Dropbox says it is cash flow positive, in no rush to IPO(techcrunch.com)
techcrunch.com
Dropbox says it is cash flow positive, in no rush to IPO
http://techcrunch.com/2016/06/14/dropbox-says-it-is-cash-flow-positive-in-no-rush-to-ipo/
169 comments
The long term game for Dropbox is in having businesses outsource storage to them. While consumer cloud storage is a tough market (due to it being a race to the bottom), the vision of getting businesses of all sizes to replace their legacy file servers with Dropbox sounds very compelling.
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.
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.
I can attest to this. I do some tech support for a growing construction company nearby, and I just tossed out their aging server. Moved all their data to Dropbox and set it up on the PM's laptops. Took me about a week of answering questions before they were all happy and smooth again.
Agreed. We had a SMB share on our network that had grown increasingly unused. Since there wasn't a business processes in place users organically started using Dropbox to communicate with clients.
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.
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.
Which is going to be a struggle due to businesses also shifting other things to cloud and other providers offer complete solutions whereas dropdox is a piece of a large puzzle.
this is where Box is king and they've pretty much been focused on businesses since the start. They've been inking partnerships with everyone from Microsoft to IBM to make their service king among corporate/enterprise users.
Box also has better security/access controls
Box also has better security/access controls
”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.”
Great point! Hadn’t thought of it like that before.
Great point! Hadn’t thought of it like that before.
>The long term game for Dropbox is in having businesses outsource storage to them.
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.
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.
Unless Dropbox starts working more like a local file server there's a ton of business that will never adopt it.
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
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
User Lockin. Great.
> I wonder what features Dropbox can offer that won't inevitably be surpassed by Google Drive, iCloud Drive, and OneDrive.
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.
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.
I think you're on to something. If I were them, I would be working furiously on killer features that the others can't duplicate for whatever reason instead of wasting time on email and pictures. Cross-platform support is a good example, but only applies to OneDrive and iCloud.
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.
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.
Exactly. I love Dropbox. And exactly because of that I'm concern that they will be crushed by Google Drive or OneDrive.
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...
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...
I heard similar predictions ever since Dropbox appeared. There was quite a fuss when Google Drive was launched that Dropbox can not possibly compete against the juggernaut with infinite resources and is doomed, but that was 4 years ago now..
Among those listed, Slack is the biggest existential threat (or complementary partner). The others can't even speak the language Dropbox's customers speak.
> 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.
> 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.
If you look at their business with a low-level standpoint, they will struggle to radically differentiate themselves from Google Drive, iCloud, Box and co in terms of features. But their business is not first based on features, but rather i) infrastructure and ii) execution. For infrastructure, given their growth and funding, they seem to be reaching the critical size that makes you a leader/key player in the market. If they keep combining competitive pricing and quality of support, the incentive for companies to switch will be meaningless. For execution, the fact that they are already CF positive demonstrates a strong ability to grow profitably = great execution. I don't say there will be no hurdles on the road, but they have pretty much all they need to avoid them
Working sync. I tell companies to use it because it works.
You're forgetting that Dropbox came into existence when all of those competing products already existed. They got turned down by a lot of VCs because the feel was that the space was already too crowded. But the founder had a vision and delivered a product that was actually superior enough that it attracted customers in flocks.
>> I wonder what features Dropbox can offer that won't inevitably be surpassed by Google Drive, iCloud Drive, and OneDrive.
Google is blocked in China, not all people use Apple products, many people simply don't like Microsoft.
Google is blocked in China, not all people use Apple products, many people simply don't like Microsoft.
Dropbox is also blocked in Chica
You don't need an Apple device to use iCloud Drive.
More companies should disavow growth and aim to be stable cash generating entities. Dropbox is a utility. Unfortunately VCs don't like this.
If they didn't take VC Money it would be great. For a VC, a startup refusing to go IPO is like a bank that takes your money offering you a high interest on your checking account, but when you go to get it out, says oops sorry, it went into a fixed deposit.
Actually, it's more like a nice shiney bank which gives a huge interest rate on your deposits, but you go to the bank and the doors are locked, and you can't get in to make a deposit...but you can kind of see opaquely through the window that there are a lot of amazing bankers in there making tons of money, but they won't look at your or acknowledge you, because they are too busy making money on the money they already have.
HappyTypist(1)
You also gave them money, in that analogy
That's only true if Dropbox is really growing revenues at a fast pace.
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.
