[Applause]
hello everyone welcome back to key
studies with the biz doc this week it’s
the Dropbox IPO the long-awaited Dropbox
IPO I’m going to talk about the market
for file sharing and collaboration
software number one key competitor box
which is already Publix and we can see
into that company and look at some
things and then I’m gonna take you
through the history of Dropbox and what
I believe the IPO value is going to be
so let’s start with the market over here
this is called the Gartner Magic
Quadrant if you look up Gartner online
many of you do you can see how they
evaluate companies in a given sector and
then make a little graph of those
companies as part of their very
elaborate analysis people look at that
because it’s a quick visual indicator of
what Gartner things you get bragging
rights on it and also consumers make
decisions about it specifically those
enterprise business consumers spending
billions of dollars on i.t and those are
billions of dollars that box and Dropbox
want you go over here and there was to
access completeness of vision so how
much of a vision you have how complete
it is from here to here bigger vision
that’s more finished from here to here
the ability to execute so you may have a
big vision but can you pull it off can
you do it so and if you’ve got the
ability to execute but kind of a weak
vision they call you a challenger if you
have the ability to execute and a full
vision they call you a leader and if you
don’t have much of a vision and not much
of a ability to execute then you’re a
niche player and if you’ve got a whole
lot of vision and not a lot of ability
to execute they just call you visionary
because you just have vision you need to
get some guys and execute if you look up
here big company you’ve got Google and
Microsoft two giants with file sharing
solutions of their own you have Google
Docs and all that goes with it and
Microsoft onedrive it’s just amazing
stuff and drop box right here and box
right here so Gartner C’s boxed is a
little bit ahead in terms of the
completeness of the vision probably on
the enterprise side because box is more
about enterprise
initially and Dropbox was more about
consumers initially although both of
them are run into those business markets
right now because that’s where the money
is so we’re looking at two big players
we’re not looking at startups anymore
we’re looking at players that are now up
playing with the big boys and winning
every day and count don’t count out
those two guys as you move forward now
let’s go take a look at box because I
want to cover them because they’re
public and then we’re gonna jump into
Dropbox let me step out the way over
here so we can take a better look at
this box right now has 44 million
registered users now those may be people
that are not paying a dime they’re just
using say a freemium service but they
have eighty to ninety thousand
enterprise clients and box has been
highly focused on security features
functionality and winning enterprise
clients that’s been their their high
focus box was actually the one that was
founded first 2005 Dropbox 2007 and
we’ll get to them in a minute as I roll
into the IPO analysis they were up in
Mercer Island Washington and they moved
to Redwood City they in a 506 getting
the company going and the first big
money was 1.5 million from draper fisher
Jurvetson dfj and within two years
another six so that first 7 1/2 million
the key player there was a very big VC
that understood the enterprise space and
that is dfj specifically Tim Draper
overall they would go on to raise five
hundred and sixty million dollars in 11
rounds and there’s an inflection point
along the way as they grew this with
that they took another 15 million three
years later from scale bringing their
total to twenty three twenty four then
in 2012 it picked up they raised 48 and
then 81 and 12 and 13 they raised a
hundred and twenty-five million from
General Atlantic and then in 2014 boom
they raised a quarter of a billion
dollars and had sales of two hundred and
sixteen million dollars at that point
the board and everybody said time to go
public we have got a product we’re
closing in on a quarter billion of sales
and
some of these VCS want to use the IPO to
get a return on their investment because
that’s the natural order of things
they were adding features and
functionality very very effectively and
then they jump out with the IPO during
the IPO year they went from two hundred
and sixteen to three hundred and two
million dollars so they were up 40% and
revenue that year and they went out at
$14 a share which I think my memory
serves me correctly was about a 1.7
billion valuation on the IPO but that
day this thing went out like a rocket
and settled at about 23 so 14 to 23 now
you might say gosh was that IPO a little
under price the company got 14 but it
soon 23 in the market well not so fast
let’s take a look at what happened over
that year they would drift all the way
back down below the IPO price to nine or
ten and I think the lowest point of a
given day was actually 6 but as you can
see they lost over half of their their
first-day value of 23 even though they
drove the company from 300 almost 400
million dollars 398 million in 16 so
they grew another 32 percent so they
grew 40 percent then 32 percent so maybe
the market wasn’t like a big fan of the
of the growth rate slowing then the
growth rate slowed again down to 27
percent but they got up to half a
billion dollars in sales that’s
meaningful but look what happened I call
this a Tale of Two Cities the first year
after the IPO the stock went down then
the next two years they have been
driving up and since the IPO they have
done 11 consecutive consecutive I can’t
even speak today 11 consecutive quarters
of quarter-to-quarter revenue growth and
they’ve also over the course of the last
year announced that three out of four
quarters they were cashflow positive as
opposed to posting losses so in other
words a grown up company that’s doing a
really good job in the market and right
now there were 3.1 billion dollars a
market cap give or take when what
today’s closes at $23 a share and we are
sitting here January of 2018 exactly
three years from
IPO now let’s take a look at something
else you look into that you say wow this
came down this came up
what did Aaron Levie and his management
team do well he had some comments about
that some thoughts that I think are very
