Box Performs Well on Day One as a Publicly Traded Company | Business News

Box Performs Well on Day One as a Publicly Traded Company

25 Jan 2015 | Author: | No comments yet »

As Box shares soar in IPO, CEO Aaron Levie explains why he left L.A..

BOX closed up 65.4% from its $14 IPO price, leaving it with a $2.77B market cap (15% above the valuation for its last funding round). 41.4M shares changed hands, or 3.3x the 12.5M sold through its IPO (before factoring the overallotment option).Kerio Technologies CEO Scott Schreiman joins MoneyBeat on the day of Box.com’s NYSE IPO to discuss the status of and challenges facing the cloud software industry.The company, which allows other firms to store data online, saw its shares rise to roughly $22 a share in early trading as investors assessed what the money-losing firm is worth.

Co-founder/CEO Aaron Levie, best known to some for his Twitter one-liners, made the rounds today, arguing more than once his company’s offerings are well-differentiated from the aggressively-priced cloud storage/file-sharing services of tech giants. Levie during a talk with Barron’s: “What we’ve built really is software to help manage and collaborate and share throughout the business … ultimately our customers buy our solution because we have built an amazing product to manage all that content. Box — an online file storage and collaboration system aimed at business customers — began as a part-time project at Levie’s apartment north of the USC campus in 2004. Box flirted with a $3 billion market cap in trading Friday before settling in at a closing first-day price of $23.23, up 66% from its list price and at a market cap of just under $2.8 billion. Shares of Box Inc. surged 66% in their market debut on Friday, a sign of strong demand for a software company that has spent the past several months being lambasted for what critics said were its hefty marketing budget and unclear path to profitability.

We get compared to more storage-oriented products, but there’s more to it.” He called Microsoft (NASDAQ:MSFT), whose SharePoint collaboration platform is widely deployed and which is now offering unlimited OneDrive storage to Office 365 subs, Box’s biggest competitor, but also one Box can stand out relative to. “I think our real differentiation is we do all the enterprise-oriented delivery, the industry compliance for FINRA, the security, and all that — but the really unique part is we deliver that in a consumer-grade experience, with open APIs, and that works across platforms.” Levie suggests to Forbes Box will focus going forward on giving clients more tools for using/interpreting data, pointing to its recent acquisition of medical image-sharing platform MedXT as an example. The stock closed at $23.23, putting its market capitalization at roughly $2.7 billion, about 12% higher than the valuation investors TPG Growth and Coatue Management bought their stakes last July. But it’s also playing in a space aggressively targeted by tech companies with much deeper expertise such as Google and Microsoft, not to mention other startups like Dropbox. He pushed Box north to his uncle’s garage in Berkeley, where the then-20-year-old decided he needed to be to find investors, mentors and a deep supply of technical workers. “It was less about leaving L.A. and more about the draw of the Valley,” Levie said during an interview last fall at the SoHo House in West Hollywood.

While Box executives celebrated from the floor of the New York Stock Exchange, venture capitalists and tech entrepreneurs some 2,500 miles away also cheered the news, rethinking their valuations and prepping their own plans for IPOs. “I’ve had two board members call me this morning, all excited,” said Vineet Jain, chief executive of competing online-storage provider Egnyte Inc. “It suddenly makes this category very exciting and puts a big spotlight on it.” Mr. Jain said he hopes to take his Mountain View, Calif., company public midway through 2016, provided he meets his target of becoming profitable a year from now. A long list of other cloud-computing startups, including Cloudera Inc., Hootsuite Media Inc. and DocuSign Inc., are expected to hold IPOs as soon as this year. Although Silicon Valley wasn’t immune to the post-bubble downturn, Levie reasoned that every tiny optimization could crucially affect Box. “You can start a tech company anywhere, but the second we started thinking about dozens of employees and how do we get venture capital, it became obvious we had to go to the Silicon Valley for that,” he said.