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.
There is (sometimes) a distinction between an IPO and cashing out. VCs may be able to sell some of their stake on the secondary market if they want to cash out. I think some Facebook investors and early employees did this actually.
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.".
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.".
If they toss out dividends then there are plenty of people happy to buy that stock from the VC. Yes, the VC wants to pump and dump, but that does not mean the company's need to respond in kind.
the issue in the start-up / tech world is that things move very fast. What's to stop Google drive from crushing dropbox? Companies need to balance growth and profitability at some point, but it makes sense to focus on growth first.
From my experience, the usual way such tech companies disappear is not through being "merely" cash-positive, but by getting acquired for mucho dinero and then never heard of again.
Meanwhile, thousands of smaller tech companies and services exist for decades and reliably serve their customers and make money.
Meanwhile, thousands of smaller tech companies and services exist for decades and reliably serve their customers and make money.
Lotus Notes! Woo hoo!
Smaller tech companies that exist for decades are generally serving a narrower niche than all purpose file sharing. To a large degree the product you are making informs what sort of growth strategy you must pursue.
> What's to stop Google drive from crushing dropbox?
Googles incompetence to stick with a product, not a tech demo.
Googles incompetence to stick with a product, not a tech demo.
Funny, their Sequoia board member was bragging about going cash flow positive today.
I agree 100%.
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."
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."
> It's both bold and responsible to bootstrap and not require VC funding
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 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.
Unless you signed a contract that says you'll go to IPO, or they have some other means of coercion... sounds like boohoo for the VC.
The VCs generally have board seats to force the issue. At some point employees want exits too. Only the strongest companies can ignore their money providers forever.
having one's cake and eating it is better than either alternative alone.
Maybe. But the whole SV startup model of "try lots of things" and "fail fast" doesn't really work if there aren't big hits to bankroll all the failed attempts.
I suppose the idea is to have both profitability and growth.
+1 I totally agree with you. Sustainable and slow growth (or even flat business growth, with a profit) should be fine, if vulture capital is not involved.
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).
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).
That is not the VC model. Even if it were generating cash at a constant rate you could value the business with a small g term. PE do well with companies like this.
Take a note out of Atlassian's book and try to take as least funding as possible, and just make great useful enterprise products.
I am surprised that Dropbox' investors would allow it. It also indicates that Dropbox likely does not have a Redemption Clause in their term sheet.
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.)
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.)
Note to entrepreneurs: this is a really, really bad term if you see it early on in a companies life.
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.
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 have a relatively less negative feeling towards the Redemption Clause.
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 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 think you meant to say empathize as opposed to emphasize.
Oops. You are right. Thanks!
> 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).
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).
I guess the investors understand the current situation in funding and exits/IPOs. I'm also guessing that neither of the big players is currently willing to buy Dropbox, because they all started/run their own solution (which, in most case, still come not close to sth like Dropbox).
Why start a firesale/-IPO, if you can sit the cold winter out?
Why start a firesale/-IPO, if you can sit the cold winter out?
Dropbox's last round was during the frothiest of the current frothy environment. Terms sheets with such ominous terms (if they exist today) didn't arrive until later.
Dropbox is the one service that I just can't replace. Nothing comes close to the ease of revisions/version control, restore, and sync. I sound like a bot but I've tried everything to find a replacement and I just keep coming back. It worries me because I don't like it when there is only one game in town.
I thought that, but I've been tempted over to Office Home, simply because for the same cost as Dropbox, I can get a family of four sync accounts (so I've saved 75%) and effectively get Office for free for the people who want/need it.
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.
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.
The problem with OneDrive is that it is pretty shitty on Mac (at least for me). In my experience Dropbox > Google Drive > OneDrive
Sure, but that's only a competitive advantage with, what, 10% of the market at most?
OneDrive is an absolutely solid alternative. I've been using it for a few years and haven't looked back.
With Office 365, it's a steal.
With Office 365, it's a steal.
I'm sorry, I really can't take a service seriously that can't even show me my file extensions in the web client. That combined with the horrible idea to release a Sharepoint client branded as "OneDrive for Business", the buggy clients integration in Windows 10, and the number of times they've changed messaging around "unlimited" storage... I don't see any reason to trust OneDrive with my data.
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.
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.
The web client is the only reason I still use the damn thing -- it's really quite great. Full text search includes text contained within image files, FAXes, and wonky old PDFs.
It shows file extensions for me.
