Posted on Thursday, Jan 15th 2015
There is no shortage of private Billion Dollar Unicorns today given the feeding frenzy that VCs are partaking in by investing in late-stage ventures at astronomical valuations. In fact, of late, fund managers have been thoroughly irresponsible by investing at sky rocketing and sometimes senseless valuations giving rise to a slew of private startups that may not have the luxury of a public market exit at similar valuations. One such company is cloud storage services provider Box, which continues to struggle with its IPO pricing and timing.
Box began their services in 2005 as a college business project. It was founded by Dylan Smith and Aaron Levie while they were studying at the University of Southern California. The idea behind Box was the realization that content becomes more accessible, useful, and powerful when it is centrally stored, managed, and shared.
Soon, they grew beyond a dorm room project to offer organizations and individuals access to a secure cloud content management and collaboration platform. Their platform enables personal and commercial content to be available, sharable, and storable in any format from anywhere. Additionally, Box has managed to build a strong ecosystem around their platform by integrating it with service providers such as Salesforce.com and NetSuite.
Their product has been successful and they now boast of over 32 million registered users and 275,000 organizations of which nearly 44,000 are paying customers. Box has more than 4 billion content interactions every month and is offered in 20 languages worldwide. Their customer list includes the likes of Ameriprise Financial, Bechtel, Eli Lilly, Gap, Schneider Electric, Sunbelt Rentals, and Viacom.
Box’s Financial Worries
The rapid growth in product adoption has also translated to stellar revenue growth. Revenues for 2011 were $21.1 million, which grew to $124.2 million for the year ending January 2014. For the nine months ended October 2014, revenues have grown 80% to $153.8 million. But Box’s biggest issue lies in being able to turn those revenues into profits. Their losses have increased from $50.3 million for 2011 to $168.6 million for the twelve months ended January 2014. For the nine months ended October 2014, losses reduced marginally to $125.2 million.
Box’s continued losses are attributed to the increase in sales and marketing and R&D spend. For the nine months ended October last year, Sales and marketing expenses grew 23% over the year to $152.35 million – almost equal to its revenues. R&D spend increased nearly 50% to $48.4 million.
Box has been able to sustain its existence through venture funding. So far, they have received $564.1 million in funding from investors including TPG, Coatue Management, Mark Cuban, Draper Fisher Jurvetson (DFJ), US Venture Partners, Scale Venture Partners, Meritech Capital Partners, Emergence Capital Partners, Andreessen Horowitz, Salesforce, New Enterprise Associates, Bessemer Venture Partners, General Atlantic, SAP Ventures, The Social+Capital Partnership, Itochu Technology Ventures, Mitsui & Co, Telefónica Digital, Telstra, and Macnica Networks Corp. Their last round of funding was held in July 2014 when they raised $150 million in a round led by TPG and Coatue Management at a valuation of $2.4 billion compared with the $2 billion that they were valued at in December 2013.
But things are getting difficult. Their last summer round of funding expected them to go public at $20 a share and had raised IPO valuation expectations of $4 billion. But recent S-1 amendments by Box state that they are now looking to price their shares between $11-$13 each – a significant drop in less than a year. The revised prices value Box at $1.55 billion, falling short of the December 2013 valuation as well. Clearly the reduced valuation is representative of lack of market interest and the rising concern on their inability to deliver profits. Analysts believe that Box may still need to go public only as a last resort and once they go public, their valuations should come down even further, potentially to sub-Unicorn levels.
The question is, why?
Of course, Box has shown any evidence that it can acquire customers profitably. But the deeper question is why not? For one thing, the cloud storage space is experiencing rapid commoditization, and players like Google are able to offer the same service as Box free of charge. On the opposite end of the scale, security and workflow requirements of large enterprises is extremely sophisticated, and there are specialized players in the market like Egnyte going after that opportunity. This puts Box in a neither here, nor there state, spending huge amount of money to acquire unprofitable customers including large numbers of free-riders, and burning through cash rapidly.
There is a very good possibility that Box will crash and burn in the IPO process.
More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. Unicorns will also be discussed with some special guests during our 1M/1M Roundtable programs over the next few weeks. To be a part of the conversation, please register here. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.
This segment is a part in the series : Billion Dollar Unicorns
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