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CEO Aaron Levie Will Only Own 4.1% Of Box When It IPOs, Investor DFJ Owns 25.5%
- nostrademons 13y agoIIRC PayPal was very similar - it was sold for $1.5B, but Max Levchin's share was only about $30M, and Elon Musk's was only about $100M. By comparison, many early Web 2.0 darlings (Del.icio.us, Blogger, Flickr) sold for only $20-40M, but their founders had only taken small seed rounds, and so the vast majority of the purchase price went to the founders. 75% of a $40M acquisition = 3% of a $1B acquisition. Something for founders to think about when they're taking funding. If you look at the gigantic tech fortunes - Gates, Page/Brin, Omidyar, Bezos, Zuckerburg, Hewlett/Packard - they usually came from having a company that was already profitable or was already well down the hockey-stick user growth curve and had a clear path to monetization by the time they sought investment. Companies that fight tooth & nail for customers and need lots of outside capital to do it usually have much worse financial outcomes.
- not_that_noob 13y agoThis. Founders are better served maximizing traction at the lowest outside investment possible. If it doesn't become big, then you still hold a large chunk of a small company. And if does, then you hold a fairly large chunk of a large company.
- klochner 13y agoAnd if it fails? It's obvious that founders prefer to keep more of the company, however tortured of a phrase you use to express it.
- not_that_noob 13y agoThe game is to minimize investment, not starve the company of it. If it's clear it isn't on a hockey stick, then best to not stuff the pig, get diluted to almost nothing, and then sell for a low number. It's a judgement call.
- mikeryan 13y agoI don't know it seems to me that Silicon Valley is littered with folks who've made a shit ton of money by founding companies and taking chunks off the table during funding rounds. Kevin Rose/Digg come to mind. This way if you become huge you still get a payday but even if it doesn't you're still a millionaire (and maybe an angel investor in companies that do become huge, Kevin Rose/Digg comes to mind).
- deleted 13y ago[deleted]
- volodia 13y agoWhat do you mean by "taking chunks off the table during funding rounds"?
- jdavis703 13y agoAs in the VC purchases shares directly from a founder, as opposed to from the company.
- nostrademons 13y agoYou typically need leverage to do this too. Zuckerburg was famous for popularizing the practice, but he could only do it because Facebook was taking off like a rocket ship and everybody wanted in. It's very rare that a startup without traction could successfully negotiate founder cash-outs.
- midas007 13y agoAnother SV thing.. being able to fire your board: priceless.
- mbreese 13y agoI don't know all of the history, but I was under the impression that this was a relatively recent phenomenon. Does any one have any examples prior to Rose?
- rrhyne 13y agoFounders need to balance the amount of time it takes to acquire traction on the cheap, vs. via through the acceleration having a larger marketing and dev budget provides. Stagnation can kill and smaller founder equity is better than dead.
- not_that_noob 13y agoThat's a false dichotomy encouraged by VCs. More money does not necessarily accelerate. It's making sure you're getting the max value for every dollar spent, something that's quickly forgotten when you raise millions of dollars.
- nostrademons 13y agoSome of the more savvy and founder-friendly VCs actually say the opposite, eg. "Keep the team as small as possible until you reach product/market fit" (Andreesen) or "Perhaps more dangerously, once you take a lot of money it gets harder to change direction" (PG). I think the overall point is not to never take outside investment, it's to carefully consider where you are in your product's lifecycle and what your market actually looks like before you take outside money. Refusing VC money if your market is huge means that someone else will take it and eat the whole market. Taking VC money when your market is small will kill your company just the same, because you won't be free to make the trade-offs necessary for a small company to succeed in a niche market.
- midas007 13y agoYup. 100% of nothing is still nothing.
- mbesto 13y agoStrictly in financial terms, yes you're right. There are, however, other benefits to bringing your company to IPO that don't involve your own company's investment...in other words - you get minted. IMHO, that opens up way more doors than just personal wealth.
- pptr1 13y agoIt also means Aaron Levie could be fired from Box anytime if Box's stock fails to perform. It adds a significant amount of pressure and sort of handicaps him from taking some risk. In my view this devalues the long term value of the company. However, they could kill it at enterprise and introduce some game changing product or service,
- mbesto 13y agoAre you sure? There is a difference between different types of stock and I'd be surprised if he didn't hold a majority in some form of preferred stock. i.e. Zuck has majority control over Facebook: http://blogs.wsj.com/deals/2012/02/01/at-facebook-governance-zuckerberg/ http://blogs.wsj.com/deals/2012/02/01/at-facebook-governance...
- ganeumann 13y agoFrom the S-1: Prior to the completion of this offering, we had two classes of common stock...identical except with respect to voting... Upon the completion of this offering...All currently outstanding shares of our Existing Class A common stock, Existing Class B common stock and redeemable convertible preferred stock (including shares to be issued upon the exercise of the Net Exercise Warrant immediately prior to the completion of this offering) will convert into shares of our new Class B common stock. After the offering there will only be one type of shares, not two as at Facebook.
