Box CEO Aaron Levie Talks IPO Delay And Growth Strategies

Aaron Levie just turned 30 at the end of last year, yet he’s been at the helm of Box for almost a decade. The company he launched in a dorm room with co-founder and childhood friend Dylan Smith in 2005 went public earlier this year, a process that ended up taking so long, it proved almost anticlimactic.

Regardless, Levie didn’t have much time to savor the moment. He told TechCrunch in a wide-ranging interview last month that Box has no intention of standing still and he discussed his plans to keep the company growing, while trying to find ways to get more efficient. He also talked about the long road to IPO and what was behind Box’s thinking in delaying it for so long.

One of the key strategies moving forward appears to be around the Box for Industries initiative announced at BoxWorks, the company’s customer conference last fall. The idea is that Box will act as a central repository for content, and partners with domain expertise will build a set of tools on top of Box. The tools will change, depending on the industry, but Box will always sit at the center.

That takes advantage of Box’s strength as a development platform and gives it a chance to manage content across a range of industries in which it might have had difficulty gaining traction. It also provides a potential path to continued growth.

Going Public At Last

By the time I talked to Levie, the IPO was behind him and he was ready to move on from it, but he said he and his team were always confident they would get there.

“[The IPO] was to some extent anticlimactic. It was probably more of a relieved feeling than anything else. We were pretty happy to work through that whole process, and ultimately we were exhausted at that point,” he said. If you look at the picture just after ringing the bell, he looked it.

Box team applauding after ringing the bell on the day of their IPO.



They were tired for a reason. It had taken more than 9 months from their announcement to get to Wall Street — and the company took a beating along the way.

Box had spent years getting to this point, and had some big wins under its belt to be sure, including huge companies like General Electric, Procter & Gamble, Toyota and Schneider Electric to name but a few, but once they filed their first S-1, the questions began.

Box went public at $14 a share, quickly rose to $20 and sat there until the first post-IPO financial report when the markets got a bit skittish again. The price dropped to around $17 a share and that’s where it’s stayed since.

Negative S-1 Reactions

When we spoke, Box was just coming to the end of the post-IPO announcement quiet period. Sitting quietly is not something that comes easily to him. While the quiet period rolled on for months and speculation ran rampant, Levie and company had to sit there and take the criticism.

Such are the rules of the IPO. You gear up for the moment for years, then you have to sit quietly (stone still) and everybody gets their long-awaited shot at you. Box went from startup golden child to questionable bet in a Silicon Valley minute. Suddenly there were questions about sales and marketing costs, customer acquisition and murmuring about Box’s ability to eventually turn a profit.

Levie says they were taken aback by the criticism because in his view it was part of the plan to raise big, spend big and grow fast.

“We were a little bit surprised [by the criticism] because we had raised a significant amount of venture capital. Clearly that was being spent on growing the business pretty rapidly. We were coming off a year of over 100 percent growth, so the investments were working.”

Box CEO Aaron Levie at TechCrunch Disrupt SF 2012.


Their mistake, according to Levie, might have been that the numbers they launched with didn’t give enough of a sense of the trajectory of improved efficiency over time and the S-1 didn’t tell the right story about how the company’s economics would work at scale.

“I think that maybe was the thing we didn’t think through enough,” he said. 

“When we filed our S-1, it was off of a year where our investments were at their largest relative to our revenue scale and our intent all along was sort of that was the peak, but unfortunately that didn’t necessarily show up in the S-1, which showed this backward looking data.”

The other issue was keeping employees updated because the quiet period limits those types of communications too. From a management perspective, that meant they had to manage the employees around all the negative reactions going on outside the company.

“We had to constantly keep them up to speed with what was going on. There was a difference between what employees were reading and what was happening inside the company. The quiet period also limits employee communications. The trickiest part was [maintaining] employee communications,” he said.

And as the delay dragged on, the company had to endure months of questions.

Ready To Go With The IPO

With the quiet period over though, Box could explain its thinking around the delay. As you might expect, Levie and his team read the tea leaves and they felt the market had shifted. They decided to wait for it to turn around.

“I can’t share too many of the specifics, he said, “but at a high level I think the [main thing] that we cared a lot about was market stability, which changed pretty dramatically last spring. If you think about the market for SaaS and cloud companies last spring, it was a very different environment than it is today or than it was at the tail end of last year.”


Front page of Box S-1 form.


He added, “We’re an aggressive company. We invest aggressively and in a market where there’s not a lot of stability toward those [types of] companies, we just didn’t think it was the right time.”