important and they’re very telling so
here’s what Aaron said he said first you
know being public has actually helped us
and there’s three reasons I think it’s
helped us the first is it helps us
compete with Microsoft and IBM oh wait a
minute look at here big boys why is that
he said because we’re on the stock
market we’re perceived as being a large
significant company and people can look
up our performance and see that we are a
large significant company closing in on
half a billion dollars of sales in 2017
also he says the quarterly reporting
brought discipline to my team it forced
me and the team to think about
everything we did because we have to
report it to the stock market I think
that’s a very mature point that he made
because you could look at it this way I
can’t get my strategic plans done
because every 13 weeks I got a go report
to the doggone market or you can say you
know what my strategic plans are made
better because we have to think about
how the markets going to respond to them
and always think about giving return for
the shareholder that’s the position that
Aaron Levie was taking and he said third
a publicly traded company also helps us
with long term incentives when we get
people stock options they can open up
the newspaper you know listen to that
open up the newspaper or they can go to
any site they want to see the the stock
price and understand where their options
are and he says they look at their
employees now and say look you can see
the price we want to drive it up
we hope these options are a long-term
incentive for you so he field that it
helps them compete with the big boys by
being on the market at quarterly reports
bring discipline and a publicly traded
company brings morale up because
everybody can see where the stock is
going and what’s happening for the
options that they’ve been giving I think
that that’s a pretty strong example of
leadership coming from box so we can see
box the enterprise player that’s got
about 80 90 thousand users in the
enterprise space and got a big list of
very large enterprise clients that have
selected their solution and
that’s what they lead with they lead
with the big right hand of enterprise
functionality now let’s compare to
Dropbox and then I’m gonna take you to
what I think that IPO value is going to
be okay so now let’s look up at the top
of this very complicated board today
which I hope is helpful in its
complexity we go to Dropbox founded in
2007 in San Francisco and actually came
out of Y Combinator one of the most
successful companies to come out of the
incubator I did a case study on that you
can go back and take a look at what Y
Combinator is all about and the benefit
that accelerators and incubators provide
to startups so here we go they get out
and coming out of the Y Combinator as a
very positive graduate they had they got
about six million dollars from Sequoia
what was very interesting it also shows
you the power of early blogging a
article that was on Digg di Gigi had
they had about 5,000 people that had
signed up for a beta and the beta is a
test that’s going to be closed so it’s
only a certain amount of people
invitation-only sentiment email with a
link they can come in and use the
product but you’re not open to the
public through a common link on an
external website well after an article
in Digg they went from 5,000 to 75,000
requests that they filled to be in the
beta in Oh a and they scored six million
dollars from Sequoia and they got off
and running pretty quick and there was a
lot of buzz in Silicon Valley so much so
that a gentleman named Steve Jobs asked
drew Houston the founder along with
Arash Ferdowsi and asked him hey come
over to Apple I want to talk to you
about something so in 2009 there in
Steve Jobs office talking about it and
there was a couple things he wanted in
there there’s some technology bits Apple
was interested and then he went on to
say well this is more of a feature than
a product I mean as legend has it this
is how the conversation way and why
don’t we just buy you and to which Drew
said no I think I’m going to go long and
I want to drive this we successfully get
out of Y Combinator we got Sequoia
backing us and you know what III don’t
think we want to get bought and he said
well then I cloud is gonna kick your
butt
[Music]
[Applause]
[Music]
well guess what
not only did iCloud not kick its butt
iCloud didn’t kick anybody’s butt and I
can’t think of people that I know that
use iCloud and then I cog got the
celebrity hack for all those celebrities
that had the pictures on their iPhones
that were automatically synchronizing to
iCloud and then they had this incredible
hack and all of a sudden we saw more
pictures of Jennifer Lawrence and we
really wanted to see well some people
wanted to see him I didn’t but all those
celebrities got exposed and iCloud got
embarrassed well guess what that was
basically it what do you hear from
iCloud now you it’s on your iPhone it
kind of forces you to use it but not not
a product anybody’s I think really
thrilled with and so on they went smart
decision a year later they had their
they celebrated a million users a year
later they had gotten 250 million users
these are registered users now on the
freemium product you get this for free
and a certain amount of storage with
these features and hopefully you buy up
to need more storage especially if
you’re you know a video person or a
person that’s got a lot of pictures a
ton of them that you you’re storing up
there suddenly the space needs and you
go from freemium to paid and that’s a
natural progression that they’re always
trying to convert so index comes along
invest two hundred and fifty million
dollars and that’s and that is on the
path we’re about to see what happens
here where they would raise 2.1 billion
over seven total round so they raise
four times the money that right at four
times the money that that box did
so then 2012 they double to a hundred
million users in 2013 they double again
to two hundred million users and
remember that’s on the there’s a lot of
rumors and going on about is box gonna
have an IPO and box was doing good with
business and interesting to see how they
shadowed each other
boom they announced Dropbox for business
and they also announced something called
mailbox they made some acquisitions what
was interesting here I really like the
way drew Houston did these some of these
