Dropbox finishes up 36% on first day of trading

Dropbox was off to the races on its first day as a public company.

After pricing above the range at $21 per share, raising $756 million, Dropbox kicked off its first day soaring to $31.60, and closing the day at $28.48. This is up almost 36%.

It’s surely a sign of public investor enthusiasm for the cloud storage business, which had initially hoped to price its IPO between $16 and $18 and then raised it from $18 to $20.

It also means that Dropbox closed well above the $10 billion it was valued at its last private round. Its market cap is now above $12 billion, fully diluted.

Dropbox brought in $1.1 billion in revenue for the last year. This compares to $845 million in revenue the year before and $604 million for 2015.

While it’s been cash flow positive since 2016, it is not yet profitable, having lost nearly $112 million last year. But it is significantly improved margins when compared to losses of $210 million for 2016 and $326 million for 2015.

Its average revenue per paying user is $111.91.

There has been a debate about whether to value Dropbox, which has a freemium model, as a consumer company or an enterprise business. It has convinced just 11 million of its 500 million registered customers to pay for its services.

Dropbox “combines the scale and virality of a consumer company with the recurring revenue of a software company,” said Bryan Schreier, a general partner at Sequoia Capital and board member at the company. He said that now was the time for Dropbox to list because “the business had reached a level of scale and also cash flow that warranted a public debut.”

He also talked about the early days of Dropbox pitching at a TechCrunch event in 2008 and how disappointed they were that the slides stopped working during the presentation. We have footage of that here.

Sequoia Capital owned 23.2% of the overall shares outstanding at the time of the IPO. They shared Dropbox’s original seed pitch from 2007. 

Accel was the next largest shareholder, owning 5% overall. Sameer Gandhi made the investment at Sequoia and then invested in Dropbox again when he went over to Accel.

Founder and CEO Drew Houston owned 25.3% of the company.

Greylock Partners also had a small stake. John Lilly, a general partner there, said he “invested in Dropbox because Drew and the team had an exceptionally clear vision of what the future of work would look like and built a product that would that meet the demands of the modern workforce.”

But there are quite a few other businesses with similar products to Dropbox. The prospectus warned of the competitive landscape.

“The market for content collaboration platforms is competitive and rapidly changing. Certain features of our platform compete in the cloud storage market with products offered by Amazon, Apple, Google, and Microsoft, and in the content collaboration market with products offered by Atlassian, Google, and Microsoft. We compete with Box on a more limited basis in the cloud storage market for deployments by large enterprises.”

Note that it downplayed its competition with Box, a company that’s often mentioned in the same sentence as Dropbox. While the products are similar, the two have different business models and Dropbox was hoping that this would be respected with a better revenue multiple. If the first day is any indication, it looks like that strategy worked.

The company listed on the Nasdaq, under the ticker “DBX.”

We talked about Dropbox’s first day and the outlook for upcoming public debuts like Spotify on our “Equity” podcast episode below. We were joined by Eric Kim, managing partner at Goodwater Capital.  He authored a research report here. 


Y Combinator’s Jessica Livingston on Dropbox IPO: “It was just a dream of ours”

Dropbox, after more than a decade, finally went public this morning — and the stock soared more than 40% in its initial trading, making it a marquee success for one of the original Web 2.0 companies (at least for now).

While we still have to wait for the dust to settle, it’s been a very long road for Dropbox. From starting off as a file-sharing service, to hitting a $10 billion valuation in the middle of a massive hype cycle, to expectations dropping and then the announcement of a $1 billion revenue run rate. Dropbox has been a rollercoaster, but it’s another big moment this afternoon: it’s Y Combinator’s first big IPO. And Y Combinator still has a very deep bench of startups that are, thus far, obvious IPO candidates down the line like Airbnb and Stripe.

That isn’t to take away anything from the work of CEO Drew Houston and the rest of Dropbox’s team, but Y Combinator’s job is to basically take a bunch of shots in the dark based on good ideas and potentially savvy founders. Houston was one of the first of a firm that now takes in a hundred-odd founders per class. Y Combinator Founder and partner Jessica Livingston was there for the start of it, recalling back to the day that Houston rushed to her and Paul Graham to show him his little side project.

