and has a similar user flow to electronic signature provides like Docusign, Hellosign, Adobe sign, etc.... It took him a little over 2 months to get everything working. Only real difficulty he ran into was scaling and stamping signatures on the PDF, as there wasn't a singly Python PDF library that had all the necessary features.
In the end he got it figured out though - for anyone interested / looking to implement eSignatures in their app, see https://github.com/this-is-ari/libresign - it's MIT licensed.
Not like that was different from simply pressing a button and acknowledging some message. No cryptography, no standards about legally binding e-signaturees, nothing. They just wanted the scribble of the inspector attached to the form.
Signatures are basically a way of signaling approval, ackowledging something or declaring intent. I designed that feature and always thought about it more as a intentional friction to make someone think briefly before closing or approving an inspection.
Is this the first time? Or has it happened before?
The title appears to have a negative slant. Is the modern jargon for acquisitions of this nature?
However, I agree with you: “offers to buy” would be more neutral and feel more appropriate. “Snares” has other nuances (surprise, violence, asymmetry) but neither convey a discussed at length, mutually agreed and beneficial relationship.
I interpreted it as Dropbox was fortunate to acquire HelloSign.
Also, this may just be some creative writing. Dropbox’s announcement did not use such language.
You know a snare is a hidden trap for animals? I can't imagine being snared to be positive - it implies you're going to be skinned or eaten.
Not the term I would use in a business context though.
We’ve noticed you haven’t used your XXX@XXX.com Dropbox account in over one year and have closed your account for you. Devices connected to this account have now stopped syncing. Any remaining files in your account will be subject to deletion.
Sincerely, - The Dropbox Team
There goes my files. Fuck dropbox. Stick to google drive.