acquisitions some people say well they
buy they bought things and then they
died and then they bought something else
and they didn’t take care of
at NIT died wait a minute I happen to
think he was being pretty smart and I
think it was we’re about to see through
here you know one of the tenants of zero
to one is get there fast and test and
don’t lose your mind to spending what
you’re testing if it’s going to die bury
it quick and go test something else get
yourself into a fast iteration cycle of
introduced a feature test the feature if
the market likes it great if they don’t
like it and it’s dying bury it and get
on to the next one but don’t get your
pride and ego out there I got to make it
work I got to make it work so on one
hand people look at that and you admire
that on the other hand it’s easy to be
an armchair quarterback and say oh look
they tried this and it died they tried
that and it died really well there may
have been people outside Thomas Edison’s
lab saying that too but if you hadn’t
kept trying we don’t have the light bulb
so I happen to think this is a good fast
iterative process that comes right out
of Peter Thiel’s book zero to one so
then in 2014 this is when their alarm
started ringing and everything went nuts
remember in 2011 all the money that was
being raised by box well three years
later they raised in January three
hundred and fifty million dollars from
Blackrock in April four hundred million
dollars from JP Morgan a name that would
stick with them and then in November
three hundred and fifty million dollars
at a ten billion dollar valuation led
and heavy participation from a gentleman
named Luigi Gilardi and open a
significant investor on the independent
side and so the total thing they raised
1.2 billion dollars in 2014 one year
there’s only one word for that and that
is damn that is a lot of money in the
venture world to be raising in one year
and none of it was debt this is all
equity financing then 2014 that 200
million registered users become 400 and
there was also something very
interesting happening
they were very carefully strengthening
their board they brought on in 2014 the
CEO of Priceline Bob my lord my lord
I’ve been pronouncing that right from
Priceline and they brought in
Condoleezza Rice and Condoleezza Rice it
a little bit of controversy because
people were saying drop drop box
because they felt that coming from a
conservative side she wasn’t supporting
human rights of a certain level what’s
really you know I’m not sure how true
that was but it all blew over and they
had the strength of Condoleezza Rice who
was you know it’s one-point Stanford Pro
Bo’s incredibly intelligent woman
powerful board member and now the CEO
Priceline they would actually add to the
board adding Paul Jacobs of Qualcomm in
2016 and Meg Quitman who had run for
governor of California and had driven
eBay all the way up Meg Whitman so now
they got people that have driven public
companies from the technology sector in
a very very strong board so people could
sense hey they’re getting ready to go
public at some point and so the waiting
game began when is Dropbox going public
from 15 to 16 the four hundred million
registered users became 500 million
registered users and they also announced
that they had crossed 50 thousand
enterprise users very important now that
now they were seen as being the consumer
product with tons of registered users a
lot of freemium but not a lot of
conversions to paid and now they’re out
there saying no wait a minute let me
show you something we’re making it work
we understand that this can’t be like
Twitter and be free forever there’s got
to be a revenue model in here that makes
sense and scales forward well then in 15
they bought mail box in 13 adding a mail
service product and then 15 that wasn’t
working they cancelled mail box and they
also cancelled something called carousel
and then in 16 they also announced that
they had built their own data centers
and were no longer reliant on Amazon
that was a strategic move they thought I
don’t want to be reliant on Amazon I’m
gonna build my own data centers and my
own storage facilities so to all of my
clients are dependent on me and I’m not
dependent on Amazon
not that Amazon’s going anywhere but
those are strategic things you don’t
want to necessarily be completely in bed
with somebody like Amazon with their
muscle because as we’ve all seen they
are ruthless competitors and they will
do whatever they want to a market space
go back and look at my Toys R Us case
study and you’ll see how Toys R Us
partnered with Amazon and then Amazon
absolutely gutted them and so I think
whether that was on drew Houston’s mine
or not is a lesson he
many people thought it was a strong
strategic positive move to move away
from the Amazon stack well they also
announced 16 going into 17 then that
they had hit 200,000 enterprise clients
and along with those five hundred
million registered users well along
comes also in 17 they raised another six
hundred million dollars
this time they raised debt debt told me
that they were going out for an IPO
here’s why they may have more than
enough statistics that they could have
raised more adventure funding heck a
week ago
uber just raise another 1.2 billion in
funding with the new CEO in place so you
can always I think if you’re successful
in the business growing go back to the
to the equity stack well they went to
the debt stack what debt does is it
doesn’t dilute all of your previous
investors debt is an opportunity if you
can serve it to get money and if you
have the ability to pay it back it
doesn’t cost you anything on the
ownership side so I think that’s what
they were doing and they were thinking
about the IPO and I’ll tell you why in a
second at that point they also announced
some results they said we are on a 1
billion dollar revenue run rate and it’s
a bit of positive and we’re growing that
revenue at about 30% a year Wow let’s
think about that a second I think the
list there I think there’s fewer than
3,000 companies that have a billion
dollars in sales I think it’s closer to
2,500 which means that they have built a
proven company they’ve added to the
enterprise stack they’re obviously
getting freemium conversions because we
had a billion dollars in sales coming
from somewhere which is twice the 500
million dollars the same year that boxes
just announced 2017 actually they
