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More companies should disavow growth and aim to be stable cash generating entities. Dropbox is a utility. Unfortunately VCs don't like this.
by cylinder 10y ago
More 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)
- theseatoms 10y ago> (Of course, without the reporting requirements they probably wouldn't IPO for as much as every offering would need a bigger 'possible fraud' discount) So it follows that companies would voluntarily report, as to obtain a higher IPO price.
- aianus 10y agoSure, but then what's to stop them from ceasing to report 6 months later when the lockup period expires and the insiders cash out?
- nevir 10y agoYou also gave them money, in that analogy
- rattray 10y agoThat's only true if Dropbox is really growing revenues at a fast pace. If they're growing revenues at a slow pace – or have a low profit margin – it's more like looking in through an opaque window at bankers doing less with your money than other bankers could. You'd much rather withdraw that money and invest it nextdoor.
- Retric 10y agoIf they toss out dividends then there are plenty of people happy to buy that stock from the VC. Yes, the VC wants to pump and dump, but that does not mean the company's need to respond in kind.
- andrewfong 10y agoThere is (sometimes) a distinction between an IPO and cashing out. VCs may be able to sell some of their stake on the secondary market if they want to cash out. I think some Facebook investors and early employees did this actually. Also worth noting that "no rush to IPO" is not the same as "never IPO". As a VC, you're investing with the understanding that an exit is many, many years away (if it ever comes at all), on the hope that this longer time horizon gives founders the flexibility to do crazy unicorn stuff. I can imagine a CEO telling the VCs "hey, we're going to wait an extra 5 years to IPO, but that's because we want to do crazy 10x return stuff that's difficult to pull off as a public company because of required SEC filings, activist shareholders, etc.".
- djloche 10y agoI suppose the idea is to have both profitability and growth.
- Xyik 10y agothe issue in the start-up / tech world is that things move very fast. What's to stop Google drive from crushing dropbox? Companies need to balance growth and profitability at some point, but it makes sense to focus on growth first.
- coldtea 10y agoFrom my experience, the usual way such tech companies disappear is not through being "merely" cash-positive, but by getting acquired for mucho dinero and then never heard of again. Meanwhile, thousands of smaller tech companies and services exist for decades and reliably serve their customers and make money.
- mattmanser 10y agoLotus Notes! Woo hoo!
- harryh 10y agoSmaller tech companies that exist for decades are generally serving a narrower niche than all purpose file sharing. To a large degree the product you are making informs what sort of growth strategy you must pursue.
- tdkl 10y ago> What's to stop Google drive from crushing dropbox? Googles incompetence to stick with a product, not a tech demo.
- mathattack 10y agoI agree 100%. VCs give money to risky companies so that they can aim for very high growth. If the growth expectations aren't 50% per year or higher, the VCs won't invest. Some won't invest if they don't see an option for getting 100x on the other end. They do this having promised their investors to liquidate the fund after a fixed amount of years, usually 7-10. Everyone knows this going in. It's both bold and responsible to bootstrap and not require VC funding. Just don't take VC money. It's ok to hold off a year. It's not ok to say, "We're at a mature size, you can wait all you want."
- JumpCrisscross 10y ago> It's both bold and responsible to bootstrap and not require VC funding I think there's sense in the middle. VC funding is expensive. Use it to finance rapid growth across orders of magnitude. If you can't or don't want to grow like that, find a more appropriate funding source.
- gertef 10y agohaving one's cake and eating it is better than either alternative alone.
- draw_down 10y agoUnless you signed a contract that says you'll go to IPO, or they have some other means of coercion... sounds like boohoo for the VC.
- mathattack 10y agoThe VCs generally have board seats to force the issue. At some point employees want exits too. Only the strongest companies can ignore their money providers forever.
- guscost 10y agoWell, this sounds like they are saying the money provided by their customers is enough for now. We'll see.
- jforman 10y agoFunny, their Sequoia board member was bragging about going cash flow positive today.
- samfisher83 10y agoThat is not the VC model. Even if it were generating cash at a constant rate you could value the business with a small g term. PE do well with companies like this.
- rayiner 10y agoMaybe. But the whole SV startup model of "try lots of things" and "fail fast" doesn't really work if there aren't big hits to bankroll all the failed attempts.
- mark_l_watson 10y ago+1 I totally agree with you. Sustainable and slow growth (or even flat business growth, with a profit) should be fine, if vulture capital is not involved. I am visiting my Dad and we were just talking about bootstrapping vs. venture funded startups this morning. He pays to go to the MIT club's startup talks in San Diego, and really enjoys the presentations (he is in his 90s, and likes to hear what people are working on).
- fratlas 10y agoTake a note out of Atlassian's book and try to take as least funding as possible, and just make great useful enterprise products.