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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

by 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.
- CPLX 11y ago
  Now add the implications of liquidation preferences (presumably) to the math and you'll see things get a lot more challenging.
  - refurb 11y ago
    Exactly. Throw in a 2x or 3x liquidation preference and participating preferred and some of those investors will be lucky to get their initial investment back.
  - rokhayakebe 11y ago
    Yeah, however even a liquidation preference will be 1x,2x.
product50 11y ago
Not true. Investors probably have preferential shares and liquidity preferences which will safeguard their investments regardless. If it is indeed a small/medium size business, then the current $10B valuation is totally out of whack, and guess who gets screwed in the end - yep, employees..

by subdane 11y ago

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.

CPLX 11y ago
Now add the implications of liquidation preferences (presumably) to the math and you'll see things get a lot more challenging.
- refurb 11y ago
  Exactly. Throw in a 2x or 3x liquidation preference and participating preferred and some of those investors will be lucky to get their initial investment back.
- rokhayakebe 11y ago
  Yeah, however even a liquidation preference will be 1x,2x.

product50 11y ago

Not true. Investors probably have preferential shares and liquidity preferences which will safeguard their investments regardless. If it is indeed a small/medium size business, then the current $10B valuation is totally out of whack, and guess who gets screwed in the end - yep, employees..