haven’t announced and give guidance to
it we’ll know in a month or so when box
makes its official announcement but
don’t bet against it being five hundred
five hundred and five million dollars so
here you have it and then they announced
we are doing a confidential IPO filing
well under the rules to go public you
can file confidentially but it leaks out
everybody knows about it but you
don’t have an s1 published for public
inspection what an s-1 is at SEC gov you
can go if you hear a company’s going
public and you can read the s-1 there’s
a lot of incredible helpful information
in there that about the market about the
company about their past sales how much
stock the insiders have the marketing
strategy and all their expectations very
carefully and with great sanitization
presented for public inspection ahead of
going public so looking forward to being
able to see something like that but it’s
Goldman and JP Morgan that are gonna
take him out public so Goldman joins JP
Morgan who gave the debt and had four
hundred and equity so JP Morgan’s got a
billion dollars in this deal and JP
Morgan’s going to go do the IPO along
with Goldman so that’s interesting so
where do we think it’s going to be well
if we step back for a second and
remember that right now box at roughly
five hundred and five million three out
of four quarters cash flow positive 3.1
billion dollar market cap and we’re
hearing that Dropbox has gonna have
twice that one billion a bit of positive
for 2017 so where does Dropbox’s
valuation come out well let me take you
to the biz dock algebra what I’ve done
here is put together a little analysis
of where I think the first-day market
cap is going to be and I’ll tell you why
right now in the market cloud-based
services of whatever form you know big
ones little ones successful ones growing
ones flat ones it’s about a multiple of
four point seven give or take on revenue
meaning if their revenue was a hundred
million dollars times four point seven
as long as they’re profitable you would
expect that company to be worth
somewhere around four hundred and
seventy million dollars plus or minus
down from that if they’re not very
profitable and they’ve got growth issues
maybe up from that a little bit if they
have strong profits and strong growth
but that’s sort of the barometer of
where it would be so if you take that
and dropboxes announced that four full
years seventeen they had right now 1
billion dollars in run rate if you
figure another four to six months on
getting ready for the IPO and if they’re
growing 30% a year I cut that down
instead of 30 percent to 1.3 billion I
just held it at one point two billion so
low conservative I multiply this four
point seven times one point two and on a
revenue multiple basis I get six billion
dollars of valuation market cap well
that’s interesting
that kind of gets you to the same place
a billion dollars being twice 505
million on revenue market thinks that
boxes worth three point one six now
let’s apply a little market enthusiasm
and IPO enthusiasm so I multiplied to
say a twenty percent premium on the
multiple the five point six and this
becomes six point eight so all of a
sudden you keep putting together what we
call goal pose just like football a low
end and a high end of where you
reasonably expect it can to be and I put
a little lift on this and I got to about
seven billion because I think there’s
gonna be a lot of enthusiasm and a lot
of hunger for a tech IPO and what I mean
by that is last year’s some tech IPOs
like snapchat didn’t go particularly
well so I think there’s a lot of market
interest and hunger for a tech IPO and a
lot of very interested investors because
the markets doing well and they want to
invest money on some things may be a
little more speculative to get a better
return in exchange for that risk so I
think if you take this up a little bit I
think that first day market cap is gonna
be about seven billion now we haven’t
seen an s-1 or any facts and this is
what I want to be seeing to feel good
about my kind of six to seven you can
see the flow that I’m building here in
the goalposts coming together I want to
see that freemium conversion has been
continuing at a good pace and where
exactly is the mix of consumers versus
enterprise that’s getting you that
billion dollars in trailing 12-month run
rate that you’re telling us drew I also
want to know that the enterprise percent
is going up and
any statistics in there that I can go
back and look at quarterly earnings
report for box now you’re gonna have
head-to-head competition and you’ll look
for key stats where they compete against
each other and I’m also when I see a
focus on security and enterprise
features clearly they’ve been fearless
about buying plug-in companies tuck in
acquisitions to add things and equally
fearless about you know what that’s not
working let me get back to my strategic
focus which i think is very very good so
that’s what I want to see if the when
the s-1 or pre market materials are
visible and then I want to continue to
see elements that we can compare Dropbox
and box together as we compare them and
see how they continue to do against the
hyper capitalized market players Google
and Microsoft who are all represented in
the leaders square of the Gartner Magic
Quadrant so that’s the Dropbox IPO
there’s a lot of interesting things
here’s three quick lessons I’ve got from
it I think drew Houston I think he tried
quick
let it die quick and get on the next
thing I think they’ve done that very
well
I think they’ve reacted to bring Dropbox
business into place and I think they’ve
got great people around them Meg Whitman
Paul Jacobs Condoleezza Rice this is a
group of people that are gonna give
credibility to your board and confidence
to the market that you’ve got adults in
the room helping you as you go public so
get great people around you that’s a
lesson for you and me would you make
your Board of Advisors and you don’t
have to wait till you’re going public
after 10 successful years of building
the storage and collaboration product
you can get great advisors involved with
you early on and I recommend it thank
you for watching and remember value
teaming is on a drive to a million
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my business and my life and my
leadership until next time I am Tom
Ellsworth the biz doc and I hope I left
you better than I found you you
hello everyone welcome back to key
