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Dropbox says it is cash flow positive, in no rush to IPO
- deleted 10y ago[deleted]
- KB1JWQ 10y agoI 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.
- deleted 10y ago[deleted]
- zzalpha 10y agoSpeaking 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...
- KB1JWQ 10y agoThere'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.
- swyman 10y agoProbably very dumb question: is it normal for options plans to expire for an employee that hasn't left a company?
- lovich 10y agoI don't think so, but it used to be normal for companies to try and IPO
- cheath 10y agoNo. 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 http://techcrunch.com/2016/04/29/handcuffed-to-uber
- CaveTech 10y agoIf 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?
- dragonwriter 10y ago> 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.)
- mschuster91 10y ago
- arkem 10y agoYes, generally all employee stock options will have an expiry date, typically 10 years.
- ChuckMcM 10y agoI 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.
- cheath 10y agoah interesting! I stand corrected. good to know
- jedberg 10y agoMost 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".
- zzalpha 10y agoSo 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-a209-45b1-af98-5632f7a1c599 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.
- elif 10y agoPersonally, 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.
- KB1JWQ 10y agoI 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...
- kmonsen 10y agoBut 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.
- lijason 10y agoThat'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.
- TeMPOraL 10y agoI'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.
- electic 10y agoThere is still no guarantee that they won't get acquired and fuck the product up in the end.
- TeMPOraL 10y agoSadly, there's never a guarantee. But it doesn't seem like they're looking for an exit strategy, which is reassuring.
- electic 10y agoHow 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.
- pm90 10y agoFrom 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.
- icebraining 10y agoEither that, or they're trying to prop up the price before accepting an offer :)
- toomuchtodo 10y agoEveryone is always looking for an exit strategy. You won't know until the right price comes along though.
- cylinder 10y agoMore companies should disavow growth and aim to be stable cash generating entities. Dropbox is a utility. Unfortunately VCs don't like this.
- vadym909 10y agoIf 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.
- OnlineCourage 10y agoActually, 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 10y agoYou can thank regulation for that.
- Twirrim 10y ago... what?
- aianus 10y agoI assume he's referring to the reporting requirements for public companies. Without those regulations more companies would go public. (Of course, without the reporting requirements they probably wouldn't IPO for as much as every offering would need a bigger 'possible fraud' discount)
- post_break 10y agoDropbox 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.
- Cyph0n 10y agoOneDrive 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.
- robbiep 10y agoOne 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)
- Cyph0n 10y agoI'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.
- chj 10y agoI used both Dropbox and OneDrive SDK, and from engineering perspective, Dropbox wins BIG. OneDrive sucks.
- RussianCow 10y agoMy 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.
- gauravagarwalr 10y agoThis is a bot! Flagged! OTOH Have you tried Google Drive?
- post_break 10y agoGoogle Drive does not run on windows. We need to quickly sync stuff between machines, capture revisions, all natively within windows. Thousands of files, daily.
- icebraining 10y agoDo you mean Linux? Drive does run on Windows.
- brianwawok 10y agoRuns 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.
- pm90 10y agoThe 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.
- rufugee 10y agoIt runs on Linux if you're willing to use a third-party utilty, right?
- mentaat 10y ago>Google Drive does not run on windows and you must be a trump supporter, right?
- dang 10y ago
- PhasmaFelis 10y agoIt 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.
- OhHeyItsE 10y agoWhat 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.
- PhasmaFelis 10y agoExactly. 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.
- jonknee 10y ago> 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.
- PhasmaFelis 10y agoNo, 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.
- stvswn 10y agoWhy 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?
- bing_dai 10y agoI 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.)
- Brushfire 10y agoNote 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.
- bing_dai 10y agoI 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.
- frakkingcylons 10y agoI think you meant to say empathize as opposed to emphasize.
- bing_dai 10y agoOops. You are right. Thanks!
- mbesto 10y ago> 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).
- mankash666 10y agoJust 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.
- seanieb 10y agoDon'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.
- mankash666 10y agoFair 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.
- barleyworth 10y agoBox 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.
- tacos 10y ago> 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.
- notatoad 10y ago>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?
- tacos 10y agoI 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.
- refurb 10y agoProfitable 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.
- jackgavigan 10y agoYes, 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.
- stvswn 10y agoThis 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.
- rabidsnail 10y agoYes, 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.
- hueving 10y agoI 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.
- pm90 10y agoWhy 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.
- sk5t 10y agoIt'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.
- hueving 10y agoNot 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.
- nemock 10y agoThis is always a cool thing to see in Silicon Valley. Way to go, Dropbox.
- Razengan 10y agoI wonder what features Dropbox can offer that won't inevitably be surpassed by Google Drive, iCloud Drive, and OneDrive. 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.
- dharmon 10y agoI 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.
- tlogan 10y agoExactly. 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...
- varjag 10y ago
- mark_l_watson 10y agoI 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.
- SpaceRaccoon 10y ago> 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?
- mark_l_watson 10y agoI 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.
- nstj 10y ago> 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.
- nathan_f77 10y agoDamn, 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.
- ekiara 10y agoGreat 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)
- gadders 10y agoPresumably this is against the interests of YC and the other VCs that invested, though?
- laktak 10y agoI really like Dropbox but I will leave if they force anything like Infinity (http://blogs.dropbox.com/tech/2016/05/going-deeper-with-project-infinite/ http://blogs.dropbox.com/tech/2016/05/going-deeper-with-proj...) onto us users.
- erikb 10y agoFor 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.
- rtpg 10y agoGlad 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>
- JackPoach 10y agoI wish they'd make their finances more transparent, rather than just saying 'cashflow positive'.
- ajharrison 10y agoSounds like he wants someone to buy Dropbox.
- sjg007 10y agoFor 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.