It shows file extensions for me.
>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.
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.
My one issue with OneDrive when I tried it (late last year) was that it was very CPU-heavy compared to Dropbox. It noticeably slowed boot times, and syncing large changes slowed the whole system down for the duration. There might have been other factors at play here, but I've since disabled it on my Windows install and only use Dropbox, and I don't ever notice it's there.
I switched from OneDrive to Dropbox this year - was loyal to OneDrive since it was WL Mesh. Dropbox made a world of difference. No more duplicates, and so much easier to reorganize files.
I used both Dropbox and OneDrive SDK, and from engineering perspective, Dropbox wins BIG. OneDrive sucks.
One drive doesn't offer near the convenience or integration. I've used various incantations over the year from the initial skydrive through to its relaunch and then the latest version but each time I have been let down by unusual syncing behaviour or some level of strange complexity (the worst requiring re-syncing everything)
I've never had that issue to be frank. I use it on my laptop, my desktop, and my phone, and sync has been instantaneous and problem-free. I did face some issues with files blocking the sync operation, but that was fixed a while back.
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.
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 switched to Google Drive a while ago; if you use it in multiple contexts (professional and personal), it's a much saner setup. And if you use Google Docs and Gmail, the integrations make it worth it.
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.
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.
Do they have reasonable clients by now? Last time I checked they were horrible, especially the Linux client.
Profitable or cash-flow positive? Those are two different things.
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.
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.
Yes, his words were chosen very carefully. One has to assume that they spent a lot of money building Magic Pocket and migrating off of Amazon S3. That investment will be amortised (and the hardware will depreciate) over several years ()during which time it will show up as a cost in the P&L Account) but because the cash has already been spent, it doesn't show up in today's cashflow. Stock-based compensation also doesn't show up in the cashflow but it certainly impacts P&L.
So, while bring "cash-flow positive" means that the company's cash balance isn't decreasing, it doesn't mean that it's profitable.
So, while bring "cash-flow positive" means that the company's cash balance isn't decreasing, it doesn't mean that it's profitable.
This seems right to me. A cynical view of why he wouldn't want to go public would be that neither growth rate nor profitability paints a rosy picture, and filing for IPO would force disclosure -- the hope is to accelerate growth using the higher margins they realize after having implemented Magic Pocket. If/when they prove that Magic Pocket was worthwhile, they'll look to IPO.
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.
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.
Yes, but "cash-flow positive" is the relevant milestone if you're worried about whether the company will be able to stay in business if there's a freeze in the private equity market.
My guess they aren't profitable, because if they were, it would have been much easier to say just that, rather than 'cashflow positive'. It's probably cashflow minus this, this and that.
I'm happy to hear that. As a Dropbox user and paying customer, it reassures me that they won't get acquihired or otherwise fuck up the product in a typical startup fashion any time soon.
Dropbox is too busy acquihiring and fucking up other startups to do it themselves ;)
There is still no guarantee that they won't get acquired and fuck the product up in the end.
Sadly, there's never a guarantee. But it doesn't seem like they're looking for an exit strategy, which is reassuring.
How do you know they are not looking for an exit strategy? They have stopped aggressively hiring and buying startups. Their new product launches and innovation has been minimal. Their market is largely commoditized.
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.
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.
From what I've heard, they have been more focused on selling to Enterprises...as they should. There are only so many people who can be paid customers; Enterprises provide a much more predictable (and larger) stream of revenue.
Either that, or they're trying to prop up the price before accepting an offer :)
Everyone is always looking for an exit strategy. You won't know until the right price comes along though.
I think you are using that term wrong. Acqui-hired is used when a small startup is acquired by a larger company, chiefly to hire its founders. It does not apply to larger companies like Dropbox. Dropbox would simply be acquired by a larger company.
How is Dropbox going to be acqui-hired? They are hundreds of people. If anything, it would be an outright purchase.
Actually no IPO makes it easier to be acquihired, I would be more worried not less.
> Dropbox says it is cash flow positive, in no rush to IPO
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.
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.
>They're getting bought
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?
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 don't think it sells for anything close to $10B. At the $3-5B range there's no shortage of people who'd snap them up. EMC, Cisco, IBM. My money's on Microsoft.
I wonder how their current and former employees view this decision.
I further wonder whether or not people leaving have a 90 day window to either exercise or forfeit their options.
I further wonder whether or not people leaving have a 90 day window to either exercise or forfeit their options.
