[InvisibleCities]

Dropbox has the same problem a lot of the moderately successful unicorns have; it's a good product managed by smart people that would be much better off as a right-sized stable lifestyle business a la 37 Signals / Basecamp than as an attempt at a world-beating massive-growth juggernaut like Google or Facebook. Unfortunately for them (and Evernote, and a whole host of others), once you've signed that deal for the huge late-stage VC cash infusion at a fantasy-land valuation, there's no going back.

[sharkweek]

The problem being, how many of these businesses would have won any market share without early VC investment enabling the companies to dump money into customer acquisition at a loss?

Probably a few of them, but I'm guessing some other company with a similar business model would have come along with VC backing and eaten their lunch (sure, that company might then be in the exact same place as the current over-valued late stage companies).

Damned if you do, damned if you don't?

[morgante]

> The problem being, how many of these businesses would have won any market share without early VC investment enabling the companies to dump money into customer acquisition at a loss?

The problem isn't with early VC money. Dropbox's early backers would have still made a gigantic return on Dropbox setting at a $1bn valuation.

Really, it's not even a problem with their series B ($250M at $4bn). $4bn is a reasonable eventual valuation for Dropbox.

The problem is that they didn't stop there. They raised another $850M in 2014 (in two rounds), which was basically sold on the promise of it being necessary to "win" the storage wars and acquire a monopoly.

By 2014, Dropbox was already a stable company with hundreds of millions in revenue. The only reason to raise money was to shoot for hitting Google/Facebook status (owning a lucrative monopoly). If they had instead accepted that their eventual outcome was a $3-5bn software company, everyone could have won: employees, investors, founders, etc. (Atlassian is an example of a company which did eventually raise substantial VC, but instead of gunning for a monopoly IPOed at a $4bn valuation.)

The problem is that founders ultimately have huge egos and want to be the next Mark Zuckerberg or Larry Page: commanding monopolies so lucrative that they can spend billions on zero-return "cool nerd shit."

[sharkweek]

There has been a major shift as of late where IPOing at those mid-late rounds just isn't the trend anymore. Public markets are a cruel beast where companies are living and dying by quarterly reporting so these skyrocketing growth startups have less incentive to let the public judge them. They also don't want to leave too much growth opportunity on the table when going public anymore.

So it makes sense why companies would want to stay private if someone is willing to give them the cash they think they need. Problem is, those investors also want to make a huge return, so a 20B valuation is going to come with some nasty liquidation preferences/ratchets etc. to protect the money.

[InvisibleCities]

That's a great question, and one I won't pretend to have the answer to. On one hand, Basecamp has carved out a very profitable niche for themselves despite venture-backed competition from Jira and others, so it's certainly possible. I also think that there is a big difference between taking money when you are small with typical angel / seed-round terms and taking late-stage money with 2x VC liquidation preferences and a private valuation north of $1 billion. Then again, like you said, it can be very tough to turn a profit when you have to compete with companies undercutting you by subsidizing their prices with an enormous reserve of easy VC cash.

[huac]

Jira isn't VC-backed either ;)

[morgante]

Yes it is. They raised $60M from Accel. [0]

[0] http://blogs.wsj.com/digits/2010/07/14/accel-invests-60-mill...

[jsmeaton]

Wasn't that just to bank and cash out employee stock? They could hand that back if need be.

[the_common_man]

They are going on public

[ksherlock]

"Woe to the VC, for they are like a dog sleeping in the manger of oxen, for neither does he eat nor does he let the oxen eat"

[nicoburns]

Which of course is precisely why we should have an economy which allows ordinary people the financial freedom to create these companies on their own, rather than vesting that power in only a few.

[nemothekid]

Not quite sure what this quote is implying? That the government should take over VC, or that by solving income inequality, customer acquisition would be cheaper.

With regards to the second point, as long as as potential outcome of the VC method can bring about some EV of $1B, then there will be someone willing to spend $999M to capture that market.

[chrshawkes]

I think what he's implying, is becoming a unicorn in of itself is more about who you know rather than what you can do.

[capkutay]

> once you've signed that deal for the huge late-stage VC cash infusion at a fantasy-land valuation, there's no going back.

Can't you just raise money at a lower valuation (the dreaded down-round)? You might lose the employees who bought options at the unicorn valuation, but it wouldn't necessarily kill your business.

[smt88]

There is currently no way that 50 people (roughly the number of employees at Basecamp) could support a Dropbox-like product at scale. It's just impossible. At their scale, the technical challenges of maintaining a decent user experience (good transfer speeds, little downtime, no lost data, etc.) are enormous.

[jonknee]

Well luckily they have the revenues to have more than 50 people. There's nothing magical about Basecamp's size, it's just never going to be a dynasty.

[sobbybutter]

Why do you say that?

[noir-york]

Why?

Why do you need more people when you grow past a certain size? At Drop box's scale they surely must manage their backend at scale and not have people babysit servers. If DBX are using Amazon's S3 for storage then that's one less massive headache to take care of.

Just for comparison, Instagram had 13 employees when they sold to FBK and they sure had scale at that point.

[rokhayakebe]

Is there a significant difference between running a 1000-employee business vs. a 50 people company going after the same opportunity?

I like a lifestyle business, however if you can clearly go for a $10B instead of $30M while spending the same 10 hours at work and surrounding yourself with 10 times the amount of smart people, then why not.

[x0x0]

I think you're underestimating the complexity of building scalable file syncing across multiple platforms that pretty much just works from the end users' perspectives.

[InvisibleCities]

Nowhere did i say, "Dropbox should be the same size as 37 Signals." I merely suggested that they would have been better off trying to be the right size for their revenue profile (which is probably larger than 37 Signals, but certainly much smaller than their current growth target of Google/Facebook/Amazon/etc. size).