7 ms·

Dropbox (YC S07) Raises $7.25M, Crosses 3M Users

106 points by hshah 17y ago

netcan 17y ago
- Over the summer Dropbox raised a $7.25 million Series A round from Accel, adding to $1.5 million in seed money it brought in from Sequoia Capital and Y Combinator in 2007 - San Francisco-based Dropbox has just 20 employees. I wonder why they need so much money. If the Freemium model is working, shouldn't they at least be breaking even?
- antidaily 17y ago
  Marketing? They could be huge if more people knew about 'em.
- teej 17y ago
  Raising money isn't always a reaction to bleeding money. Maybe they've nailed down their customer LTV and customer acquisition costs. In that case, they'll want a big stack of cash to start buying up customers whereever cost < LTV.
  - netcan 17y ago
    Maybe they did nail down the lifetime value of a customer. But I doubt they nailed down the acquisition cost. It's not like you can pay to have your customers refer more friends.
    - qeorge 17y ago
      Its not as hard as you might think. I'm sure Patrick (patio11/bingocardcreator.com) knows the cost of acquisition for 1 customer. If you're good with AdWords, its pretty doable. Anecdotally, I've heard Amazon shoots for $23. Thus they'll put basically unlimited money into any system bringing in customers for < $23. You can run into a problem of volume though, i.e., you overfish the pond. Then you'll need to find new sources of customers (e.g., Facebook ads if you've only done SEM).
      - netcan 17y ago
        Sure. With adwords you can know the COC. But not with referrals.
        qeorge 17y ago
        Perhaps not, but you can calculate the chance that a given customer will refer a friend, and factor that into their lifetime value. Even more interesting, you can see which actions are predictive of referring friends (e.g., leaving a comment on the suggested features list). You can use the same strategy to predict the conversion rate from free to paid.
        jfarmer 17y ago
        A referral effectively reduces the cost of acquisition, and you can calculate the extent to which it does that. http://20bits.com/articles/almost-viral-a-hybrid-acquisition-strategy/ http://20bits.com/articles/almost-viral-a-hybrid-acquisition...
      - patio11 17y ago
        George literally stole the words out of my mouth. $12 to $15 via AdWords, incidentally. Unhappily for me, I'm capable of saturating all of Google's advertising inventory conveniently available at $15 per customer. (Its sort of like oil: the more you are willing to spend, the more exists in the world. I guess if I were an environmentalist I would describe my current state of affairs as Peak Bingo, but with some sustained effort into AdWords I could probably locate more sources of customers between $15 and $30, or alternatively in different mini-verticals.)
        qeorge 17y ago
        Thanks for sharing your customer acquisition cost. Do you ever buy traffic from anywhere else or are you happy with the volume from AdWords? BTW, still chuckling at Peak Bingo. Well put.
        patio11 17y ago
- patio11 17y ago
  I wonder why they need so much money. Pretend I have a machine where you insert a quarter and, a year later, a dollar pops out. Do you a) insert the quarter you have in your pocket, wait a year, and then put all four quarters back in or b) go to the bank, borrow as much money as they'll give you, get it changed into quarters, and start stuffing the machine? A freemium startup which has a good idea of what customer lifetime value is and what customer acquisition costs are is, essentially, a quarter-into-dollar machine. This factor becomes particularly acute when the ultimate goal of the startup is to sell their quarter-into-dollar machine for some multiple of the number of dollars it has produced in the most recent year. [Edited in response to the above post going grey: Please do not downvote the post above me. He isn't being malicious. The big picture strategic view is non-obvious and many smart people need to have it explained a few times for it to sink in. If you wish to correct the misconception, either explain it or upvote an explanation.] [Edited to add: P.S. The expert on "(LTV > COCA) + source of capital => blow the doors off" is Dharmesh Shah. He has been banging the drum for a few years now. Example: http://tinyurl.com/doors-blown-clean-off http://tinyurl.com/doors-blown-clean-off ]
  - netcan 17y ago
    I appreciate the tone. That aside, you are assuming growth is constrained in some way that money relieves. IE they need money to promote or they need money to support their free users until they mature into premium users. Either one of those is a sufficient answer.
    - mattmaroon 17y ago
      What he's saying is that perhaps Dropbox can buy a user for $1 (via adsense, whatever) and make $2 off them. In that case, it makes sense to take all the money you can and plow it into customer acquisition. At some point the law of big numbers becomes a limiting factor, but probably not at any point that would make it unwise to take $7m.