At that point, it held back the IPO and took on more capital. Levie said that allowed it to fund growth and the core business, but also answered the critics by showing that the business would get more efficient over time.

“The economics of the business model continue to improve over time and you got a good sense of that in the subsequent three quarters from when we initially filed,” he explained.

He realized given their economics, some investors would understand and some wouldn’t, but he knew what it took to build this kind of business and what was at stake.

“The question became when is your expectation for profitability. It becomes obvious why we were making these investments. We are going after a market worth tens of billions of dollars. It behooves us to scale up to reach that opportunity. Investors recognized why that was important to our strategy.”

Investing the IPO Money

The IPO brought in $175M at a $1.65B valuation. Levie says they definitely have plans, but he kept to generalities as you would expect.

“You will continue to see investment in those long term technologies that open new doors for us,” he said. The question is what that involves.

“There’s a lot of technology that we [still] have to build around the content management and collaboration. You’re going to see massive investments in our security technology,” he said.

Aaron Levie enjoying a laugh back stage at TechCrunch Disrupt San Francisco in 2013


He pointed to the recent Enterprise Key Management (EKM) announcement, which enables customers to control their own encryption keys. That takes Box out of the equation, which is just where any cloud company wants to be. If government or law enforcement comes knocking, Box can legitimately tell them they can’t share the company’s content because they can’t unlock the encryption. That move alone opened up whole new markets for Box, and it wasn’t a coincidence it announced a financial vertical package just a couple of weeks later. Financial services was a prime market they could attack armed with this type of functionality.

“EKM is a really, really elegant solution to a complex problem and it took us a couple of years to get that solution and the partnerships right to deliver that. Those are the kinds of investments we can make at any given time. I’m very happy about our road map and what we’ll be building. When you look at our strategy holistically, it’s about how you use content.”

He says that opens up doors at healthcare, financial services and any heavily regulated industry because it suddenly puts the cloud within reach of companies that were hesitant to use cloud services in the past.

“What we can do is not only improve productivity, we can keep it more secure and do more with our technology,” he explained.

Moving Forward

Box filed its first post-IPO financial report earlier this month, and the market reaction still shows little patience for Box’s subscription business model. Looking for better numbers than it got, the stock price took a hit and plunged 10-15 percent. It was recovering a bit a couple of weeks later.

As TechCrunch’s Alex Wilhelm wrote:

Today following the cessation of normal trading, Box announced its fiscal fourth-quarter financial performance, including revenue of $62.6 million, and an operating loss of $45.8 million on a GAAP basis, and $32.2 million using adjusted metrics. The company also reported billings for the period of $82.0 million.

The company’s GAAP net loss for the period totaled $52.92 million.

On a GAAP basis, Box lost $2.64 per share. Using non-GAAP metrics, which the street is currently using to measure Box’s per-share profits, Box lost $1.65 per share in the quarter.

(Clarification: Box informed TechCrunch after publications that consensus estimates of itsadjusted earnings per share employed an incorrect share count. Given a proper accounting of its shares, Box informed TechCrunch that it beat a -$1.99 per-share consensus figure.

The trick now is to continue growing and to define the company on its terms.

Box often gets lumped together with enterprise file sync and share or online storage, as I wrote the night before the IPO, those labels are too simplistic for what it’s doing:

…even at that early point [in 2010], Levie recognized that he didn’t want his company lumped in with the online storage/sync and share pack. By tying Box’s destiny to ECM, he was moving into far more sophisticated enterprise software territory where companies needed a range of services including security, governance, workflow, metadata libraries and so forth.

Their focus is solely the enterprise, says Levie. Part of the problem is because the software is easy to use, people tend to lump it with consumer products.

“This is one of our challenges because we have end user technology, we get lumped into the consumer space. People think we get lumped into Dropbox and as an easy-to-use technology. We aren’t competing against those companies. Why that’s important is because we are solely focused on the enterprise. It lets us focus on platforms. We have no other distractions,” he explained.

For the future, he says, the strategy continues to be making next generation content management and collaboration platform and figuring out the technology to add to that value proposition.

“Fundamentally we are just getting started. We spent 10 years getting ready and we are ready to transform business.”

The question remains what happens next and can the company continue to develop into one that finds profitability and stability. Box has to reach a point where the markets don’t question it on a quarterly basis. Levie and Smith have taken the company this far. Now, it’s time to take it to maturity.