We caught up with Livingston this morning ahead of the IPO for a short interview. Here’s the conversation, which was lightly edited for clarity:

TC: Can you tell us a little bit about what it’s like to finally see the first Y Combinator company to go public?

JL: I feel like 13 years ago, it was just this dream of ours. It was this seemingly unattainable dream that goes, ‘maybe one of the startups we fund could go public someday.’ That was the holy grail. It’s an exciting day for Y Combinator. It shows what a long game investing is in early-stage startups. I do feel kind of validated.

TC: How did Y Combinator first end up in touch with Houston?

JL: He applied as a solo founder. We had met Drew the summer before. Back then, we were so small that we always encouraged people to bring friends to a Y Combinator dinner. [Xobni founder Adam Smith] brought [Houston], and we met him then and talked it through. When he applied, we invited him to come to an interview, and Paul [Graham] before the interview reached out to [Houston]. He said, “I see you’re a solo founder, and you should find a cofounder.” Three weeks later Drew showed up with [co-founder Arash Ferdowsi]. It was a great match that worked well.

TC: As Dropbox has grown, what’s stood out to you the most during changes in the market?

JL: They’re a classic example of founders who are programmers who built something to solve their own problem. Clearly, this is a perfect example of that. Drew gets on the bus, he forgets his files, and he can’t work on the whole trip down. He then creates something that will allow him to access files from everywhere. At the time, when he came on the scene with that, there were a lot of companies doing it but none were very good. I feel like Dropbox, regardless of market dynamics, from the very beginning was always dedicated to wanting to do well by building a better solution. They wanted to build one that actually works. I feel like they’ve stuck to that and that’s been driving them since. That’s been their guidepost.

TC: What was your first meeting with Houston like, and do you think he has changed in the past 10 years?

JL: When I first met him, he was young — he was very young — and he was always a good hacker, and very earnest. During Y Combinator he was very focused on building this product and was not distracted by other things. That’s when there were just two people. He’s really evolved over the years as an incredible leader. He’s grown this company and he’s navigated through all different parts of his life cycle. I’ve witnessed his growth as a leader and as a human being. He’s always been a great person. It’s sort of exciting to see where he is now that he’s come a long way, it’s really cool.

TC: Houston and Ferdowsi still own significant portions of the company even after raising a lot of venture capital. Do you think Y Combinator had any effect on companies looking for more founder friendly deals?

JL: I think when Y Combinator started, our goal in many ways was to empower founders. It was to level the playing field. You don’t have to have a connection in Silicon Valley to get funding. You just have to apply on our website. You don’t have to have gone to an Ivy League school. We [try to tell them], don’t let investors take advantage of you because you’re young and have never done this before. In general, times have changed over the past 15 years. Hopefully Y Combinator played a small role in some of those changes in making things a little more found friendly.

TC: What’s one of your favorite stories about Houston?

JL: He was always very calm, cool, and collected under pressure. I remember that was definitely a quality about him. His feathers didn’t get ruffled easily. One of the things I remember most clearly is from that summer when we had demo day. Back then it was, like, 40 people tops. Still, there was a lot of pressure. I remember Paul [Graham] came up with this idea that, ‘hey, Drew, during your demo day you should show people how well Dropbox actually works by deleting your presentation live and restoring it through Dropbox.’ That’s kind of risky, right? To delete your presentation. You’re just standing up there without anything. And he did it and he nailed the presentation. It sounds a little gimmicky, but it really worked and showed his product worked. I remember thinking, like, wow, he’s pretty calm. If it were me I don’t think I could hit the delete button in front of these people. That’s an important quality in someone, not to get flustered.

By the way, we funded them in 2007. If you asked me in 2008 how were they doing, I would say, well, they’re making progress. But it wasn’t like we funded them and we could say, ‘this is gonna be a great one.’ We just knew, yeah they’re making progress, but it’s always hard to know there.

