Wednesday, 20 November 2013

Dropbox looks to raise $250 million at $8 billion valuation

Fast-growing file-sharing and storage startup Dropbox Inc is trying to raise $250 million in additional funding in coming weeks, which would value the six-year-old company at more than $8 billion, Bloomberg Businessweek reported on Monday.

The company may become the latest hot Silicon Valley startup to take advantage of flush investors and stratospheric valuations for fledgling tech companies. Loss-making Twitter Inc is now valued north of $20 billion after its debut; Pinterest, which only recently began to clarify its business model, last month won a round of financing that valued the nascent website at $3.8 billion.

But Dropbox has a problem: Some very big competitors want its business. And they are willing to offer absolutely anyone even more free cloud storage space than Dropbox to lure them away. For example, while Dropbox only offers 2 gigabytes of free storage, which isn’t enough to store a single downloaded movie, much less the photo library of a life-logging phone photographer, Google offers users 15 gigabytes of free storage, or 100 gigabytes to those who buy a Chromebook.

Dropbox, started in 2007 by a couple of MIT students, made its name as the simplest way for regular consumers to synchronize all their files between a desktop and a laptop. Every file in the Dropbox folder simply appeared on both machines. But over the past few years, Dropbox has also become a preferred way to handle moving files on and off phones and tablets, where syncing was an even more unpleasant and unreliable chore. 

Last year Dropbox cleverly added a feature to its mobile apps to automatically upload every photo taken on a user’s smartphone to Dropbox servers for syncing and safekeeping (with the user’s permission). Users could win additional free space for photos by convincing friends to sign up. By making uploading and syncing automatic – and invisible to the user – Dropbox helped fill its servers faster, and convinced more users to pay for additional space.

Valuing Dropbox at $8 billion seems completely reasonable in light of other recent Internet IPOs. Twitter had revenue of $317 million – and no profits in sight -- the year before it went public at a value of over $18 billion. And its active user base of 185 million at the end of 2012 was smaller than Dropbox’s is now.

The cloud storage market, like all cloud computing sectors, should continue to grow for the foreseeable future. But until one of these companies goes public, it won’t be clear how much the market is actually worth, as private company valuations are very different from the stock market.