[zer0defex]

Nail on the head right here. The only thing Dropbox has these days is consumer confidence in it's syncing process. Beyond that, they trail every competitor feature-wise and frankly, they are succeeding despite their management, not because of it. Recent product enhancements have been, let's be honest, mediocre at best across the board and show no signs of that changing anytime soon. They exist now solely due to brand recognition when it comes to cloud file sync'ing and the moment one of their competitors cracks the consumer confidence equation with the brand image to match, Dropbox is done.

[malchow]

What if -- hold your breath! -- Dropbox is simply a medium-sized, privately held, profit-generating company that will end up satisfying a certain customer segment and paying dividends to investors? The horror!

[subdane]

Their investors will revolt. Their investors need 10X returns in the next couple years to satisfy their fund's existence to their LPs. Funds need a few big wins like Hollywood studios need a couple blockbusters every year. Dropbox's investors are counting on them being a blockbuster. Dropbox's private valuation is an order of magnitude higher than Box's public valuation. And Box has a bigger sales team, more revenue, and more inroads into big enterprise than Dropbox. So it's a real pickle and dividends aren't going to get them out of it.

[malchow]

I fully concede your point. I think the private financing markets need to become more sophisticated out here, such that they enable the type of company I described -- which I reckon is the type of company Dropbox should be -- to thrive. There are a few very clever and small investors who already do this. But they're a minority.

[AVTizzle]

I agree with what you're saying.

I'm not an expert - just learning more about this myself over the last few months, but it sounds to me like the investment style you're talking about exists inside the world of private equity.

They're not playing the venture game - it's a different model. Buy and hold for either cashflow/dividends, or do some financial/managerial engineering and flip the asset.

Outside of the world of Venture Capital, there's a HUGE spectrum of investors out there doing every kind of investment - just gotta tune into it I've found.

(Great place to start is a podcast called PE Funcast - seems to me they've been doing this type of investing.)

[dsjoerg]

Would that be a smart move for those investors? Just because you need 10x returns doesn't mean there's a good way to get them.

[rokhayakebe]

Not every investor is looking for a 10X. DB raised 1.17B, with 1.1 of those in the last three rounds (according to Crunchbase). The last three rounds were 250M,350M, and 500M. A round was 6M.

Say A round wanted 100x. B round 10X. C round 7x. D round 5x. That will bring the total expected return to around 8B. However I am sure C and D would not mind a 3X or 2X, while B would probably settled happily for a 5X.

[CPLX]

Now add the implications of liquidation preferences (presumably) to the math and you'll see things get a lot more challenging.

[refurb]

Exactly. Throw in a 2x or 3x liquidation preference and participating preferred and some of those investors will be lucky to get their initial investment back.

[rokhayakebe]

Yeah, however even a liquidation preference will be 1x,2x.

[product50]

Not true. Investors probably have preferential shares and liquidity preferences which will safeguard their investments regardless. If it is indeed a small/medium size business, then the current $10B valuation is totally out of whack, and guess who gets screwed in the end - yep, employees..

[tholmes]

Companies like that don't usually hire 600 people in 12 months, though.

Buuut I guess they could. I guess it just kind of looks like the explosive hiring you see sometimes when a company has projected huge growth but then falls flat and realizes it has way too many employees :(

[gerbilly]

>Companies like that don't usually hire 600 people in 12 months, though.

Maybe, are those 600 people there to fight fires and work on tickets, or adding product features?

[paulddraper]

Either they have a huge growth in number of fires, tickets, or features. None of those fit your image.

[rokhayakebe]

During holidays you see retailers hire to capitalize on the season. We should consider the same for startups, i.e. hire a bunch of people for a year or two to capitalize on the opportunity, then let them go. Everybody wins if it is clear from the beginning that when the well dries, everyone leaves.

[prostoalex]

Let's say I am a dividend investor looking for a steady cashflow stream.

Why would an asset class like medium-size technology companies pursuing highly competitive cut-throat markets, requiring long lock-ups of capital (Dropbox was founded in 2007, so someone has been sitting on those shares for 9 years already) be more attractive than similar dividend-flowing asset classes like real estate or energy MLPs?

Are the dividends so outsized that Dropbox is basically swimming in cash and the yield is much better than I can get with similar asset classes? Do they have a stronger foothold in the market with expected longevity to out-survive an office tower, apartment complex or gas pipeline? Is it likely to attract better talent than Valley's established public companies (GOOG, AAPL, FB) or Valley's hyper-growth startups with IPO potential (Uber), and that better talent will out-compete the rivals on products, execution and market share (and, as corollary, fall under "dividend growth" umbrella, in theory allowing me to buy larger yields at substantial discount)?

