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Index Ventures Leads $4 billion Valuation Round In Dropbox

74 points by amirmc 15y ago

mikeryan 15y ago
Perhaps "But the valuation ended up lower. Why?" is answered by this: "Speculation was that they’d hit $100 million in revenue this year. Our best guess based on discussions with sources is that revenue will be more like $30 million in 2011. But this is still largely a guess." A valuation at 133x revenues is, well wow. I say this as big fan of dropbox as a service and a business but I'm not a fan of these monster valuations on the come. Also should point out there's a lot of speculation in that article and those which preceded it.
- revorad 15y ago
  I think the key words there are "But this is still largely a guess.".
- abbasmehdi 15y ago
  You're looking at their revenue and valuation in absolute terms, as a snapshot. Look at it in relativity, like a movie not a photograph. They are on an upward trajectory, what was 13000% last year, is 1330% this year, and might be 800% next year.
- yumraj 15y ago
  One of the simplest ways to do valuation is to look at Free Cash Flow (FCF) or Discounted Cash Flow (DCF) and then divide it by (discount rate - growth rate). Now, if the growth rate is fairly large, the denominator becomes very small and can drive even a moderate FCF to cause a very high valuation, which is what seems to be happening here. If interested search for FCF valuation, etc. there's a lot of info out there.
  - snewe 15y ago
    You have to believe that the (huge) growth rate is perpetual. Most firms do not grow faster than US GDP growth in the long-run.
    - ecuzzillo 15y ago
      On a long enough timeline, the survival rate for everybody drops to zero, and yet people buy stock.
swombat 15y ago
Holy fucking shit. Back of the envelope maths: 6% investment, diluted three (two rounds after seed according to http://www.crunchbase.com/company/dropbox http://www.crunchbase.com/company/dropbox , plus the current one), that goes down to about 2% (diluted by 30% each time). 2% of $4b is $80m. That's a 4000x return over what, 4 years?
- pchristensen 15y ago
  pg has been on record saying that financially, YC does better if the YC companies go public, not if they sell out early for $XM or $X0M. But he supports those because it benefits the founders, and when founders win, YC wins.
- webwright 15y ago
  IIRC, YC has pro rata rights... So it's not a foregone conclusion that they were diluted in both rounds. But yeah-- High five, YC!
- jamesshamenski 15y ago
  There is nothing being 'returned' to YC. The value of the investment has gone up but that has little to do with an exit.
  - javery 15y ago
    You don't know that - they could very well have sold some of their shares in this round. (at this valuation why not take a point off the table)
kno 15y ago
Does this number tell us how much the bubble burst will hurt? A whole lot!!
- webwright 15y ago
  Who, exactly, will it hurt?
  - aaronblohowiak 15y ago
    VC as an asset class, and programmers indirectly because of that.
Maakuth 15y ago
I wonder what are they going to do with the money. Build datacenters of their own? I hope they don't bloat their service with some expensively developed value-add stuff that nobody wants, but are force-fed nevertheless. One would think they're would be too smart for that kind of failure, but you can never know what big money does.
- SwellJoe 15y ago
  Given the math of owning vs. renting, I strongly suspect they will want to begin building their own. If I were they, I'd be hiring ops developers from Google or Facebook or someone who has dealt with really big data centers and start dipping my toes into ownership immediately. They'll need to figure out how to cheaply and reliably manage petabytes of storage.
  - justincormack 15y ago
    Not convinced. They are being valued at $4b not for some extra profitability by cutting costs, but because of a huge opportunity to grow. They need to do what they need for growth not hire expensive people to get into the server farm and storage business. Maybe later.
    - SwellJoe 15y ago
      I won't argue that growth is not why they have that valuation. But, Google and Facebook, when faced with growth problems did not say, "How can we outsource our data growth problems?" They used it as a competitive advantage and a way to raise the barrier to entry for competitors. If Dropbox is paying 25%-50% more for storage than a competitor, they're going to lose as soon as a competitor comes along that gets all the other bits right. All other things being equal, the company with lower costs wins. I'm not suggesting any other company is currently equal to Dropbox (it's what I use, and I'm constantly surprised by the number of my non-nerd friends who have the Dropbox icon on their desktop)...but, there are an awful lot of smart people out there who would love to eat their lunch.
- sskates 15y ago
kd1220 15y ago
Is Dropbox using S3 as their storage platform?
- fletchowns 15y ago
  Yes: http://en.wikipedia.org/wiki/Dropbox_%28service%29#Technology http://en.wikipedia.org/wiki/Dropbox_%28service%29#Technolog... "Dropbox uses Amazon's S3 storage system to store the files"
dusklight 15y ago
Can someone explain to me why dropbox has been so successful? I get that its a good idea but what makes it so valuable?
- threepointone 15y ago
  Taking a shot at this - a good idea - 1 point. executed really, really well - 100 points.