studies with the biz doc this week it’s
the Dropbox IPO the long-awaited Dropbox
IPO I’m going to talk about the market
for file sharing and collaboration
software number one key competitor box
which is already Publix and we can see
into that company and look at some
things and then I’m gonna take you
through the history of Dropbox and what
I believe the IPO value is going to be
so let’s start with the market over here
this is called the Gartner Magic
Quadrant if you look up Gartner online
many of you do you can see how they
evaluate companies in a given sector and
then make a little graph of those
companies as part of their very
elaborate analysis people look at that
because it’s a quick visual indicator of
what Gartner things you get bragging
rights on it and also consumers make
decisions about it specifically those
enterprise business consumers spending
billions of dollars on i.t and those are
billions of dollars that box and Dropbox
want you go over here and there was to
access completeness of vision so how
much of a vision you have how complete
it is from here to here bigger vision
that’s more finished from here to here
the ability to execute so you may have a
big vision but can you pull it off can
you do it so and if you’ve got the
ability to execute but kind of a weak
vision they call you a challenger if you
have the ability to execute and a full
vision they call you a leader and if you
don’t have much of a vision and not much
of a ability to execute then you’re a
niche player and if you’ve got a whole
lot of vision and not a lot of ability
to execute they just call you visionary
because you just have vision you need to
get some guys and execute if you look up
here big company you’ve got Google and
Microsoft two giants with file sharing
solutions of their own you have Google
Docs and all that goes with it and
Microsoft onedrive it’s just amazing
stuff and drop box right here and box
right here so Gartner C’s boxed is a
little bit ahead in terms of the
completeness of the vision probably on
the enterprise side because box is more
about enterprise
initially and Dropbox was more about
consumers initially although both of
them are run into those business markets
right now because that’s where the money
is so we’re looking at two big players
we’re not looking at startups anymore
we’re looking at players that are now up
playing with the big boys and winning
every day and count don’t count out
those two guys as you move forward now
let’s go take a look at box because I
want to cover them because they’re
public and then we’re gonna jump into
Dropbox let me step out the way over
here so we can take a better look at
this box right now has 44 million
registered users now those may be people
that are not paying a dime they’re just
using say a freemium service but they
have eighty to ninety thousand
enterprise clients and box has been
highly focused on security features
functionality and winning enterprise
clients that’s been their their high
focus box was actually the one that was
founded first 2005 Dropbox 2007 and
we’ll get to them in a minute as I roll
into the IPO analysis they were up in
Mercer Island Washington and they moved
to Redwood City they in a 506 getting
the company going and the first big
money was 1.5 million from draper fisher
Jurvetson dfj and within two years
another six so that first 7 1/2 million
the key player there was a very big VC
that understood the enterprise space and
that is dfj specifically Tim Draper
overall they would go on to raise five
hundred and sixty million dollars in 11
rounds and there’s an inflection point
along the way as they grew this with
that they took another 15 million three
years later from scale bringing their
total to twenty three twenty four then
in 2012 it picked up they raised 48 and
then 81 and 12 and 13 they raised a
hundred and twenty-five million from
General Atlantic and then in 2014 boom
they raised a quarter of a billion
dollars and had sales of two hundred and
sixteen million dollars at that point
the board and everybody said time to go
public we have got a product we’re
closing in on a quarter billion of sales
and
some of these VCS want to use the IPO to
get a return on their investment because
that’s the natural order of things
they were adding features and
functionality very very effectively and
then they jump out with the IPO during
the IPO year they went from two hundred
and sixteen to three hundred and two
million dollars so they were up 40% and
revenue that year and they went out at
$14 a share which I think my memory
serves me correctly was about a 1.7
billion valuation on the IPO but that
day this thing went out like a rocket
and settled at about 23 so 14 to 23 now
you might say gosh was that IPO a little
under price the company got 14 but it
soon 23 in the market well not so fast
let’s take a look at what happened over
that year they would drift all the way
back down below the IPO price to nine or
ten and I think the lowest point of a
given day was actually 6 but as you can
see they lost over half of their their
first-day value of 23 even though they
drove the company from 300 almost 400
million dollars 398 million in 16 so
they grew another 32 percent so they
grew 40 percent then 32 percent so maybe
the market wasn’t like a big fan of the
of the growth rate slowing then the
growth rate slowed again down to 27
percent but they got up to half a
billion dollars in sales that’s
meaningful but look what happened I call
this a Tale of Two Cities the first year
after the IPO the stock went down then
the next two years they have been
driving up and since the IPO they have
done 11 consecutive consecutive I can’t
even speak today 11 consecutive quarters
of quarter-to-quarter revenue growth and
they’ve also over the course of the last
year announced that three out of four
quarters they were cashflow positive as
opposed to posting losses so in other
words a grown up company that’s doing a
really good job in the market and right
now there were 3.1 billion dollars a
market cap give or take when what
today’s closes at $23 a share and we are
sitting here January of 2018 exactly
three years from
IPO now let’s take a look at something
else you look into that you say wow this
came down this came up
what did Aaron Levie and his management
team do well he had some comments about
that some thoughts that I think are very