Personally, I love working at a startup that purposefully has no exit strategy. If you can grow as quickly as you want to and stay profitable the whole time, there's no point in relinquishing control of the company to the whims of institutional investors.
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.
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.
That's fine as long as startups don't sell you that the equity that's part of your compensation has any value. In other words, they pay you market-rate that big companies would in salary+liquid equity and/or you decide that whatever discount they offer is worth the difference in work environment.
I agree, if you're able and willing to pay market salaries rather than 80% of market plus some ephemeral equity that you've no realistic possibility of realizing value for...
But if there is no equity that is not a market salary anymore.
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.
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.
No idea if this would work but I wonder if some kind of profit sharing plan would make more sense than equity for these cases.
That way people still get the big payoff but get to keep control of the place they like working at.
That way people still get the big payoff but get to keep control of the place they like working at.
Speaking as someone in a (very) late stage startup, I'm far more curious how many of Dropbox's employees have options plans that are about to expire on them if they don't exercise...
Most decent companies will make it up to you by issuing you new options with the same value or otherwise compensating you for the expiration of options you can't exercise, in some cases they will simply buy the shares from you, giving you your "exit".
So while the employer could issue new options at a discounted strike price, it has serious tax consequences. From http://www.lexology.com/library/detail.aspx?g=d9f306b0-a209-...:
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.
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.
Probably very dumb question: is it normal for options plans to expire for an employee that hasn't left a company?
I don't think so, but it used to be normal for companies to try and IPO
No.
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.
Source: http://techcrunch.com/2016/04/29/handcuffed-to-uber
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.
Source: http://techcrunch.com/2016/04/29/handcuffed-to-uber
It totally screws the early employees with options. You're stuck with losing that equity or paying for theoretical money. If the IPO goes south, you can only deduct $3k in capital losses per year, although the loss is rolled over to follow years.
If you use your options and the company goes under before IPO, are you effectively shit-out-of-luck? Seems like you would get $0 for the shares but already paid taxes on them. Would you get those taxes back in a future refund if this were the case?
> If you use your options and the company goes under before IPO, are you effectively shit-out-of-luck?
"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.)
"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.)
> 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.
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.
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.
The taxes owed after exercise are actually under AMT. It is an AMT credit that carries forward equal to the tax paid that can be used in the next year where your conventional tax liability exceeds your amt liability. Any unused portion carries forward.
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.
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.
If your employer doesn't offer to buy the shares back, it's a pretty clear signal how much that equity is worth. Pay attention to that when you choose to exercise.
To be fair, they CAN leave without losing lots of money, they just have to leave all their equity behind.
Yes, generally all employee stock options will have an expiry date, typically 10 years.
I am pretty sure that every option I have received vested in some period of time and then expired after a longer period of time. Nearly all of them vested in 4 years and expired in 10 so if you were at the company for more than 10 years it would expire if you hadn't exercised the option.
ah interesting! I stand corrected. good to know
There's a whole crop of companies / people in this situation. I'm wondering if new hires register this as the glaring red flag it should be with respect to how companies treat the people that got them to where they are.
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I love Dropbox's support for a GNU Linux client. That said, and ironically, I am no longer a paying customer since they put Condi Rice on their board of directors. If Rice quits their board, I will immediately become a paying customer again.
Annoying that Google and Microsoft don't have official Linux clients for GDrive and OneDrive, but at least their web based support is passable.
Annoying that Google and Microsoft don't have official Linux clients for GDrive and OneDrive, but at least their web based support is passable.
> I am no longer a paying customer since they put Condi Rice on their board of directors. If Rice quits their board, I will immediately become a paying customer again.
Curiously, why?
Curiously, why?
I am unhappy with her, Dick Cheny, etc. for steering the USA into invading Iraq. Turned out badly for us, and they should have been able to predict the bad outcome.
Just to bust their chops on valuation - box is valued at $1.42B today. Dropbox better have 10X in revenues and profits to justify the $10B valuation. My guess is that they don't, and hence disinclined to address public scrutiny of their financials and/or valuation.
Don't you mean 7X? ... because math.
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.
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.
Fair enough - 7X to be more accurate.
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.
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.
Box has a negative P/E, so I'll assume you're talking about P/S here.
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.
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.
Fair points. Though if Dropbox were significantly better at any of the metrics you enumerate, they would've drummed up the media. And, they'd be in a hurry to go public.
They could have substantially higher growth instead (or in conjunction) but like you I would doubt this.
