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What if -- hold your breath! -- Dropbox is simply a medium-sized, privately held, profit-generating company that will end up satisfying a certain customer segme

by malchow 11y ago

What if -- hold your breath! -- Dropbox is simply a medium-sized, privately held, profit-generating company that will end up satisfying a certain customer segment and paying dividends to investors? The horror!

tholmes 11y ago
Companies like that don't usually hire 600 people in 12 months, though. Buuut I guess they could. I guess it just kind of looks like the explosive hiring you see sometimes when a company has projected huge growth but then falls flat and realizes it has way too many employees :(
- gerbilly 11y ago
  >Companies like that don't usually hire 600 people in 12 months, though. Maybe, are those 600 people there to fight fires and work on tickets, or adding product features?
  - paulddraper 11y ago
    Either they have a huge growth in number of fires, tickets, or features. None of those fit your image.
- rokhayakebe 11y ago
  During holidays you see retailers hire to capitalize on the season. We should consider the same for startups, i.e. hire a bunch of people for a year or two to capitalize on the opportunity, then let them go. Everybody wins if it is clear from the beginning that when the well dries, everyone leaves.
mrgordon 11y ago
I don't think you're going for medium sized when you raise over a billion dollars. The investors who put in $500 million at a $10 billion valuation would need a lot of dividends to even break even, much less make the 10x return they want out of a decacorn.
subdane 11y ago
Their investors will revolt. Their investors need 10X returns in the next couple years to satisfy their fund's existence to their LPs. Funds need a few big wins like Hollywood studios need a couple blockbusters every year. Dropbox's investors are counting on them being a blockbuster. Dropbox's private valuation is an order of magnitude higher than Box's public valuation. And Box has a bigger sales team, more revenue, and more inroads into big enterprise than Dropbox. So it's a real pickle and dividends aren't going to get them out of it.
- dsjoerg 11y ago
  Would that be a smart move for those investors? Just because you need 10x returns doesn't mean there's a good way to get them.
- malchow 11y ago
  I fully concede your point. I think the private financing markets need to become more sophisticated out here, such that they enable the type of company I described -- which I reckon is the type of company Dropbox should be -- to thrive. There are a few very clever and small investors who already do this. But they're a minority.
  - AVTizzle 11y ago
    I agree with what you're saying. I'm not an expert - just learning more about this myself over the last few months, but it sounds to me like the investment style you're talking about exists inside the world of private equity. They're not playing the venture game - it's a different model. Buy and hold for either cashflow/dividends, or do some financial/managerial engineering and flip the asset. Outside of the world of Venture Capital, there's a HUGE spectrum of investors out there doing every kind of investment - just gotta tune into it I've found. (Great place to start is a podcast called PE Funcast - seems to me they've been doing this type of investing.)
- rokhayakebe 11y ago
  Not every investor is looking for a 10X. DB raised 1.17B, with 1.1 of those in the last three rounds (according to Crunchbase). The last three rounds were 250M,350M, and 500M. A round was 6M. Say A round wanted 100x. B round 10X. C round 7x. D round 5x. That will bring the total expected return to around 8B. However I am sure C and D would not mind a 3X or 2X, while B would probably settled happily for a 5X.
theseatoms 11y ago
I'd expect that there'll be more examples of the type of company that you're describing as interest rates rise. Regardless, once investors pay for growth, they require it, in order to be paid out on their bets and remain profitable.
dominotw 11y ago
>Dropbox is simply a medium-sized, privately held, profit-generating company that will end up satisfying a certain customer segment and paying dividends to investors? The horror! reply how well did that work out for basecamp? They could have been the next slack if they had not stuck to their stupid philosophy of staying small.
- freehunter 11y ago
  Is Basecamp in trouble or out of business? Not everyone needs to be huge, and it's not always profitable to grow out of control. Sometimes the costs of growth exceed the additional profits. Sometime to pivot to a market that doesn't actually exist. But sometimes you make some pretty decent money with a pretty decent profit, even if it's not exciting.
  - dominotw 11y ago
    > Not everyone needs to be huge But we are specifically talking about dropbox here. I am sure they were not exactly aiming to "be small" raising million of dollars in multiple investment rounds.
techpop10 11y ago
But they aren't making a profit, not even close
prostoalex 11y ago
Let's say I am a dividend investor looking for a steady cashflow stream. Why would an asset class like medium-size technology companies pursuing highly competitive cut-throat markets, requiring long lock-ups of capital (Dropbox was founded in 2007, so someone has been sitting on those shares for 9 years already) be more attractive than similar dividend-flowing asset classes like real estate or energy MLPs? Are the dividends so outsized that Dropbox is basically swimming in cash and the yield is much better than I can get with similar asset classes? Do they have a stronger foothold in the market with expected longevity to out-survive an office tower, apartment complex or gas pipeline? Is it likely to attract better talent than Valley's established public companies (GOOG, AAPL, FB) or Valley's hyper-growth startups with IPO potential (Uber), and that better talent will out-compete the rivals on products, execution and market share (and, as corollary, fall under "dividend growth" umbrella, in theory allowing me to buy larger yields at substantial discount)? Dropbox would have to compensate investors for (a) lack of liquidity and (b) for being in technology software market, known to be particularly unforgiving with its "winner takes all" mentality. Its peers would be highly risky single purpose private REITs (think casinos and fracking companies in North Dakota). To accommodate that compensation the yields would likely have to be in the double-digits range, so let's say with profits of $20 mln of which $10 mln is allocated to dividends the expected valuation would be in the range of $60-100 mil (10-15% expected yield which seems reasonable in this rate environment with the type of risk described).
- malchow 11y ago
  All of what you say is well taken. But there's absolutely a place for what amounts to a "data REIT." Investors prize dividends, and they prize having diverse sources for those dividends. Nothing new about that. If Dropbox is delighting its customers and no longer interested in the lightning-fast one-uppsmanship of enterprise software/storage, then it can trim costs and pay an attractive dividend, sure.

