Cloud startup Box edges toward 2013 IPO

10 May, 2012

Box, one of the top prospects in Silicon Valley's pipeline following Facebook's imminent IPO, has added three leadership positions as the company enters a critical expansion phase ahead of a public offering targeted for mid- to late-2013.

CEO Aaron Levie — who started Box in 2005 as a dorm room project at the University of Southern California until investor Mark Cuban convinced him to drop out and focus on it full time — ruled out an IPO this year, but said the company was bringing in executives with experience at public companies.

Box, which allows employees at companies to share files and collaborate on the cloud, has brought on a new board member, Dana Evan, a former chief financial officer at Verisign, as well as general counsel Peter McGoff, who guided secondary share offers at Informatica.

"It won't be a 2012 exercise," Levie told Reuters, referring to the IPO. "Even though the market is pretty amazing right now, there are some things we want to get done as a company. We see these moves as ways of building a strong foundation."

Box has also hired top Salesforce executive Tom Addis to woo enterprise customers, who make up the bread and butter of Box's revenue. In recent months the company has signed on customers spanning a wide swath of industries, from Dow Chemical to Viacom to tech start-ups like Spotify and Pandora.

At one movie studio, for instance, sound engineers and composers use Box's web software to share and edit large soundtrack files. Box scored a minor coup last year when it inked a deal with Procter & Gamble to get 18,000 employees to migrate to its services.

"We have customers in every vertical industry," said Josh Stein, the managing director at Draper Fisher Jurvetson, the venture firm that invested in Box when it was still three employees working out of a garage in Berkeley, California.

"It's not just used by sales or marketing," Stein told Reuters. "It's used by every department. It's like email."

Levie said the company now has amassed 10 million individual and 120,000 business users. His service is deployed to some extent at 82 per cent of Fortune 500 companies, and its revenues have tripled over the past year, he said, while declining to provide specifics.

But plenty of hurdles still lay ahead on the company's road to an IPO.

For one thing, Box is wrestling with steep costs of building data centers for its file-storage service and the costs of selling to new and bigger business clients. As the company aims to hook in larger corporate customers, Levie has taken to pitching to CIOs himself, while Box is also planning to open a European office before the end of the year to sustain top line growth -- all of which are resource-draining endeavors.

"You don't just send a letter to every CIO and that's it," said Rob Koplowitz, an analyst at Forrester Research. "They're out visiting these folks and having in-depth conversations. And that marketing cost is high."

Box has also come under pressure in recent weeks with the announcement of Google Drive, the search giant's long-gestating foray into cloud-storage.

Levie has played down the ramifications, saying Box has focused on purely enterprise customers and has been prepared for Google's entry.

"We've been building a company for the past five years that's assumed Google Drive's existence," he said.

Regardless of the near-term challenges, Box has been fingered as one of the most attractive enterprise startups, hauling in investments from venture firms like Andreessen Horowitz, Meritech Capital Partners, and Emergence Capital Partner.

Box recently raised $82 million in funding that valued the company at over $650 million, according to regulatory filings analyzed by venture capital data provider VC Experts.

Box reportedly received a $600 million takeover bid from Citrix prior to its latest funding round last year, an offer that was seriously considered by investors but ultimately rejected by Levie and Box co-founder Dylan Smith.

Since then, Box's investors have moved to publicly affirm their desire to usher the company toward an IPO.

"We didn't take those opportunities because we wanted to make this a very, very large company," said Stein from Draper Fisher Jurvetson. "People are just starting to get that it could be one of the most important software companies in the last 20 years."