

Index Ventures Leads $4 billion Valuation Round In Dropbox - amirmc
http://techcrunch.com/2011/08/30/index-leads-4-billion-valuation-round-in-dropbox/

======
mikeryan
Perhaps " _But the valuation ended up lower.  Why?_ " 

is answered by this: " _Speculation was that they’d hit $100 million in
revenue this year.  Our best guess based on discussions with sources is that
revenue will be more like $30 million in 2011.  But this is still largely a
guess._ " 

A valuation at 133x _revenues_ is, well wow. 

I say this as big fan of dropbox as a service and a business but I'm not a fan
of these monster valuations on the come. 

Also should point out there's a lot of speculation in that article and those
which preceded it. 

~~~
yumraj
One of the simplest ways to do valuation is to look at Free Cash Flow (FCF) or
Discounted Cash Flow (DCF) and then divide it by (discount rate - growth
rate).  Now, if the growth rate is fairly large, the denominator becomes very
small and can drive even a moderate FCF to cause a very high valuation, which
is what seems to be happening here. 

If interested search for FCF valuation, etc.  there's a lot of info out there. 

~~~
snewe
You have to believe that the (huge) growth rate is perpetual.  Most firms do
not grow faster than US GDP growth in the long-run. 

~~~
ecuzzillo
On a long enough timeline, the survival rate for everybody drops to zero, and
yet people buy stock. 

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swombat
Holy fucking shit. 

Back of the envelope maths:

6% investment, diluted three (two rounds after seed according to
<http://www.crunchbase.com/company/dropbox> , plus the current one), that goes
down to about 2% (diluted by 30% each time). 

2% of $4b is $80m. That's a 4000x return over what, 4 years? 

~~~
jamesshamenski
There is nothing being 'returned' to YC.  The value of the investment has gone
up but that has little to do with an exit. 

~~~
javery
You don't know that - they could very well have sold some of their shares in
this round. ( at this valuation why not take a point off the table)

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erikstarck
Darn it.  I was just writing an article saying that the combined value of YC-
funded startups is $4.7 billion (the number @pg gave a few weeks back).  Guess
I have to update the text.  I wonder what it will be next week. 

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taylorbuley
Since Dropbox was valued at $4b, I'd love to see what Amazon Web Services is
valued at

~~~
SwellJoe
Amazon is a public company.  You can figure out what AWS is valued at by the
market, by doing some math, and reading some annual reports.  Admittedly, the
web store portion of Amazon clouds that value, no pun intended...but you could
probably take a look at Amazon a few years ago, before AWS became a major
contributor to their bottom line, to make sense of the numbers. 

AMZN currently has a market cap of $95 billion.  It's safe to say AWS is worth
significantly more to the market than Dropbox; as it should be. 

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6ren
I don't think this can be based on their current business, but they must have
a related idea ( _something_ cloud) with greater market potential + their
_proven_ ability to execute in the space. 

There's been allusions to developments at dropbox that are not yet public. 

 _BTW_ : dropbox's initial application was single founder. 

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Maakuth
I wonder what are they going to do with the money.  Build datacenters of their
own?  I hope they don't bloat their service with some expensively developed
value-add stuff that nobody wants, but are force-fed nevertheless.  One would
think they're would be too smart for that kind of failure, but you can never
know what big money does. 

~~~
SwellJoe
Given the math of owning vs. renting, I strongly suspect they will want to
begin building their own.  If I were they, I'd be hiring ops developers from
Google or Facebook or someone who has dealt with really big data centers and
start dipping my toes into ownership immediately.  They'll need to figure out
how to cheaply and reliably manage petabytes of storage. 

~~~
justincormack
Not convinced.  They are being valued at $4b not for some extra profitability
by cutting costs, but because of a huge opportunity to grow.  They need to do
what they need for growth not hire expensive people to get into the server
farm and storage business.  Maybe later. 

~~~
SwellJoe
I won't argue that growth is not why they have that valuation.  But, Google and
Facebook, when faced with growth problems did not say, "How can we outsource
our data growth problems?"  They used it as a competitive advantage and a way
to raise the barrier to entry for competitors.  If Dropbox is paying 25%-50%
more for storage than a competitor, they're going to lose as soon as a
competitor comes along that gets all the other bits right. 

All other things being equal, the company with lower costs wins.  I'm not
suggesting any other company is currently equal to Dropbox (it's what I use,
and I'm constantly surprised by the number of my non-nerd friends who have the
Dropbox icon on their desktop)...but, there are an awful lot of smart people
out there who would love to eat their lunch. 

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jdp23
Congrats to Dropbox.  I have to admit that I still don't see their sustainable
advantage but the folks with the money clearly do! 