by malchow 11y ago

tholmes 11y ago

Companies like that don't usually hire 600 people in 12 months, though. Buuut I guess they could. I guess it just kind of looks like the explosive hiring you see sometimes when a company has projected huge growth but then falls flat and realizes it has way too many employees :(

gerbilly 11y ago
>Companies like that don't usually hire 600 people in 12 months, though. Maybe, are those 600 people there to fight fires and work on tickets, or adding product features?
- paulddraper 11y ago
  Either they have a huge growth in number of fires, tickets, or features. None of those fit your image.
rokhayakebe 11y ago
During holidays you see retailers hire to capitalize on the season. We should consider the same for startups, i.e. hire a bunch of people for a year or two to capitalize on the opportunity, then let them go. Everybody wins if it is clear from the beginning that when the well dries, everyone leaves.

mrgordon 11y ago

I don't think you're going for medium sized when you raise over a billion dollars. The investors who put in $500 million at a $10 billion valuation would need a lot of dividends to even break even, much less make the 10x return they want out of a decacorn.

subdane 11y ago

Their investors will revolt. Their investors need 10X returns in the next couple years to satisfy their fund's existence to their LPs. Funds need a few big wins like Hollywood studios need a couple blockbusters every year. Dropbox's investors are counting on them being a blockbuster. Dropbox's private valuation is an order of magnitude higher than Box's public valuation. And Box has a bigger sales team, more revenue, and more inroads into big enterprise than Dropbox. So it's a real pickle and dividends aren't going to get them out of it.

