One big question is now known about Dropbox Inc.’s IPO — how much public investors believe it is worth.
The San Francisco-based company went into its first day of trading on Wall Street with an initial valuation of about $8.2 billion — or about $9.2 billion if you include all of the restricted stock units it has issued.
The file sharing and collaboration business opened at $29 a share and jumped as high as $31.60 soon after that, sending its market cap above $11 billion. That’s well above the $10 billion valuation that private investors figured it was worth the last time it raised venture funding.
By comparison, Dropbox’s main rival, Redwood City-based Box (NYSE: BOX), has a market cap of about $3.1 billion. It went public in 2015.
But it remains to be seen whether BlackRock and the other investors in Dropbox’s last venture round did well. PitchBook says they paid $19.10 a share in that January 2014 funding.
The Nasdaq index has shot up by about 75 percent since then. At Friday’s $29 a share opening price, the investors in that 2014 round are getting a 52 percent return on their more than four-year commitment of funds.
Here are the real winners and some other things to know about the Dropbox on its first day as a public company:
Sequoia’s big killing
Menlo Park-based Sequoia Capital is the biggest shareholder in Dropbox and it is clearly the biggest winner in its IPO.
The venture firm owned about 23 percent of the company’s stock going into the IPO, which was valued at about $2 billion based on the $21 per share IPO price.
Sequoia led a seed round and the first two funding rounds for Dropbox. PitchBook says the firm paid 2 cents a share in the 2007 seed round, 6 cents a share in the 2008 Series A funding, and $9.05 in the 2011 Series B funding. At the IPO price, that works out to 1,049X return on the seed investment, a 349X return on the A round and a 132 percent return on the B round.
Dropbox CEO Drew Houston said in an interview with Inc. magazine that he was awestruck when he and co-founder Arash Ferdowsi went to Sequoia’s offices for their first meeting in 2007: “On the walls were the original stock certificates of Apple and Cisco. It was daunting. I was thinking, Holy sh**, I’m just some kid. What the hell am I doing here?”
Accel’s winnings
The other venture firm that shows up with a decent stake in Dropbox is Accel Partners, the owner of about 5 percent of its shares going into the IPO. That’s worth about $442 million at the $21 IPO price.
It was Sameer Gandhi, then a partner at Sequoia, who led that seed round. He moved to Accel a short time later and was able to get that firm involved in Dropbox early, too.
Accel participated in the Series A round in 2008, getting a 349X return on that based on the IPO price, and a 132 percent return on the Series B round in 2011.
That Series B round was led by Index Ventures and included Greylock Partners, but neither of them showed up on the IPO prospectus as major shareholders today.
The accelerator connection
Dropbox is the first alumnus of the Y Combinator startup accelerator to go public, a milestone for the Mountain View program founded by Paul Graham and Jessica Livingston.
But Dropbox was actually in the Plug and Play incubator before it joined YC and that accelerator’s founder, Saeed Amidi, was an investor in the original seed round that was led by Sequoia.
Recode cited unnamed sources this week who said that Y Combinator actually sold about half of its stake in Dropbox around the same time as the 2011 Series B round in a transaction that hadn’t been previously reported.
That means that YC isn’t as big a winner today as it might have been. But the money it got from the sale was reportedly used to fund operations at the program that has produced 13 other “unicorns,” including Airbnb which is figured to be worth about three times as much as Dropbox.
And Recode’s source told it that Y Combinator has never sold another portfolio company’s shares in a secondary transaction since.
What the founders got
CEO Houston has the biggest stake in the company, holding about 25 percent of its total Class A and Class B shares. That is worth a bit over $2 billion based on the IPO price.
Co-founder Ferdowsi had a 10 percent stake going into the IPO, making his holdings worth about $820 million.
Something that has set Dropbox apart from other unicorns that have sprung up since the financial crisis of 10 years ago is that Houston and Ferdowski only did three rounds of institutional funding over that time period.
Airbnb has done six and Uber has done seven.
Dropbox was able to fund its growth over the past four years through operations and debt financing, allowing Houston and Ferdowski to maintain their stake and a fair amount of control.
Between them, the founders have more than a third of the voting power in the company.
source: Silicon Valley Business Journal (published on March 23, 2018)