important and they’re very telling so
here’s what Aaron said he said first you
know being public has actually helped us
and there’s three reasons I think it’s
helped us the first is it helps us
compete with Microsoft and IBM oh wait a
minute look at here big boys why is that
he said because we’re on the stock
market we’re perceived as being a large
significant company and people can look
up our performance and see that we are a
large significant company closing in on
half a billion dollars of sales in 2017
also he says the quarterly reporting
brought discipline to my team it forced
me and the team to think about
everything we did because we have to
report it to the stock market I think
that’s a very mature point that he made
because you could look at it this way I
can’t get my strategic plans done
because every 13 weeks I got a go report
to the doggone market or you can say you
know what my strategic plans are made
better because we have to think about
how the markets going to respond to them
and always think about giving return for
the shareholder that’s the position that
Aaron Levie was taking and he said third
a publicly traded company also helps us
with long term incentives when we get
people stock options they can open up
the newspaper you know listen to that
open up the newspaper or they can go to
any site they want to see the the stock
price and understand where their options
are and he says they look at their
employees now and say look you can see
the price we want to drive it up
we hope these options are a long-term
incentive for you so he field that it
helps them compete with the big boys by
being on the market at quarterly reports
bring discipline and a publicly traded
company brings morale up because
everybody can see where the stock is
going and what’s happening for the
options that they’ve been giving I think
that that’s a pretty strong example of
leadership coming from box so we can see
box the enterprise player that’s got
about 80 90 thousand users in the
enterprise space and got a big list of
very large enterprise clients that have
selected their solution and
that’s what they lead with they lead
with the big right hand of enterprise
functionality now let’s compare to
Dropbox and then I’m gonna take you to
what I think that IPO value is going to
be okay so now let’s look up at the top
of this very complicated board today
which I hope is helpful in its
complexity we go to Dropbox founded in
2007 in San Francisco and actually came
out of Y Combinator one of the most
successful companies to come out of the
incubator I did a case study on that you
can go back and take a look at what Y
Combinator is all about and the benefit
that accelerators and incubators provide
to startups so here we go they get out
and coming out of the Y Combinator as a
very positive graduate they had they got
about six million dollars from Sequoia
what was very interesting it also shows
you the power of early blogging a
article that was on Digg di Gigi had
they had about 5,000 people that had
signed up for a beta and the beta is a
test that’s going to be closed so it’s
only a certain amount of people
invitation-only sentiment email with a
link they can come in and use the
product but you’re not open to the
public through a common link on an
external website well after an article
in Digg they went from 5,000 to 75,000
requests that they filled to be in the
beta in Oh a and they scored six million
dollars from Sequoia and they got off
and running pretty quick and there was a
lot of buzz in Silicon Valley so much so
that a gentleman named Steve Jobs asked
drew Houston the founder along with
Arash Ferdowsi and asked him hey come
over to Apple I want to talk to you
about something so in 2009 there in
Steve Jobs office talking about it and
there was a couple things he wanted in
there there’s some technology bits Apple
was interested and then he went on to
say well this is more of a feature than
a product I mean as legend has it this
is how the conversation way and why
don’t we just buy you and to which Drew
said no I think I’m going to go long and
I want to drive this we successfully get
out of Y Combinator we got Sequoia
backing us and you know what III don’t
think we want to get bought and he said
well then I cloud is gonna kick your
butt
[Music]
[Applause]
[Music]
well guess what
not only did iCloud not kick its butt
iCloud didn’t kick anybody’s butt and I
can’t think of people that I know that
use iCloud and then I cog got the
celebrity hack for all those celebrities
that had the pictures on their iPhones
that were automatically synchronizing to
iCloud and then they had this incredible
hack and all of a sudden we saw more
pictures of Jennifer Lawrence and we
really wanted to see well some people
wanted to see him I didn’t but all those
celebrities got exposed and iCloud got
embarrassed well guess what that was
basically it what do you hear from
iCloud now you it’s on your iPhone it
kind of forces you to use it but not not
a product anybody’s I think really
thrilled with and so on they went smart
decision a year later they had their
they celebrated a million users a year
later they had gotten 250 million users
these are registered users now on the
freemium product you get this for free
and a certain amount of storage with
these features and hopefully you buy up
to need more storage especially if
you’re you know a video person or a
person that’s got a lot of pictures a
ton of them that you you’re storing up
there suddenly the space needs and you
go from freemium to paid and that’s a
natural progression that they’re always
trying to convert so index comes along
invest two hundred and fifty million
dollars and that’s and that is on the
path we’re about to see what happens
here where they would raise 2.1 billion
over seven total round so they raise
four times the money that right at four
times the money that that box did
so then 2012 they double to a hundred
million users in 2013 they double again
to two hundred million users and
remember that’s on the there’s a lot of
rumors and going on about is box gonna
have an IPO and box was doing good with
business and interesting to see how they
shadowed each other
boom they announced Dropbox for business
and they also announced something called
mailbox they made some acquisitions what
was interesting here I really like the
way drew Houston did these some of these
acquisitions some people say well they