- _delirium 13y agoWal-Mart might be the most extreme example of this, though their IPO was many moons ago. I can't find a solid number for what percentage Walton owned at the time of IPO (in 1970), but his heirs, 44 years later, still own a combined ~50% of the company. Unless nobody has sold anything in the decades since, I would guess he must've owned in the 70+% range at the IPO. edit to add: This is an interesting equation though, > 75% of a $40M acquisition = 3% of a $1B acquisition. In a strict sense yes, but they differ in some interesting ways. In favor of the $1B acquisition is that it's typically a much bigger deal: in terms of PR and what you're credited for, you get a lot more of it for being the founder of a $1B company than for founding a $40M company, even if your takeaway is the same in both cases. On the other hand, in the 75%-of-$40M case you are usually in a better position to control the disposition of the company, which may be important if you care about it & its product, and want to keep working on it (whereas in the 3%-of-$1B case, you generally will have to be satisfied with the cash, and wash your hands of the company). And the $40M case also probably has better odds of success.
- ensignavenger 13y agoI remember reading about the Walmart IPO in Sam Walton's autobiography (an excellent book!) but I don't think he gave specific numbers. I think he owned pretty close to all of the company, but was in a lot of debt. He wrote that he was very worried about what his wife was going to say when she found out after he signed the deal to do the IPO :). There may have been a few store managers that had a small interest in the company, though.
- deleted 13y ago[deleted]
- klochner 13y agoNot surprising given they raised 11 rounds, including series A-F, and have cumulatively raised over 400M
- ares2012 13y agoExactly. If you raise that much money and are still have net losses higher than your revenues, you won't own much equity.
- jordhy 13y agoHe got totally Goxxed.
- vqc 13y agoIs it possible that he's already cashed out some of his shares privately? (Get himself some liquidity prior to an exit.)
- zaidf 13y agoHe's almost certainly cashed out partially. You don't get to Series F without cashing out.
- changdizzle 13y agotagline for the future Box tell-all movie?
- deleted 13y ago[deleted]
- ycmike 13y agoI agree with the article that since startups are pass/fail, the founders must due whatever they have to do to succeed. Marc Andreesen says to even take that highly diluted fourth round to get to product/market fit and increase your chances of success. http://www.stanford.edu/class/ee204/ProductMarketFit.html http://www.stanford.edu/class/ee204/ProductMarketFit.html
- dclowd9901 13y agoThat's because mark andreesen has the investment money to benefit from you making that choice.
- ycmike 13y agoAgain startups are pass/fail. So what can he benefit if they fire you and bring some professional CEO who tanks the company? The truly big outcomes come from the founder who stays and does well (Apple, Google, Facebook, etc) That is why they stared Andreesen Horowitz http://www.bhorowitz.com/why_we_prefer_founding_ceos http://www.bhorowitz.com/why_we_prefer_founding_ceos
- rodgerd 13y ago"Venture capitalist says you should always follow his business plan" non-shocker.
- ycmike 13y agoWhat he says is you should get to product/market fit. If you don't get there then whatever business plan you have will fail and so will you. When Aaron dilutes himself massively he does so to buy time to get to product/market fit. Only by dong so can he later turn on the growth engine and know that users will stay and love the product. A top VC knows that he can never trick a founder into making him a large exit. The founder just needs the "right" plan, not "his" plan.
- pyrrhotech 13y agoAnd the average engineer who thought they'd be rich, probably owns 0.0002%. Have fun with your 200k! Startups are such a scam for the employees.
- klochner 13y agoThe average engineer likely wasn't taking a (cash) pay cut to work there. Working at a company that has raised $400M is closer to a post-IPO experience than a startup.
- pyrrhotech 13y agoI've worked at a couple startups as well as a couple big companies. My salary + bonus has always been much, much higher at large companies than the startups. I also worked much less, so my effective per hour pay was double or more. Perhaps I got the short end of the stick, but I've never seen a dime from my stock options at these companies. One of which was aquired for a decent amount more than the valuation of the company at the time my shares were issued. I suppose the preferrreds took it all. It wouldn't have been that much anyway. Maybe 50 or 100k. In the best realistic case, you are looking at 3-5 years of engineering pay as a one time exit after years of putting in extra hours and probably being underpaid. That's been my experience at least as well as everyone I personally know who has worked in the Bay Area the past decade.
- klochner 13y agoCertainly a lot of start-ups take advantage of engineers, I was more making the case that Box isn't really a start-up so I wouldn't expect them to have a big upside on IPO. There are some specific reasons to join a start-up, and hitting the unicorn lottery shouldn't be one of them. Also, you should be taking a market salary and working sane hours, which seems to be more the case in the last 2-3 years, though YMMV.
- nilkn 13y agoI think you're assuming that the employees were making large professional and financial sacrifices to work at Box. Considering the size of the company and the amount of funding, they most likely weren't. A random $200k payoff on top of a market competitive salary and benefits package is nothing to sneeze at. A job is not a scam just because it doesn't make you a multimillionaire over night.