  - aaronblohowiak 15y ago
    They are FolderShare for Macs, a little bit nicer and at a time where more people "get" the need. Fun Historical note: FolderShare was founded 10 years before DropBox. MSFT paid to acquire FolderShare and then squashed all of the good things about it out of the project. http://www.microsoft.com/presspass/press/2005/nov05/11-03FolderSharePR.mspx http://www.microsoft.com/presspass/press/2005/nov05/11-03Fol... Second-mover (or N-mover) advantage and clean execution is undervalued, IMHO.
    - amirmc 15y ago
      "...and at a time where more people 'get' the need." I think this is a really good point. The market-timing was right for dropbox. More people with multiple machines (mostly laptops) so the desire to backup/sync across devices became more important.
- spulec 15y ago
  One of my favorite quora answers: http://www.quora.com/Dropbox/Why-is-Dropbox-more-popular-than-other-programs-with-similar-functionality/answer/Michael-Wolfe http://www.quora.com/Dropbox/Why-is-Dropbox-more-popular-tha...
  - dusklight 15y ago
    Yeah I really don't get it? Google is valuable because (the theory is) you buy advertising and you get more business and you make more money. So the more money you spend on google the more money you make. Ok I get it. Facebook is valuable because it increases the (perceived) size of your social circle, and maybe you make more friends, maybe you get laid more. Ok I get it. Dropbox you get synced files? Ok that's useful obviously but so what? It seems like at best a 100m business to me, not a 4b one, what's the angle here?
jdp23 15y ago
Congrats to Dropbox. I have to admit that I still don't see their sustainable advantage but the folks with the money clearly do!
- api 15y ago
  It's similar to Facebook: name recognition, everyone's on it so everyone's on it, etc. And their stuff just works really well. They're also slowly cultivating a third party integrated apps ecosystem.
  - wanorris 15y ago
    > They're also slowly cultivating a third party integrated apps ecosystem. I think this is a big part of why Dropbox could warrant a high valuation. If Dropbox is simply "the platform" for file sync, then more integrated apps will come along with Dropbox support. For example, the notes application I use on my Android phone (Epistle) uses Dropbox for sync. This is great because I always have those notes on my computer too. I think we'll see lots more of this in the mobile space.
- swombat 15y ago
  Their defensible advantage is two-fold: 1) they developed a technology that in theory should be easy to duplicate, but in practice is extremely hard. Large teams always mess this up (even world-class teams, e.g. at Microsoft, which has had several stabs at this), and small teams often don't have the skills to work with so many orthogonal elements at the high competence level required. 2) They have supportive users signed up on yearly contracts. That makes them very resistant to competition. A Dropbox competitor would ahve to be 10x better for people to switch. That's hard to achieve.
  - benologist 15y ago
    I've been thinking about this lately as I use Dropbox more and transition from working at home to an office and find myself using 2 computers more. A Dropbox competitor just needs to sync my app settings and stuff on top of what Dropbox does. I am gone the instant someone offers me a way to turn on my laptop and have an almost-replica of my workstation. Or upgrade phones, tablets or anything else. Sync my <breed of device> is a lot better than just syncing some files across them.
0x12 15y ago
Cue another 10,000 or so dropbox imitations.
erikstarck 15y ago
Darn it. I was just writing an article saying that the combined value of YC-funded startups is $4.7 billion (the number @pg gave a few weeks back). Guess I have to update the text. I wonder what it will be next week.
taylorbuley 15y ago
Since Dropbox was valued at $4b, I'd love to see what Amazon Web Services is valued at
- SwellJoe 15y ago
  Amazon is a public company. You can figure out what AWS is valued at by the market, by doing some math, and reading some annual reports. Admittedly, the web store portion of Amazon clouds that value, no pun intended...but you could probably take a look at Amazon a few years ago, before AWS became a major contributor to their bottom line, to make sense of the numbers. AMZN currently has a market cap of $95 billion. It's safe to say AWS is worth significantly more to the market than Dropbox; as it should be.
- AlexMuir 15y ago
  Actually I'd be surprised if Aws makes up more than $10bn of AMZN Market cap. Which might mean Dropbox valuation is absurd. Or it might mean Dropbox is making fat margins in a consumer market, while AWS is making slim margins in b2b.
yalogin 15y ago
How come we do not hear much about Box.net?
- jccodez 15y ago
  Procter and Gamble was a HUGE DEAL for box.net. Did box go through yc?
  - TedBlosser 15y ago
    nope, they didn't go through YC - http://www.quora.com/Box-net/Whats-the-story-behind-Box-nets-founding http://www.quora.com/Box-net/Whats-the-story-behind-Box-nets...
- orijing 15y ago
  I don't think it's YC funded
6ren 15y ago
I don't think this can be based on their current business, but they must have a related idea (something cloud) with greater market potential + their proven ability to execute in the space. There's been allusions to developments at dropbox that are not yet public. BTW: dropbox's initial application was single founder.