Like his investors, Levie’s locked up for at least six months from selling shares; it’s also unlikely that he’d bet against himself, given his intention to keep building the company for another ten years. But compared to paper billionaires like Dropbox founders Drew Houston and Arash Ferdowsi and founders at other buzzy tech companies like Airbnb, Snapchat and Uber, Levie’s success bringing Box public is unlikely to join him to the billionaire club, at least for years. The appetite for cloud-computing stocks dipped last spring, when a sudden market correction hit the valuations of marquee makers of business software, including Salesforce.com Inc. and Workday Inc. Since Levie left Los Angeles, however, start-ups and venture capital are on a big upswing, largely driven by the entertainment industry’s embrace of digital technology and Internet distribution. Major venture-backed technology companies based in Los Angeles County have gone public, including last year’s offerings of the Rubicon Project Inc. and TrueCar Inc.

In that financing, Box agreed it would be required to issue more shares to private-equity firm TPG and hedge fund Coatue if it sold IPO shares below the $20 a share they paid. Most recently, Hortonworks cofounder Robert Bearden took about 4.8 million shares into that company’s IPO in December, worth $127 million after its first-day trading; the stock’s now trading below that price. 2013 IPO vintage member FireEye’s founder Ashar Aziz, no longer CEO at the time of his company’s public offering, became a billionaire in March. Meantime, Box cut its sales and marketing costs to 97 cents for each dollar of revenue it made in the three months ended Oct. 31, from $1.57 a dollar of revenue at its peak.

USC, UCLA and other universities have recently expanded programs to mentor young entrepreneurs and are forging relationships with Silicon Valley investors to make access to capital smoother. None of this, of course, is any surprise to Levie, who has said in past interviews that giving up dilution isn’t as hard a choice when your company’s survival is at stake. Chief Executive , a 30-year-old with a knack for showmanship, also spent time meeting with and educating potential investors on his plan to boost revenue.

In a response from March 28, 2014 on Quora to a question about his relatively low stake, Levie suggested that for a good company, cashing out isn’t the point. Box is developing more advanced tools tailored to industries like health care and retail that it can sell to its existing customer base and, over time, justify the high cost it pays to acquire them. Still, Levie’s early investors will be congratulating themselves, as they arguably stand to profit more (again on paper for now) on Box’s IPO than its cofounders do.

Morgan , advised the company to bring the offering at an attractive price—the IPO price was about five times expected 2015 sales—and at a slow time of year, when Box didn’t have to compete with a hotter name, people familiar with the matter said. Google Docs or Dropbox hadn’t been born yet, and he was frustrated by the exchanges of thumb drives and the headaches of email attachments when completing group projects for class. After the first day of trading, DFJ is sitting on $535 million of Box stock; USVP $272 million and Scale $156 million, all for buying the bulk of their shares at 20x less than the current stock price or better. Tech IPOs have done better recently with big-data firms Hortonworks Inc. and New Relic Inc. surging in their public debuts in December. “In the horse race between fear and greed, I think growth is back and people are looking for opportunities to invest in the cloud,” said Jason Green, general partner at San Mateo, Calif.,-based Emergence Capital Partners.

Meritech Capital Partners, Salesforce.com and Bessemer Venture Partners will all also profit from the deal. (Coatue Management, General Atlantic and TPG all hold large stakes they paid closer to the IPO price to obtain; they stand to make nice profits regardless but on smaller and shorter rates of return.) And Levie sent an email (having never met him) to Mark Cuban, owner of NBA’s Dallas Mavericks, that asked him to write about Box on his influential blog. Deciding to pursue Box and give up school couldn’t have been simple at a time before Facebook’s rise helped shower intense attention on start-up culture, said Andrea Belz, academic director for the master’s degree in entrepreneurship and innovation at USC. “You have to be extremely savvy and optimistic to be operating in an environment in between peaks of economic cycles,” she said. “What Aaron has done is a real testament to his tenacity and persistence.” Nine years passed before Levie returned to USC. Levie, known for his energy and self-deprecating humor, took stretch breaks on a ballroom stage to keep loose in his sneakers-and-blazer attire as he spoke to hundreds of students. The offering had been delayed 10 months amid a lukewarm market for technology IPOs and concerns from Wall Street that the company’s aggressive sales efforts cost too much.

But the shift to businesses storing data online — enabling workers to access it anywhere — has hastened, and investors have a big appetite for “visionary new vendors” in the growth market, said Daniel Ives, senior analyst at FBR Capital Markets. Long removed from his days as an unpaid intern shuffling contracts, he seems to still not want anyone to endure a similar task. “The odds are fundamentally against you already,” he said of start-ups. “And you won’t be able to work through the struggles if you don’t have the underlying passion.”

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