      - uuilly 17y ago
        Not to mention that there is a lot more that can be done in that space from an engineering perspective. Files syncing could be just the beginning. What about consumer MVC from files to web services? Edit a photo on iphoto and it automatically changes on every service that uses it. The "data keeper" role is like an octopus, big in the middle, tentacles everywhere. I could imagine a world where that role becomes as important if not more than the OS / services.
- doug_m 17y ago
  I think Dropbox is valuable enough to become ubiquitous but one imagines they need to grow to a certain size before such a feature exactly is rolled into a version of one of the big operating systems. Not that what they've done isn't technically difficult of course, but it just seems like something so valuable it might be on a Chrome wishlist. Cool thing if the guys who make the software are reading this - started a new job earlier this year at a mostly non-software company managing a few development projects. I doubt most of my colleagues are aware of this startup culture or have heard of .NET much less Y Combinator. First week "You've got to see this program we have the sales team using, called Dropbox... its tremendous there's about a thousand things we can use it for". Not only are they using it its their "we're showing this off to the new guy" thing.
  - hyperbovine 17y ago
    It's unlikely that one of the big operating systems would come forth with a feature that worked with all of the other big operating systems as well.
icey 17y ago
Dropbox is hands down the best piece of software I've installed in the past few years. It's the first product I've ever been able to recommend to both friends (geeks) and family (categorically not geeks whatsoever) without having to change my explanation of why it's so awesome. Congrats guys!
- ujjwalg 17y ago
  I agree and congratulations to the whole team. I have been a huge fan and loved their free service. However, as soon as I moved to the paid service and increased my backed up data to 10GB my computer became extremely slow. Dropbox is using 98% of CPU both on windows XP and Mac. It has been a week and not everything is backed up yet. Moreover, if I move a directory within my dropbox folder, it takes it as a new folder completely and tries to delete and back it up again which is completely opposite to their philosophy. Also, if you want to back up 2-3 computers at the same time everything screws up. So, a word of advice while using dropbox, be patient, dont get too excited after using their free service and jump the gun from 2GB to 20GB, do it slowly and carefully and hopefully things will work out great.
  - steveitis 17y ago
    Me too, and I was only on the free version. After trying to copy a couple of thousand tiny text files, I had to force kill explorer repeatedly until I gave up and uninstalled Dropbox. In the end I just signed up for a $9.99 a year hosting plan with 20 gig of storage and WebDAV. Cheaper, faster, and no funky software to crash my boxen. Honestly I'm not even really sure how Dropbox ever became so popular.
st3fan 17y ago
"1.3 million gigabytes" - is that correct? If it is .. wow!
staunch 17y ago
I'm betting Dropbox will be the biggest YC exit for quite some time.
- deleted 17y ago
  [deleted]
  - mattmaroon 17y ago
    Please stop jinxing them.
mattmaroon 17y ago
Grats guys! Just out of curiosity, how did you come up with $7,252,763? Everyone knows its good luck to end with a 4. You could be $1 away from an IPO there.
mikebo 17y ago
Dropbox is really awesome. I'm very impressed with how well they execute. Lots of companies big and small have offered the same basic service, but nobody has built a product nearly as good.
- greyman 17y ago
  What about Live Mesh? (When assumed that all your computers run windows). As I see it, there is basically all the functionality of Dropbox, plus 5GB free space, ability to sync several folders, and remote desktop functionality.
  - gboyer 17y ago
    I believe Live Mesh has an OS X client now. I tried it (on both OS X and Windows), and while it has most of same basic functionality as Dropbox, I found the interface off-putting.
mikek 17y ago
It seems that this article is inaccurate: http://www.techcrunch.com/2009/11/24/dropbox-sequoia-funding/ http://www.techcrunch.com/2009/11/24/dropbox-sequoia-funding... "Dropbox did close a Series A funding round, but it was for $6 million, and it was back in October 2008. And it was led by Sequoia, not Accel (though Accel did participate in the round)."
jlk 17y ago
Agree, Dropbox is amazing. Cheap version control for the rest of us. Made my USB drives useless.
nixme 17y ago
"And Dropbox ... says it will offer tools for corporate collaboration in a more formal fashion early next year." Any Dropbox folks here who could comment on what those tools might be?