74 points by amirmc 15y ago

Perhaps "But the valuation ended up lower. Why?" is answered by this: "Speculation was that they’d hit $100 million in revenue this year. Our best guess based on discussions with sources is that revenue will be more like $30 million in 2011. But this is still largely a guess." A valuation at 133x revenues is, well wow. I say this as big fan of dropbox as a service and a business but I'm not a fan of these monster valuations on the come. Also should point out there's a lot of speculation in that article and those which preceded it.

revorad 15y ago
I think the key words there are "But this is still largely a guess.".
abbasmehdi 15y ago
You're looking at their revenue and valuation in absolute terms, as a snapshot. Look at it in relativity, like a movie not a photograph. They are on an upward trajectory, what was 13000% last year, is 1330% this year, and might be 800% next year.
yumraj 15y ago
One of the simplest ways to do valuation is to look at Free Cash Flow (FCF) or Discounted Cash Flow (DCF) and then divide it by (discount rate - growth rate). Now, if the growth rate is fairly large, the denominator becomes very small and can drive even a moderate FCF to cause a very high valuation, which is what seems to be happening here. If interested search for FCF valuation, etc. there's a lot of info out there.
- snewe 15y ago
  You have to believe that the (huge) growth rate is perpetual. Most firms do not grow faster than US GDP growth in the long-run.
  - ecuzzillo 15y ago
    On a long enough timeline, the survival rate for everybody drops to zero, and yet people buy stock.

swombat 15y ago

Holy fucking shit. Back of the envelope maths: 6% investment, diluted three (two rounds after seed according to http://www.crunchbase.com/company/dropbox http://www.crunchbase.com/company/dropbox , plus the current one), that goes down to about 2% (diluted by 30% each time). 2% of $4b is $80m. That's a 4000x return over what, 4 years?