Dropbox would have to compensate investors for (a) lack of liquidity and (b) for being in technology software market, known to be particularly unforgiving with its "winner takes all" mentality. Its peers would be highly risky single purpose private REITs (think casinos and fracking companies in North Dakota).

To accommodate that compensation the yields would likely have to be in the double-digits range, so let's say with profits of $20 mln of which $10 mln is allocated to dividends the expected valuation would be in the range of $60-100 mil (10-15% expected yield which seems reasonable in this rate environment with the type of risk described).

[malchow]

All of what you say is well taken. But there's absolutely a place for what amounts to a "data REIT." Investors prize dividends, and they prize having diverse sources for those dividends. Nothing new about that.

If Dropbox is delighting its customers and no longer interested in the lightning-fast one-uppsmanship of enterprise software/storage, then it can trim costs and pay an attractive dividend, sure.

[mrgordon]

I don't think you're going for medium sized when you raise over a billion dollars. The investors who put in $500 million at a $10 billion valuation would need a lot of dividends to even break even, much less make the 10x return they want out of a decacorn.

[theseatoms]

I'd expect that there'll be more examples of the type of company that you're describing as interest rates rise.

Regardless, once investors pay for growth, they require it, in order to be paid out on their bets and remain profitable.

[techpop10]

But they aren't making a profit, not even close

[dominotw]

>Dropbox is simply a medium-sized, privately held, profit-generating company that will end up satisfying a certain customer segment and paying dividends to investors? The horror! reply

how well did that work out for basecamp?

They could have been the next slack if they had not stuck to their stupid philosophy of staying small.

[freehunter]

Is Basecamp in trouble or out of business? Not everyone needs to be huge, and it's not always profitable to grow out of control. Sometimes the costs of growth exceed the additional profits. Sometime to pivot to a market that doesn't actually exist. But sometimes you make some pretty decent money with a pretty decent profit, even if it's not exciting.

[dominotw]

> Not everyone needs to be huge

But we are specifically talking about dropbox here.

I am sure they were not exactly aiming to "be small" raising million of dollars in multiple investment rounds.

[unabst]

I loved Dropbox for its simplicity, the fact that it has MIT in its genes, it not being Microsoft or Google, and for Carousel.

But my dropbox was super slow in Japan, MS Office products keep spawning conflicting copies, Photoshop randomly pauses batch processing because of sync file locking, and they are shutting down Carousel.

So I am moving to Google Drive. All the frustrations above are not unique to me. Dropbox even has a Japanese web site. But this is what destroys consumer confidence. There were trivial complaints on their support site regarding speed issues and Carousel issues with pages of responses. It is the loyal customers that bother to post, yet the impression everyone is getting is seriously, WTF are they doing?

You can't have it known that you are healthily funded, have hundreds of engineers, not free, and NOT care.

[tamana]

The grass is greener... Report back on whether your new service is faster than DB.

[devsquid]

For most users in the US, they won't see a difference in speed. However when I lived with 100down/up internet, there was a huge speed difference between Drive and DropBox. Drive was like 4x faster.

[JabavuAdams]

I've had ridiculous sync issues with Google Drive. Can't remember the details, but it had something to do with switching accounts and then having to re-download tens of gigs of data. Left my system in a confused state where it wouldn't sync any more. I had quit Dropbox, but went back to it.

[dontblink]

These issues have mostly since been fixed.

[devsquid]

I feel your pain. I use both Drive and Dropbox. I think they have the two best cloud storage software, or at least the best from what I've used.

[toxik]

I agree. The whole Carousel thing has just been really confusing. It's telling me Carousel is deprecated, but there is simply no way to "go back" to Dropbox -- you still have to use it to synchronize photos to Dropbox. Stupid stuff.

The only reason I use Dropbox is that it is not made by either Apple, Microsoft or Google, so I can sort of trust that there will be client support for all platforms.

[mayneack]

What do you mean there's no way to go back? Uninstall carousel and it works like old Dropbox (in my experience on android).

[JabavuAdams]

Dropbox works better for me than Google Drive. That's quite surprising, since I'd expect Google to be good at sync. Maybe not consumer sync, I guess...

Also, I don't want any more features. Same with Evernote. I just want to keep notes, and it works quite well for that.

Too bad the investor pressure will likely make each of these products worse.