106 points by hshah 17y ago

- Over the summer Dropbox raised a $7.25 million Series A round from Accel, adding to $1.5 million in seed money it brought in from Sequoia Capital and Y Combinator in 2007 - San Francisco-based Dropbox has just 20 employees. I wonder why they need so much money. If the Freemium model is working, shouldn't they at least be breaking even?

antidaily 17y ago
Marketing? They could be huge if more people knew about 'em.
teej 17y ago
Raising money isn't always a reaction to bleeding money. Maybe they've nailed down their customer LTV and customer acquisition costs. In that case, they'll want a big stack of cash to start buying up customers whereever cost < LTV.
- netcan 17y ago
  Maybe they did nail down the lifetime value of a customer. But I doubt they nailed down the acquisition cost. It's not like you can pay to have your customers refer more friends.
  - qeorge 17y ago
    Its not as hard as you might think. I'm sure Patrick (patio11/bingocardcreator.com) knows the cost of acquisition for 1 customer. If you're good with AdWords, its pretty doable. Anecdotally, I've heard Amazon shoots for $23. Thus they'll put basically unlimited money into any system bringing in customers for < $23. You can run into a problem of volume though, i.e., you overfish the pond. Then you'll need to find new sources of customers (e.g., Facebook ads if you've only done SEM).
    - netcan 17y ago
      Sure. With adwords you can know the COC. But not with referrals.
      - qeorge 17y ago
        Perhaps not, but you can calculate the chance that a given customer will refer a friend, and factor that into their lifetime value. Even more interesting, you can see which actions are predictive of referring friends (e.g., leaving a comment on the suggested features list). You can use the same strategy to predict the conversion rate from free to paid.
      - jfarmer 17y ago
        A referral effectively reduces the cost of acquisition, and you can calculate the extent to which it does that. http://20bits.com/articles/almost-viral-a-hybrid-acquisition-strategy/ http://20bits.com/articles/almost-viral-a-hybrid-acquisition...
    - patio11 17y ago
      George literally stole the words out of my mouth. $12 to $15 via AdWords, incidentally. Unhappily for me, I'm capable of saturating all of Google's advertising inventory conveniently available at $15 per customer. (Its sort of like oil: the more you are willing to spend, the more exists in the world. I guess if I were an environmentalist I would describe my current state of affairs as Peak Bingo, but with some sustained effort into AdWords I could probably locate more sources of customers between $15 and $30, or alternatively in different mini-verticals.)
      - qeorge 17y ago
        Thanks for sharing your customer acquisition cost. Do you ever buy traffic from anywhere else or are you happy with the volume from AdWords? BTW, still chuckling at Peak Bingo. Well put.
        patio11 17y ago
patio11 17y ago
I wonder why they need so much money. Pretend I have a machine where you insert a quarter and, a year later, a dollar pops out. Do you a) insert the quarter you have in your pocket, wait a year, and then put all four quarters back in or b) go to the bank, borrow as much money as they'll give you, get it changed into quarters, and start stuffing the machine? A freemium startup which has a good idea of what customer lifetime value is and what customer acquisition costs are is, essentially, a quarter-into-dollar machine. This factor becomes particularly acute when the ultimate goal of the startup is to sell their quarter-into-dollar machine for some multiple of the number of dollars it has produced in the most recent year. [Edited in response to the above post going grey: Please do not downvote the post above me. He isn't being malicious. The big picture strategic view is non-obvious and many smart people need to have it explained a few times for it to sink in. If you wish to correct the misconception, either explain it or upvote an explanation.] [Edited to add: P.S. The expert on "(LTV > COCA) + source of capital => blow the doors off" is Dharmesh Shah. He has been banging the drum for a few years now. Example: http://tinyurl.com/doors-blown-clean-off http://tinyurl.com/doors-blown-clean-off ]
- netcan 17y ago
  I appreciate the tone. That aside, you are assuming growth is constrained in some way that money relieves. IE they need money to promote or they need money to support their free users until they mature into premium users. Either one of those is a sufficient answer.
  - mattmaroon 17y ago
    What he's saying is that perhaps Dropbox can buy a user for $1 (via adsense, whatever) and make $2 off them. In that case, it makes sense to take all the money you can and plow it into customer acquisition. At some point the law of big numbers becomes a limiting factor, but probably not at any point that would make it unwise to take $7m.
    - uuilly 17y ago
      Not to mention that there is a lot more that can be done in that space from an engineering perspective. Files syncing could be just the beginning. What about consumer MVC from files to web services? Edit a photo on iphoto and it automatically changes on every service that uses it. The "data keeper" role is like an octopus, big in the middle, tentacles everywhere. I could imagine a world where that role becomes as important if not more than the OS / services.
doug_m 17y ago
I think Dropbox is valuable enough to become ubiquitous but one imagines they need to grow to a certain size before such a feature exactly is rolled into a version of one of the big operating systems. Not that what they've done isn't technically difficult of course, but it just seems like something so valuable it might be on a Chrome wishlist. Cool thing if the guys who make the software are reading this - started a new job earlier this year at a mostly non-software company managing a few development projects. I doubt most of my colleagues are aware of this startup culture or have heard of .NET much less Y Combinator. First week "You've got to see this program we have the sales team using, called Dropbox... its tremendous there's about a thousand things we can use it for". Not only are they using it its their "we're showing this off to the new guy" thing.
- hyperbovine 17y ago
  It's unlikely that one of the big operating systems would come forth with a feature that worked with all of the other big operating systems as well.