pchristensen 15y ago
pg has been on record saying that financially, YC does better if the YC companies go public, not if they sell out early for $XM or $X0M. But he supports those because it benefits the founders, and when founders win, YC wins.
webwright 15y ago
IIRC, YC has pro rata rights... So it's not a foregone conclusion that they were diluted in both rounds. But yeah-- High five, YC!
jamesshamenski 15y ago
There is nothing being 'returned' to YC. The value of the investment has gone up but that has little to do with an exit.
- javery 15y ago
  You don't know that - they could very well have sold some of their shares in this round. (at this valuation why not take a point off the table)

kno 15y ago

Does this number tell us how much the bubble burst will hurt? A whole lot!!

webwright 15y ago
Who, exactly, will it hurt?
- aaronblohowiak 15y ago
  VC as an asset class, and programmers indirectly because of that.

Maakuth 15y ago

I wonder what are they going to do with the money. Build datacenters of their own? I hope they don't bloat their service with some expensively developed value-add stuff that nobody wants, but are force-fed nevertheless. One would think they're would be too smart for that kind of failure, but you can never know what big money does.

SwellJoe 15y ago
Given the math of owning vs. renting, I strongly suspect they will want to begin building their own. If I were they, I'd be hiring ops developers from Google or Facebook or someone who has dealt with really big data centers and start dipping my toes into ownership immediately. They'll need to figure out how to cheaply and reliably manage petabytes of storage.
- justincormack 15y ago
  Not convinced. They are being valued at $4b not for some extra profitability by cutting costs, but because of a huge opportunity to grow. They need to do what they need for growth not hire expensive people to get into the server farm and storage business. Maybe later.
  - SwellJoe 15y ago
    I won't argue that growth is not why they have that valuation. But, Google and Facebook, when faced with growth problems did not say, "How can we outsource our data growth problems?" They used it as a competitive advantage and a way to raise the barrier to entry for competitors. If Dropbox is paying 25%-50% more for storage than a competitor, they're going to lose as soon as a competitor comes along that gets all the other bits right. All other things being equal, the company with lower costs wins. I'm not suggesting any other company is currently equal to Dropbox (it's what I use, and I'm constantly surprised by the number of my non-nerd friends who have the Dropbox icon on their desktop)...but, there are an awful lot of smart people out there who would love to eat their lunch.
sskates 15y ago

kd1220 15y ago

Is Dropbox using S3 as their storage platform?

fletchowns 15y ago
Yes: http://en.wikipedia.org/wiki/Dropbox_%28service%29#Technology http://en.wikipedia.org/wiki/Dropbox_%28service%29#Technolog... "Dropbox uses Amazon's S3 storage system to store the files"

dusklight 15y ago

Can someone explain to me why dropbox has been so successful? I get that its a good idea but what makes it so valuable?

threepointone 15y ago
Taking a shot at this - a good idea - 1 point. executed really, really well - 100 points.
- aaronblohowiak 15y ago
  They are FolderShare for Macs, a little bit nicer and at a time where more people "get" the need. Fun Historical note: FolderShare was founded 10 years before DropBox. MSFT paid to acquire FolderShare and then squashed all of the good things about it out of the project. http://www.microsoft.com/presspass/press/2005/nov05/11-03FolderSharePR.mspx http://www.microsoft.com/presspass/press/2005/nov05/11-03Fol... Second-mover (or N-mover) advantage and clean execution is undervalued, IMHO.
  - amirmc 15y ago
    "...and at a time where more people 'get' the need." I think this is a really good point. The market-timing was right for dropbox. More people with multiple machines (mostly laptops) so the desire to backup/sync across devices became more important.
spulec 15y ago
One of my favorite quora answers: http://www.quora.com/Dropbox/Why-is-Dropbox-more-popular-than-other-programs-with-similar-functionality/answer/Michael-Wolfe http://www.quora.com/Dropbox/Why-is-Dropbox-more-popular-tha...
- dusklight 15y ago
  Yeah I really don't get it? Google is valuable because (the theory is) you buy advertising and you get more business and you make more money. So the more money you spend on google the more money you make. Ok I get it. Facebook is valuable because it increases the (perceived) size of your social circle, and maybe you make more friends, maybe you get laid more. Ok I get it. Dropbox you get synced files? Ok that's useful obviously but so what? It seems like at best a 100m business to me, not a 4b one, what's the angle here?

