Box filed its S-1 indicating it was ready to go public on March 24th last year. More than 9 months later, Box has at long last announced its share pricing, signalling the road show to Wall Street is ready to start — finally.
But the 9-month waiting period was really only part of the story. Box is the quintessential start-up story, conceived in a dorm room by childhood friends, Aaron Levie and Dylan Smith. The latter would go onto be chief financial officer, the former, the public face and CEO.
Box began life as a consumer-facing product, designed to solve the problem of transmitting files between computers. It wasn’t until around 2009 that they began to take aim at the enterprise, a pivot that 451 Research analyst Alan-Pelz Sharpe points out is incredibly difficult to pull off successfully.
“In 2009 Box was still a consumer-focused firm, since then they have brought in some true enterprise heavy-weights, pivoted the company 180 degrees and built a very credible and fast growing enterprise platform. To give credit where it is due, its something few firms have ever pulled off,” Pelz-Sharpe wrote in an email.
He added, “Frankly the firm from 2009 to today is virtually unrecognizable, moving from a freemium to a premium sales model with relatively little friction, and taking the focus from cheap consumer storage to content-centric applications and a platform.”
Pelz-Sharpe jokes that if it were not for Levie’s penchant for brightly-colored sneakers one would wonder if it was the same company.
It’s also important to remember that 2009 was the year the iPad came out, which had a tremendous impact on file sharing and how Box would approach its products going forward.
But that didn’t mean Box was ready to abandon that freemium approach. In fact, in a 2012 interview, Levie told CITEworld that freemium was a fundamental part of the way the company sold software, and he didn’t see them giving it up. “I think about freemium differently. I see it as a foundational element to our business model. We will always have a free version and let anyone join who wants to start using it,” he said at the time.
Box also began hiring people with more enterprise chops, bringing in Dan Levin from Intuit to be COO in 2010, Whitney Bouck from EMC to run enterprise marketing in 2011 and welcoming former Microsoft executive Steve Sinofsky as an advisor in 2013.
While the company delayed its IPO, it landed its biggest fish ever in General Electric last May. R Ray Wang, an analyst with Constellation Research says customers like GE give an air of legitimacy to Box. “GE was very important for Box because it proved they can handle security, and doing that for a company like GE, is no easy thing, ” Wang said. He believes that deal may have opened the eyes of other large companies that, yes they can handle enterprise-grade security and he said that was a significant threshold to cross.
Pelz-Sharpe said the pricing set at $11-$13 was a reflection of a changing market. “I think the value reflects a changed market and has less to do with Box specifically and more to do with the market as a whole. That said Box has a pretty strong recurring revenue model, and the last set of figures from them before the holidays plots a clear path to profitability. ”
Its IPO pricing could actually be considered inexpensive. Jason Lemkin, a venture capitalist at Storm Ventures, told TechCrunch that Box is “playing it safe” with its proposed range. Noting the recent successful IPOs of Hubspot and Zendesk, Lemkin told TechCrunch that Box is “a “logical and even cheap bet at the cover price.”
Box might re-price its offering, of course. Christopher Calder, a venture capitalist at Epic Ventures called the $11 to $13 price range a “starting point” for the company’s final mark. According to Calder, Box has “dramatically improving […] revenue acquisition costs.” That could point to future profitability, something that investors hold, understandably, dear.
Calder predicted in an email that the Box offering will “up very positive for all of the company’s investors.”
Others in the space are hoping for just that. Vineet Jain, the CEO of Egnyte, a company that competes with Box for corporate customers in the storage space, thinks that the Box IPO could have a “tremendous” impact on the technology market for the next half year. In Jain’s view, if Box prices “correctly” and “has a successful debut,” that “could potentially spark a 2015 enterprise IPO bull run.”
Not surprisingly, Egnyte, which is still a private company, would welcome that situation. On the other side, Jain sees the potential for disruption, noting that if Box prices “incorrectly, it may cause a major correction in the markets and create a cooling off period for tech companies looking to go public.”
Pelz-Sharpe says, a successful Box IPO could open the door for Dropbox to follow.
Wang agrees, saying there is some anticipation with this IPO because Box is such a high profile company. “It’s important they have a pop and that there is a success,” he told TechCrunch.
So, it looks like as Box goes so goes the tech market. No pressure.