TC: Back then, what were you just expecting? M&A? Did you even anticipate an IPO?

JL:  As we were formulating the idea, the hope was rather than going to work at Microsoft — I use them as an example because that was the company back then — and rather than going to get a job out of college, why not build a company and make Microsoft acquire you to get you to work for them? We had low expectations back then. We were hoping there’d be some small acquisitions. But yes, the hope was always acquisitions, but maybe someday in our wildest dreams there’d be an IPO. We didn’t even think YC would work when we started, people didn’t believe in YC’s models for many years.

TC: Looking back, what would you say is one of the biggest things you’ve learned throughout this experience?

JL: What a long road it is for startups. When we started YC back then, it wasn’t a popular thing to do a startup. Now, thank goodness, more people are starting them, and more types of people are starting them. It’s not just super high-tech companies. That’s exciting, but what I think a lot of people don’t realize is how hard startups are. You say, yeah, I know how hard, but people don’t realize how difficult they are and how long the commitment is. If you’re successful, it takes such a long time. For [someone like Houston] to make it to that point, they’ve committed a lot of their life and energy and all their intellectual capacity to making this work. To me, that’s so exciting, but I think it would surprise people to know realistically how long that could take.

TC: What would you tell startups with the hindsight of what happened with Dropbox’s valuation hype cycle?

JL: I will say, with startups, sometimes you just have to stick to what you’re doing. There’s a lot of stuff going on around you, especially now with social media and things like that. With a startup, you just have to keep moving forward with building a company and building a great product.


DocuSign has filed confidentially for IPO

DocuSign is gearing up to go public in the next six months, sources tell TechCrunch.

The company, which pioneered the e-signature, has now filed confidentially, we are hearing. Utilizing a commonly used provision of the JOBS Act, DocuSign submitted its IPO filing behind closed doors and will reveal it weeks before its public debut.

Like Dropbox, which is finally going public this week, San Francisco-based DocuSign has been an anticipated IPO for several years now. It’s raised over $500 million since it was founded in 2003 and has been valued at $3 billion. Kleiner Perkins, Bain Capital, Intel Capital, GV (Google Ventures) and Dell are amongst the many well-known names which have invested in DocuSign.

But like many “unicorns” these days, the company took its time, spending 15 years as a private company. The DocuSign team decided that 2018 is the year for its debut and is targeting an IPO in either the second or third quarter.

DocuSign, which competes with HelloSign and Adobe Sign, amongst others, has been on a mission to get the world’s businesses to sign documents online. The team has worked with large enterprises like T-Mobile, Salesforce, Morgan Stanley and Bank of America.

Real estate, financial services, insurance and healthcare are amongst its key industries. Legal, sales and human resource departments frequently use DocuSign to send and sign documents.

In addition to large enterprises, DocuSign also offers services for small and mid-sized businesses. Individual consumers are able to use DocuSign services, too.

The company has a tiered business model, with corporations paying more for added services. Public investors will be evaluating DocuSign both on its revenue growth and customer retention.

North America is its largest market, but it’s also been focused on expanding throughout the world, including the U.K., France, Australia, Brazil, Singapore and Japan.

Since its inception, DocuSign has undergone several management changes. Early last year, Dan Springer took the helm. He was formerly CEO of Responsys, which went public and then was bought by Oracle for $1.5 billion.

Keith Krach, who is now chairman, had been running the company since 2011. Krach was previously CEO of Ariba, which was acquired by SAP for $4.3 billion.

DocuSign declined to comment.

The past few years have been slow for tech IPOs, which is a disappointment for Silicon Valley venture capitalists who can make a lot of money this way. But for the most part, enterprise tech companies have fared better than consumer tech companies, because strong customer retention makes it easier to predict growth.

Dropbox will debut this week and Spotify is slated to go public in April through a different process known as a “direct listing.” Zuora also recently revealed its IPO filing, implying that the company is expecting to debut in the coming weeks.


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