It is so bizarre to me that building a business that can make a profit and stand on its own is considered newsworthy in the tech economy.
What makes this newsworthy is that they are venture-backed. Investors don't get paid (generally) until there is a liquidation event.
A company that can "make a profit and stand on its own" is of no interest to a venture capitalist.
A company that can "make a profit and stand on its own" is of no interest to a venture capitalist.
Exactly. It's bizarre that this obviously dysfunctional, customer-harming model--building services that are designed from the start to die or be consumed--has become so accepted that no one even questions it.
> designed from the start to die or be consumed
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.
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.
No, but that's exactly what an "exit strategy" is, and an awful lot of startups are built around finding an exit. More often than not, that means building enormous hype and growth on a model that you know isn't sustainable, then selling it off just before it hits the apex and starts to fall, so the buyer can either dismantle it for parts or pare it down into something more realistic. Either way, you're leaving your users out in the cold.
Why is it obviously dysfunctional or consumer-harming?
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?
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?
Apple, Google, and Facebook were not born looking for an exit.
I feel bad for the employees. Remember this is another risk when considering offers from startups. Your shares may be illiquid for a very long time.
Why is it bad for employees? If they were granted stock, and the company thinks it will be a big player, then they have effectively invested in the company, right? Pretty sure a company like Dropbox has sizeable cash compensation for employees apart from equity.
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.
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.
It's bad in the way that most illiquid investments are bad... you will have to wait an indeterminate amount of time to extract any (or possibly no) cash. Whether you want to reallocate that illiquid asset into an index fund or burritos, you can't.
Not being able to turn half of your compensation into actual cash that can be spent on things like rent/house down payments/etc is a major downside. It effectively extends the amount of time that the stock is worthless from the employees' perspective.
Damn, imagine being an early employee at Dropbox, holding onto a lot of stock that you can't sell until an IPO. This situation is probably your worst nightmare. If anything, you want the company to struggle a little bit so that they're forced to raise more money in an IPO.
Great to hear an alternative story (i.e. a non-exit or IPO story) out of Silicon Valley.
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)
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)
This is always a cool thing to see in Silicon Valley. Way to go, Dropbox.
I really like Dropbox but I will leave if they force anything like Infinity (http://blogs.dropbox.com/tech/2016/05/going-deeper-with-proj...) onto us users.
For the users it would be so great to have Google by Dropbox. I use Drive all day long, but only for Google documents. Everything on the computers is either hosted in Dropbox or in ownCloud. But I think Microsoft is much more likely to buy them than Google. What a pity.
> Houston claimed that Dropbox has been cash flow positive, emphasizing that this milestone for a business “means you control your destiny. Instead of being funded by your investors, you’re funded by your customers.”
Accounts payable for SaaS businesses is the new VC on the block. Gold.
Accounts payable for SaaS businesses is the new VC on the block. Gold.
Glad to hear Dropbox is cash flow positive. I was pretty worried at one point about what would happen to all the apps relying on Dropbox for sync
<insert platitude about open systems here>
<insert platitude about open systems here>
For me it should be seamless to send and recieve large files on your iPhone. You can do this in Dropbox but it isn't as simple as send to X via Dropbox.
I wish they'd make their finances more transparent, rather than just saying 'cashflow positive'.
Presumably this is against the interests of YC and the other VCs that invested, though?
[deleted]
Sounds like he wants someone to buy Dropbox.
This is a bot! Flagged! OTOH Have you tried Google Drive?
We detached this subthread from https://news.ycombinator.com/item?id=11905332 and marked it off-topic.
Google Drive does not run on windows. We need to quickly sync stuff between machines, capture revisions, all natively within windows. Thousands of files, daily.
Do you mean Linux? Drive does run on Windows.
Runs on Linux too. I have it set up on my NAS backing up to the cloud.
That said Google drive is missing some Dropbox features, but it meets my needs.
That said Google drive is missing some Dropbox features, but it meets my needs.
The real problem I see with ever using Google's product is that their history with keeping products around hasn't been very good. Now, I'm sure they won't pull the plug on Gmail anytime soon, but I'm not that sure about Drive.
I realize the same can be said of Dropbox as well. But like Gmail is to Google, cloud storage is to Dropbox.
I realize the same can be said of Dropbox as well. But like Gmail is to Google, cloud storage is to Dropbox.
It runs on Linux if you're willing to use a third-party utilty, right?
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.