Online storage and collaboration firm Box has seen incredible growth since its founding in 2005. According to CEO and co-founder Aaron Levie, the firm now has more than 20 million users, from over 180,000 businesses, including 97 per cent of the Fortune 500.
These companies include household names like GlaxoSmithKline, Amazon, Toyota, Netflix and RedBull. Box now has around 1,000 staff and has swallowed up over $300m of venture capital funding to date. Clearly both investors and customers believe in 28-year-old Levie and his firm.
Box is still privately held so hasn’t published any revenue figures, but sources close to the company told Computing that it currently pulls in around $1.2bn (£750m) a year.
Levie was understandably reluctant to reveal to the press gathered at BoxWorks – the firm’s annual customer and partner shindig held in San Francisco – exactly when the firm intends to IPO, so Computing dragged him to one side to ask what he sees as the right time for a company like his to float. He recognises the old journalist’s trick, but answers anyway.
How to float a company
“You want an attractive market [to float a company], and we’re in that now, just look at how well Workday and LinkedIn are doing. You also want investors to understand your industry and your market,” he says.
He gives the example of Salesforce, which Levie says launched at a particularly difficult time, being the first SaaS company ever to float.
“Nobody understood their model for a good five or eight years. [Investors asked] how will it keep growing so fast? How will this revenue model work?”
But he says that investors now understand cloud, so that condition has been met. The third and most important condition he lists is to ask: is your business ready?
“Do you have the operations in place; have you invested enough in your growth engines so you can have a healthy amount of growth as a public company?
“If you look at the IPOs that have been incredibly successful, it’s the companies that did exactly that. Linkedin is a great example; when they went public [in May 2011], they had the business in place, they had operations in place, and the model was working really well. They made early investments, they launched new products, and made the IPO when they felt comfortable they were on a solid foundation with those investments.”
When asked what went wrong with Facebook’s IPO – the social network saw its value quickly halve after it launched in May 2012 – Levie adds a fourth condition.
“The fourth factor is more specific. What is the valuation expectation of your company relative to its real value?
Facebook went public late, but the valuation was such that investors didn’t think it was a credible number. Maybe they should’ve gone as a $50bn company, then grown that to $100bn, rather than going public as $100bn, dipping down to $50bn, then going back up.”
Given that Levie is satisfied around the first two criteria, it seems it is the latter two which he is waiting for before his own IPO. Box recently launched in Europe, with its London office now employing 70 staff, and Asia is next on the list. That lends stability, and importantly the prospect of imminent growth, which should meet his third condition.
As for the fourth, the company controls that itself. Facebook was partly a victim of its own popularity: demand for a slice of one of the internet’s premier destinations pushed its IPO price above a reasonable level for its earnings. Box doesn’t have that problem, and its price will be set by cold, hard business reality.
With that in mind, it seems reasonable to expect Box shares to be available within the first six months of next year. With the firm’s co-founder and CFO Dylan Smith within earshot, Levie jokes that the IPO had already happened.
“Great news, that means I don’t have to do it!” quips Smith, suggesting that the mountain of work necessary to prepare a firm for such a transformation may already be weighing on the CFO’s shoulders.
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