~~~
swombat
Their defensible advantage is two-fold:

1) they developed a technology that in theory should be easy to duplicate, but
in practice is extremely hard.  Large teams always mess this up (even world-
class teams, e.g. at Microsoft, which has had several stabs at this), and
small teams often don't have the skills to work with so many orthogonal
elements at the high competence level required. 

2) They have supportive users signed up on yearly contracts.  That makes them
very resistant to competition. 

A Dropbox competitor would ahve to be 10x better for people to switch.  That's
hard to achieve. 

~~~
benologist
I've been thinking about this lately as I use Dropbox more and transition from
working at home to an office and find myself using 2 computers more. 

A Dropbox competitor just needs to sync my app settings and stuff on top of
what Dropbox does.  I am _gone_ the instant someone offers me a way to turn on
my laptop and have an almost-replica of my workstation.  Or upgrade phones,
tablets or anything else. 

Sync my <breed of device> is a _lot_ better than just syncing some files
across them. 

~~~
amirmc
I've been thinking the same thing recently.  If the OS itself just lived on the
cloud and had local copies it just updated, then your stuff would always be in
'sync' (including settings/apps). 

Moreover, you could access the same OS using different platforms (mobile vs
laptop) and it could behave appropriately.  We're already moving towards this
to some extent with more and more sync and push services. 

NB Just to be clear, I'm not talking about a pure web-based OS and thin client
(e.g all of google's products are like this).  I mean being able connect to
something in the sky that keeps it all in sync whenever you have a data
connection. 

~~~
bankim
Looks like you might be interested in VDI(Virtual Desktop Infrastructure). 

Disclaimer: I'm ex-VMware employee. 

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dusklight
Can someone explain to me why dropbox has been so successful?  I get that its a
good idea but what makes it so valuable? 

~~~
threepointone
Taking a shot at this -

a good idea - 1 point.  executed really, really well - 100 points. 

~~~
aaronblohowiak
They are FolderShare for Macs, a little bit nicer and at a time where more
people "get" the need. 

Fun Historical note: FolderShare was founded 10 years before DropBox.  MSFT
paid to acquire FolderShare and then squashed all of the good things about it
out of the project. 

[http://www.microsoft.com/presspass/press/2005/nov05/11-03Fol...](http://www.microsoft.com/presspass/press/2005/nov05/11-03FolderSharePR.mspx)

Second-mover (or N-mover) advantage and clean execution is undervalued, IMHO. 

~~~
amirmc
_"...and at a time where more people 'get' the need."_ 

I think this is a really good point.  The market-timing was right for dropbox. 
More people with multiple machines (mostly laptops) so the desire to
backup/sync across devices became more important. 

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yalogin
How come we do not hear much about Box.net? 

~~~
jccodez
Procter and Gamble was a HUGE DEAL for box.net.  Did box go through yc? 

~~~
TedBlosser
nope, they didn't go through YC - [http://www.quora.com/Box-net/Whats-the-
story-behind-Box-nets...](http://www.quora.com/Box-net/Whats-the-story-behind-
Box-nets-founding)

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kd1220
Is Dropbox using S3 as their storage platform? 

~~~
fletchowns
Yes:
[http://en.wikipedia.org/wiki/Dropbox_%28service%29#Technolog...](http://en.wikipedia.org/wiki/Dropbox_%28service%29#Technology)

"Dropbox uses Amazon's S3 storage system to store the files"

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0x12
Cue another 10,000 or so dropbox imitations. 

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kno
Does this number tell us how much the bubble burst will hurt?  A whole lot!! 

~~~
webwright
Who, exactly, will it hurt? 

~~~
aaronblohowiak
VC as an asset class, and programmers indirectly because of that.