buy they bought things and then they
died and then they bought something else
and they didn’t take care of
at NIT died wait a minute I happen to
think he was being pretty smart and I
think it was we’re about to see through
here you know one of the tenants of zero
to one is get there fast and test and
don’t lose your mind to spending what
you’re testing if it’s going to die bury
it quick and go test something else get
yourself into a fast iteration cycle of
introduced a feature test the feature if
the market likes it great if they don’t
like it and it’s dying bury it and get
on to the next one but don’t get your
pride and ego out there I got to make it
work I got to make it work so on one
hand people look at that and you admire
that on the other hand it’s easy to be
an armchair quarterback and say oh look
they tried this and it died they tried
that and it died really well there may
have been people outside Thomas Edison’s
lab saying that too but if you hadn’t
kept trying we don’t have the light bulb
so I happen to think this is a good fast
iterative process that comes right out
of Peter Thiel’s book zero to one so
then in 2014 this is when their alarm
started ringing and everything went nuts
remember in 2011 all the money that was
being raised by box well three years
later they raised in January three
hundred and fifty million dollars from
Blackrock in April four hundred million
dollars from JP Morgan a name that would
stick with them and then in November
three hundred and fifty million dollars
at a ten billion dollar valuation led
and heavy participation from a gentleman
named Luigi Gilardi and open a
significant investor on the independent
side and so the total thing they raised
1.2 billion dollars in 2014 one year
there’s only one word for that and that
is damn that is a lot of money in the
venture world to be raising in one year
and none of it was debt this is all
equity financing then 2014 that 200
million registered users become 400 and
there was also something very
interesting happening
they were very carefully strengthening
their board they brought on in 2014 the
CEO of Priceline Bob my lord my lord
I’ve been pronouncing that right from
Priceline and they brought in
Condoleezza Rice and Condoleezza Rice it
a little bit of controversy because
people were saying drop drop box
because they felt that coming from a
conservative side she wasn’t supporting
human rights of a certain level what’s
really you know I’m not sure how true
that was but it all blew over and they
had the strength of Condoleezza Rice who
was you know it’s one-point Stanford Pro
Bo’s incredibly intelligent woman
powerful board member and now the CEO
Priceline they would actually add to the
board adding Paul Jacobs of Qualcomm in
2016 and Meg Quitman who had run for
governor of California and had driven
eBay all the way up Meg Whitman so now
they got people that have driven public
companies from the technology sector in
a very very strong board so people could
sense hey they’re getting ready to go
public at some point and so the waiting
game began when is Dropbox going public
from 15 to 16 the four hundred million
registered users became 500 million
registered users and they also announced
that they had crossed 50 thousand
enterprise users very important now that
now they were seen as being the consumer
product with tons of registered users a
lot of freemium but not a lot of
conversions to paid and now they’re out
there saying no wait a minute let me
show you something we’re making it work
we understand that this can’t be like
Twitter and be free forever there’s got
to be a revenue model in here that makes
sense and scales forward well then in 15
they bought mail box in 13 adding a mail
service product and then 15 that wasn’t
working they cancelled mail box and they
also cancelled something called carousel
and then in 16 they also announced that
they had built their own data centers
and were no longer reliant on Amazon
that was a strategic move they thought I
don’t want to be reliant on Amazon I’m
gonna build my own data centers and my
own storage facilities so to all of my
clients are dependent on me and I’m not
dependent on Amazon
not that Amazon’s going anywhere but
those are strategic things you don’t
want to necessarily be completely in bed
with somebody like Amazon with their
muscle because as we’ve all seen they
are ruthless competitors and they will
do whatever they want to a market space
go back and look at my Toys R Us case
study and you’ll see how Toys R Us
partnered with Amazon and then Amazon
absolutely gutted them and so I think
whether that was on drew Houston’s mine
or not is a lesson he
many people thought it was a strong
strategic positive move to move away
from the Amazon stack well they also
announced 16 going into 17 then that
they had hit 200,000 enterprise clients
and along with those five hundred
million registered users well along
comes also in 17 they raised another six
hundred million dollars
this time they raised debt debt told me
that they were going out for an IPO
here’s why they may have more than
enough statistics that they could have
raised more adventure funding heck a
week ago
uber just raise another 1.2 billion in
funding with the new CEO in place so you
can always I think if you’re successful
in the business growing go back to the
to the equity stack well they went to
the debt stack what debt does is it
doesn’t dilute all of your previous
investors debt is an opportunity if you
can serve it to get money and if you
have the ability to pay it back it
doesn’t cost you anything on the
ownership side so I think that’s what
they were doing and they were thinking
about the IPO and I’ll tell you why in a
second at that point they also announced
some results they said we are on a 1
billion dollar revenue run rate and it’s
a bit of positive and we’re growing that
revenue at about 30% a year Wow let’s
think about that a second I think the
list there I think there’s fewer than
3,000 companies that have a billion
dollars in sales I think it’s closer to
2,500 which means that they have built a
proven company they’ve added to the
enterprise stack they’re obviously
getting freemium conversions because we
had a billion dollars in sales coming
from somewhere which is twice the 500
million dollars the same year that boxes
just announced 2017 actually they
haven’t announced and give guidance to