icey 17y ago

Dropbox is hands down the best piece of software I've installed in the past few years. It's the first product I've ever been able to recommend to both friends (geeks) and family (categorically not geeks whatsoever) without having to change my explanation of why it's so awesome. Congrats guys!

ujjwalg 17y ago
I agree and congratulations to the whole team. I have been a huge fan and loved their free service. However, as soon as I moved to the paid service and increased my backed up data to 10GB my computer became extremely slow. Dropbox is using 98% of CPU both on windows XP and Mac. It has been a week and not everything is backed up yet. Moreover, if I move a directory within my dropbox folder, it takes it as a new folder completely and tries to delete and back it up again which is completely opposite to their philosophy. Also, if you want to back up 2-3 computers at the same time everything screws up. So, a word of advice while using dropbox, be patient, dont get too excited after using their free service and jump the gun from 2GB to 20GB, do it slowly and carefully and hopefully things will work out great.
- steveitis 17y ago
  Me too, and I was only on the free version. After trying to copy a couple of thousand tiny text files, I had to force kill explorer repeatedly until I gave up and uninstalled Dropbox. In the end I just signed up for a $9.99 a year hosting plan with 20 gig of storage and WebDAV. Cheaper, faster, and no funky software to crash my boxen. Honestly I'm not even really sure how Dropbox ever became so popular.

st3fan 17y ago

"1.3 million gigabytes" - is that correct? If it is .. wow!

staunch 17y ago

I'm betting Dropbox will be the biggest YC exit for quite some time.

deleted 17y ago
[deleted]
- mattmaroon 17y ago
  Please stop jinxing them.

mattmaroon 17y ago

Grats guys! Just out of curiosity, how did you come up with $7,252,763? Everyone knows its good luck to end with a 4. You could be $1 away from an IPO there.

mikebo 17y ago

Dropbox is really awesome. I'm very impressed with how well they execute. Lots of companies big and small have offered the same basic service, but nobody has built a product nearly as good.

greyman 17y ago
What about Live Mesh? (When assumed that all your computers run windows). As I see it, there is basically all the functionality of Dropbox, plus 5GB free space, ability to sync several folders, and remote desktop functionality.
- gboyer 17y ago
  I believe Live Mesh has an OS X client now. I tried it (on both OS X and Windows), and while it has most of same basic functionality as Dropbox, I found the interface off-putting.

mikek 17y ago

It seems that this article is inaccurate: http://www.techcrunch.com/2009/11/24/dropbox-sequoia-funding/ http://www.techcrunch.com/2009/11/24/dropbox-sequoia-funding... "Dropbox did close a Series A funding round, but it was for $6 million, and it was back in October 2008. And it was led by Sequoia, not Accel (though Accel did participate in the round)."

jlk 17y ago

Agree, Dropbox is amazing. Cheap version control for the rest of us. Made my USB drives useless.

nixme 17y ago

"And Dropbox ... says it will offer tools for corporate collaboration in a more formal fashion early next year." Any Dropbox folks here who could comment on what those tools might be?