jdp23 15y ago

Congrats to Dropbox. I have to admit that I still don't see their sustainable advantage but the folks with the money clearly do!

api 15y ago
It's similar to Facebook: name recognition, everyone's on it so everyone's on it, etc. And their stuff just works really well. They're also slowly cultivating a third party integrated apps ecosystem.
- wanorris 15y ago
  > They're also slowly cultivating a third party integrated apps ecosystem. I think this is a big part of why Dropbox could warrant a high valuation. If Dropbox is simply "the platform" for file sync, then more integrated apps will come along with Dropbox support. For example, the notes application I use on my Android phone (Epistle) uses Dropbox for sync. This is great because I always have those notes on my computer too. I think we'll see lots more of this in the mobile space.
swombat 15y ago
Their defensible advantage is two-fold: 1) they developed a technology that in theory should be easy to duplicate, but in practice is extremely hard. Large teams always mess this up (even world-class teams, e.g. at Microsoft, which has had several stabs at this), and small teams often don't have the skills to work with so many orthogonal elements at the high competence level required. 2) They have supportive users signed up on yearly contracts. That makes them very resistant to competition. A Dropbox competitor would ahve to be 10x better for people to switch. That's hard to achieve.
- benologist 15y ago
  I've been thinking about this lately as I use Dropbox more and transition from working at home to an office and find myself using 2 computers more. A Dropbox competitor just needs to sync my app settings and stuff on top of what Dropbox does. I am gone the instant someone offers me a way to turn on my laptop and have an almost-replica of my workstation. Or upgrade phones, tablets or anything else. Sync my <breed of device> is a lot better than just syncing some files across them.

0x12 15y ago

Cue another 10,000 or so dropbox imitations.

erikstarck 15y ago

Darn it. I was just writing an article saying that the combined value of YC-funded startups is $4.7 billion (the number @pg gave a few weeks back). Guess I have to update the text. I wonder what it will be next week.

taylorbuley 15y ago

Since Dropbox was valued at $4b, I'd love to see what Amazon Web Services is valued at

SwellJoe 15y ago
Amazon is a public company. You can figure out what AWS is valued at by the market, by doing some math, and reading some annual reports. Admittedly, the web store portion of Amazon clouds that value, no pun intended...but you could probably take a look at Amazon a few years ago, before AWS became a major contributor to their bottom line, to make sense of the numbers. AMZN currently has a market cap of $95 billion. It's safe to say AWS is worth significantly more to the market than Dropbox; as it should be.
AlexMuir 15y ago
Actually I'd be surprised if Aws makes up more than $10bn of AMZN Market cap. Which might mean Dropbox valuation is absurd. Or it might mean Dropbox is making fat margins in a consumer market, while AWS is making slim margins in b2b.

yalogin 15y ago

How come we do not hear much about Box.net?

jccodez 15y ago
Procter and Gamble was a HUGE DEAL for box.net. Did box go through yc?
- TedBlosser 15y ago
  nope, they didn't go through YC - http://www.quora.com/Box-net/Whats-the-story-behind-Box-nets-founding http://www.quora.com/Box-net/Whats-the-story-behind-Box-nets...
orijing 15y ago
I don't think it's YC funded

6ren 15y ago

I don't think this can be based on their current business, but they must have a related idea (something cloud) with greater market potential + their proven ability to execute in the space. There's been allusions to developments at dropbox that are not yet public. BTW: dropbox's initial application was single founder.