- dasickis 13y ago4% for a company like Box is pretty consistent (maybe slightly higher). http://www.bothsidesofthetable.com/2011/10/14/understanding-how-dilution-affects-you-at-a-startup/ http://www.bothsidesofthetable.com/2011/10/14/understanding-...
- cromwellian 13y agoI view this as being smart. Box is under heavy competition not just from Dropbox, but from Google and Microsoft. 4% of $250 million is better than 50% of $0. The landscape is littered with founders who drank the koolaid and thought they were going to billions and ran their companies into the ground. Maybe Levie won't own 50% of Box, but maybe he will own 4% of a viable company with a real business going forward. And if all else fails, he'll walk away with $10 million. That's a "problem" I'm sure many of us would like to have.
- danielha 13y agoThey'd be raising $250mm in the IPO. That wouldn't be the valuation of the company. Presumably, it'd be >$2B which was the value of their last private round. Your point stands in that 4% of that isn't too bad either.
- refurb 13y agoRandom question: When a company finally IPOs, how much equity are the top guys expected to hold onto? I know it's common for founders to be allowed to cash out some of their equity during financing rounds, usually enough to make them comfortable (a few million). The reason I ask is if you're Aaron Levie and Box IPOs, are you expected to not sell much of your remaining stake unless you leave the company? It just reminds me a little of the investment banks where partners understood that it was frowned upon if they sold their equity. Many of them lost everything when the banks collapsed (some would say rightfully so).
- drewvolpe 13y agoHere's data on equity ownership at the time of IPO for 258 companies: http://www.slideshare.net/lebret/equity-in-258-high-tech-start-ups-lebret-mar2014 http://www.slideshare.net/lebret/equity-in-258-high-tech-sta... The average overall was 7.6%, but it varies a lot, from close to 0% (Zipcar) up to 28% (Amazon).
- bthomas 13y agoHow much does Mark Cuban have now? (350K as only Angel)
- changdizzle 13y agocuban sold his shares to DFJ during their series A in 06 due to disagreements: http://pando.com/2014/01/31/box-is-the-unicorn-that-mark-cuban-let-get-away/ http://pando.com/2014/01/31/box-is-the-unicorn-that-mark-cub...
- tristanz 13y agoThe Cuban comment in that thread is interesting: "I didn't miss a thing. When a company raises hundreds of millions of dollars I would have been diluted to nothing. But the bigger issue is that I'm not a fan of situations where you have to raise hundreds of millions of dollars to do tens of millions in sales. It's a lesson learned from the tech bubble It was one thing when the valuation as a multiple of sales was in stock. It's a bigger thing when that multiple is my cash."
- midas007 13y agoBox needs to monetize on enterprise add-ons. There's a huge pile of cash there if they hustle ahead and steal Dropbox's lollipop. Further, nurturing and gobbling up feature plays. Gotta pull off a "Siri." Finally, tons more integrations (other apps, more language sdks and some videos showing off some neat use-cases at open source conferences).
- ssijak 13y agoadvice pulled out of from where the sun does not shine... really, give talks at open source conferences, that would raise value how much? or library for brainfuck?
- midas007 13y agoHaving dev evangelists presenting cool shit gets people aware of your platform and it's free marketing, the best kind. Further, Java, Python, Ruby, Obj-C, Android and C# isn't complete. [0] JS for browser front-end and node back-end is clearly missing or third-party. A somewhat smaller shop, Segment.io, has all of those and PHP and Clojure. And a metric ton of integrations comparatively. [1] [2] [0] http://developers.box.com/sdks/ http://developers.box.com/sdks/ [1] https://segment.io/libraries/analytics.js https://segment.io/libraries/analytics.js [2] http://blog.box.com/tag/integrations/ http://blog.box.com/tag/integrations/
- fidotron 13y agoThis sets alarm bells off for me, of the kind saying the large investors are looking to claw as much back as possible via IPO because the core business isn't as viable as they thought. Demonstrating profitable quarters in the run up to IPO is highly valuable, so if they aren't doing that . . . yuck. DropBox, for better or worse, appear to have cleaned up on the consumer front, and you'd have to be blind to not notice the trend these days is consumer tech getting into enterprise IT, and not vice versa. GDrive isn't too hot, yet, but I'm sure they'll eventually get there. Then MS probably have the biggest motivation to chase the enterprise market. Sorry Box, I just don't see this working out at all. Something smells bad.
- sfall 13y agoi have started to see it used in the construction industry, when the general contractor already has some infrastructure typically on a windows domain. that is where they are going to push for further and further integration for business and project mgmt
- us0r 13y agoBut MS is pushing their product now and is in a war with Google to basically give this stuff away for free.
- maaku 13y agoRemind me again why entrepreneurs invite VC's in?
- michaelochurch 13y ago"If you have a gun, you can only rob a bank. If you have a bank, you can rob everyone."
- chrisgd 13y agoHe could have had more if he wanted to scale slower, but he wanted to get as big as possible as quick as possible.