it we’ll know in a month or so when box
makes its official announcement but
don’t bet against it being five hundred
five hundred and five million dollars so
here you have it and then they announced
we are doing a confidential IPO filing
well under the rules to go public you
can file confidentially but it leaks out
everybody knows about it but you
don’t have an s1 published for public
inspection what an s-1 is at SEC gov you
can go if you hear a company’s going
public and you can read the s-1 there’s
a lot of incredible helpful information
in there that about the market about the
company about their past sales how much
stock the insiders have the marketing
strategy and all their expectations very
carefully and with great sanitization
presented for public inspection ahead of
going public so looking forward to being
able to see something like that but it’s
Goldman and JP Morgan that are gonna
take him out public so Goldman joins JP
Morgan who gave the debt and had four
hundred and equity so JP Morgan’s got a
billion dollars in this deal and JP
Morgan’s going to go do the IPO along
with Goldman so that’s interesting so
where do we think it’s going to be well
if we step back for a second and
remember that right now box at roughly
five hundred and five million three out
of four quarters cash flow positive 3.1
billion dollar market cap and we’re
hearing that Dropbox has gonna have
twice that one billion a bit of positive
for 2017 so where does Dropbox’s
valuation come out well let me take you
to the biz dock algebra what I’ve done
here is put together a little analysis
of where I think the first-day market
cap is going to be and I’ll tell you why
right now in the market cloud-based
services of whatever form you know big
ones little ones successful ones growing
ones flat ones it’s about a multiple of
four point seven give or take on revenue
meaning if their revenue was a hundred
million dollars times four point seven
as long as they’re profitable you would
expect that company to be worth
somewhere around four hundred and
seventy million dollars plus or minus
down from that if they’re not very
profitable and they’ve got growth issues
maybe up from that a little bit if they
have strong profits and strong growth
but that’s sort of the barometer of
where it would be so if you take that
and dropboxes announced that four full
years seventeen they had right now 1
billion dollars in run rate if you
figure another four to six months on
getting ready for the IPO and if they’re
growing 30% a year I cut that down
instead of 30 percent to 1.3 billion I
just held it at one point two billion so
low conservative I multiply this four
point seven times one point two and on a
revenue multiple basis I get six billion
dollars of valuation market cap well
that’s interesting
that kind of gets you to the same place
a billion dollars being twice 505
million on revenue market thinks that
boxes worth three point one six now
let’s apply a little market enthusiasm
and IPO enthusiasm so I multiplied to
say a twenty percent premium on the
multiple the five point six and this
becomes six point eight so all of a
sudden you keep putting together what we
call goal pose just like football a low
end and a high end of where you
reasonably expect it can to be and I put
a little lift on this and I got to about
seven billion because I think there’s
gonna be a lot of enthusiasm and a lot
of hunger for a tech IPO and what I mean
by that is last year’s some tech IPOs
like snapchat didn’t go particularly
well so I think there’s a lot of market
interest and hunger for a tech IPO and a
lot of very interested investors because
the markets doing well and they want to
invest money on some things may be a
little more speculative to get a better
return in exchange for that risk so I
think if you take this up a little bit I
think that first day market cap is gonna
be about seven billion now we haven’t
seen an s-1 or any facts and this is
what I want to be seeing to feel good
about my kind of six to seven you can
see the flow that I’m building here in
the goalposts coming together I want to
see that freemium conversion has been
continuing at a good pace and where
exactly is the mix of consumers versus
enterprise that’s getting you that
billion dollars in trailing 12-month run
rate that you’re telling us drew I also
want to know that the enterprise percent
is going up and
any statistics in there that I can go
back and look at quarterly earnings
report for box now you’re gonna have
head-to-head competition and you’ll look
for key stats where they compete against
each other and I’m also when I see a
focus on security and enterprise
features clearly they’ve been fearless
about buying plug-in companies tuck in
acquisitions to add things and equally
fearless about you know what that’s not
working let me get back to my strategic
focus which i think is very very good so
that’s what I want to see if the when
the s-1 or pre market materials are
visible and then I want to continue to
see elements that we can compare Dropbox
and box together as we compare them and
see how they continue to do against the
hyper capitalized market players Google
and Microsoft who are all represented in
the leaders square of the Gartner Magic
Quadrant so that’s the Dropbox IPO
there’s a lot of interesting things
here’s three quick lessons I’ve got from
it I think drew Houston I think he tried
quick
let it die quick and get on the next
thing I think they’ve done that very
well
I think they’ve reacted to bring Dropbox
business into place and I think they’ve
got great people around them Meg Whitman
Paul Jacobs Condoleezza Rice this is a
group of people that are gonna give
credibility to your board and confidence
to the market that you’ve got adults in
the room helping you as you go public so
get great people around you that’s a
lesson for you and me would you make
your Board of Advisors and you don’t
have to wait till you’re going public
after 10 successful years of building
the storage and collaboration product
you can get great advisors involved with
you early on and I recommend it thank
you for watching and remember value
teaming is on a drive to a million
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my business and my life and my
leadership until next time I am Tom
Ellsworth the biz doc and I hope I left
you better than I found you you
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