dsjoerg 11y ago
Would that be a smart move for those investors? Just because you need 10x returns doesn't mean there's a good way to get them.
malchow 11y ago
I fully concede your point. I think the private financing markets need to become more sophisticated out here, such that they enable the type of company I described -- which I reckon is the type of company Dropbox should be -- to thrive. There are a few very clever and small investors who already do this. But they're a minority.
- AVTizzle 11y ago
  I agree with what you're saying. I'm not an expert - just learning more about this myself over the last few months, but it sounds to me like the investment style you're talking about exists inside the world of private equity. They're not playing the venture game - it's a different model. Buy and hold for either cashflow/dividends, or do some financial/managerial engineering and flip the asset. Outside of the world of Venture Capital, there's a HUGE spectrum of investors out there doing every kind of investment - just gotta tune into it I've found. (Great place to start is a podcast called PE Funcast - seems to me they've been doing this type of investing.)
rokhayakebe 11y ago
Not every investor is looking for a 10X. DB raised 1.17B, with 1.1 of those in the last three rounds (according to Crunchbase). The last three rounds were 250M,350M, and 500M. A round was 6M. Say A round wanted 100x. B round 10X. C round 7x. D round 5x. That will bring the total expected return to around 8B. However I am sure C and D would not mind a 3X or 2X, while B would probably settled happily for a 5X.

theseatoms 11y ago

I'd expect that there'll be more examples of the type of company that you're describing as interest rates rise. Regardless, once investors pay for growth, they require it, in order to be paid out on their bets and remain profitable.

dominotw 11y ago

>Dropbox is simply a medium-sized, privately held, profit-generating company that will end up satisfying a certain customer segment and paying dividends to investors? The horror! reply how well did that work out for basecamp? They could have been the next slack if they had not stuck to their stupid philosophy of staying small.

freehunter 11y ago
Is Basecamp in trouble or out of business? Not everyone needs to be huge, and it's not always profitable to grow out of control. Sometimes the costs of growth exceed the additional profits. Sometime to pivot to a market that doesn't actually exist. But sometimes you make some pretty decent money with a pretty decent profit, even if it's not exciting.
- dominotw 11y ago
  > Not everyone needs to be huge But we are specifically talking about dropbox here. I am sure they were not exactly aiming to "be small" raising million of dollars in multiple investment rounds.

techpop10 11y ago

But they aren't making a profit, not even close

prostoalex 11y ago

Let's say I am a dividend investor looking for a steady cashflow stream. Why would an asset class like medium-size technology companies pursuing highly competitive cut-throat markets, requiring long lock-ups of capital (Dropbox was founded in 2007, so someone has been sitting on those shares for 9 years already) be more attractive than similar dividend-flowing asset classes like real estate or energy MLPs? Are the dividends so outsized that Dropbox is basically swimming in cash and the yield is much better than I can get with similar asset classes? Do they have a stronger foothold in the market with expected longevity to out-survive an office tower, apartment complex or gas pipeline? Is it likely to attract better talent than Valley's established public companies (GOOG, AAPL, FB) or Valley's hyper-growth startups with IPO potential (Uber), and that better talent will out-compete the rivals on products, execution and market share (and, as corollary, fall under "dividend growth" umbrella, in theory allowing me to buy larger yields at substantial discount)? Dropbox would have to compensate investors for (a) lack of liquidity and (b) for being in technology software market, known to be particularly unforgiving with its "winner takes all" mentality. Its peers would be highly risky single purpose private REITs (think casinos and fracking companies in North Dakota). To accommodate that compensation the yields would likely have to be in the double-digits range, so let's say with profits of $20 mln of which $10 mln is allocated to dividends the expected valuation would be in the range of $60-100 mil (10-15% expected yield which seems reasonable in this rate environment with the type of risk described).

malchow 11y ago
All of what you say is well taken. But there's absolutely a place for what amounts to a "data REIT." Investors prize dividends, and they prize having diverse sources for those dividends. Nothing new about that. If Dropbox is delighting its customers and no longer interested in the lightning-fast one-uppsmanship of enterprise software/storage, then it can trim costs and pay an attractive dividend, sure.