Benner on Tech: Why Box Was Never Worth $2.4 Billion

Katie Benner is a Bloomberg View columnist who writes about technology, innovation, and the cult and culture of Silicon Valley. She lives in San Francisco.
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People are Talking About…

The Box initial public offering was the hotly anticipated offering of 2014.

Now it’s also the hotly anticipated IPO of 2015.

The difference is like the difference between being the "Hunger Games: Mockingjay, Part 1" and being, say, "Taken 3."

"The Hunger Games" was one of the most hotly anticipated box office events of 2014 because we loved the hero, we loved the story and we really missed Woody from Cheers and were willing to take him however we could get him. "Taken 3" is one of the most hotly anticipated movies of 2015 because we still love the hero but the story seems dated and a little improbable. Really? Liam Neeson has to use his particular set of skills - skills that he acquired over a very long career. Skills that make him a nightmare for people like you - again? Nevertheless we’ll go, if only to judge for ourselves where it falls on the misfire scale.

Box’s story is sort of tired like "Taken 3" is tired. The star, chief executive Aaron Levie, is still a delight. (He gives great Tweets.) But the shine is off the storage space. It’s a commoditized business and the three big private players – Box, Dropbox and Evernote – are trying to tack on businesses like medical records  for which it can charge a premium. That will work for one of those players, but not all. Some people are betting on Box. Some on Dropbox.

I say, whatever. Who wins won’t really make much of a difference. It’s like Dell versus Lenovo. Same machines.

So Box, understandably, is eager to have its IPO first even if it’s clear that storage in and of itself is not really a standalone business. The company filed an S-1 last year and has come back with a couple of revised filings (here’s the latest) that show the high cash burn rate coming down a bit and the growth tapering. Things are getting better, but they’re not stellar. The company’s improvements are incremental and the deterioration of the storage business overall is fast and furious. Box plans to register up to 14.4 million shares and hopes to price them between $11 and $13 a share. The roadshow has begun and the stock should trade this month.

The Box offering won’t be a total misfire - at least not for some investors. Here are two things to note:

First, even at the high end of the share price range, Box is valued at $1.7 billion. That’s significantly below the $2.4 billion valuation it got in its last round of private fundraising.

Second, that last $2.4 billion fundraising round came with all sorts of protections for those investors - TPG and Coatue Management. They'll have the option of cashing out at $20 a share no matter what the IPO price is by acquiring enough stock at a discount to make up the difference. (And to protect their investment, they insisted that the company have an IPO this summer or be forced to pay them more than $5 million in fees for every quarter that it continued to remain private.)

The most interesting things about this hotly anticipated IPO is that it’s clear the private round valuation means pretty much bupkis when you factor in all of the preferences and conditions. It may seem like Box is going public well below its last private valuation round, but when you factor in all of the preferences for TPG and Coatue, the gap may not be that wide

Also, companies that are in weak positions don’t get to negotiate very good terms for themselves or (in some cases) their earlier stage investors who might get crammed down or diluted. So when you see those late stage investment rounds with big headline numbers be wary, because the word “valuation” can be a pretty fuzzy one. 

** ICYMI: The New York Times Magazine had an in-depth story on neuroscientist Sebastian Seung’s mission to map the brain’s connections.

 EyeWire, an online game that challenges the public to trace neuronal wiring — now using computers, not pens — in the retina of a mouse’s eye… The game has attracted 165,000 players in 164 countries. In effect, Seung is employing artificial intelligence as a force multiplier for a global, all-volunteer army.


Genius, the annotation website backed by Andreessen Horowitz, has hired the New Yorker’s music critic Sasha Frere-Jones to annotate music lyrics, the New York Times reports.

Uber could someday face competition from a global alliance of rival taxi hailing apps, perhaps even blessed by the venture firm Softbank Capital, Buzzfeed reports.

One97 Communications online-payment and marketplace businesses is getting a $575 million investment from Chinese e-commerce giant Alibaba and its financial-services affiliate Zhejiang Ant Small & Micro Financial Services Group, the Wall Street Journal reports. The deal would value the Indian company at more than $2 billion.

Palantir, the secretive data analytics firm used to fight fraud and track terrorists, is now a little less mysterious. TechCrunch has fresh detail about just who’s using the company and how, including investigators that used the software to convict Ponzi king Bernie Madoff.

Despite all the talk of sky high late stage valuations, a report from Mattermark shows that seed funding rounds slowed dramatically and overall fourth quarter 2014 startup deal volume dipped back to late 2011 levels.

Lowercase Ventures Fund I may be the best performing venture fund of all time, says Fortune’s Dan Primack. The $8.4 million seed fund closed in 2010 and has invested in companies like Uber and Optimizely, and has exited Instagram and Twitter.

Institutional investors are shying away from 500 Startups. The Wall Street Journal says that a lack of interest from endowments, pension funds and funds of funds hampered the seed stage firm’s efforts to raise its third fund.

People and Personnel Moves

Marc Andreessen has compiled his blog post wit and wisdom into an e-book. I imagine it will be something like a cross between Sterling’s Gold and the Lazlo Letters. Walk, don’t run.

Elon Musk is expected to excoriate the big automakers for not adopting battery powered cars at an auto event in Detroit this week, says the Wall Street Journal as part of a profile on the electric car and rocket maker.

He calls himself a “nano-manager,” works about 100 hours a week and still runs the auto maker largely as he did before it sold the first Tesla Roadster in 2008. “I have OCD on product-related issues,” he says with a laugh. “I always see what’s... wrong. Would you want that? When I see a car or a rocket or spacecraft, I only see what’s wrong. I never see what’s right. It’s not a recipe for happiness.”



** Apple Watch will be “a launching pad for the next wave of billion-dollar consumer-tech startups,” argues the Wall Street Journal’s Chris Mims.

** Apple’s version of the connected home, annoyingly, will require an Apple TV for customers who are away from home and want to control appliances with Siri, the Verge reports.


Now that WhatsApp has hit 700 million monthly active users, Andreessen Horowitz’s Benedict Evans explains why there may not be a winner-takes-all messaging app on a smartphone.


** Rumors that the company’s president of global revenue Adam Bain is going to replace current CEO Dick Costolo are, for now, still just rumors, according to Alexia Tsotsis at TechCrunch.

** Business Insider notes that Costolo could get $37 million, almost all in stock, if he’s pushed out.

Cybercrime Blotter

The Federal Bureau of Investigation’s role in the government’s warrantless surveillance program is much more significant that we think, reports the New York Times.

Did Google prematurely release details about a security flaw? Microsoft says that Google researchers put users at risk by disclosing a vulnerability in Windows 8.1 before a patch was released, GeekWire reports.

Silk Road’s chief on trial. The trial ofRoss Ulbricht, the alleged head of the underground criminal marketplace, will begin this week, the Financial Times reports.

Media Files

Gawker Media will no longer rely on page views and traffic as its primary measure of success.

A layer of subjective editorial judgment will return. Newspaper traditionalists will no doubt see this as vindication.

And maybe it is also a recognition that we can never play the viral traffic game as shamelessly as Buzzfeed. We care too much about our reputation among other writers, and too little about the concerns of venture capital and corporate investors.

News and Notes

Robot mortality, an emerging field. Some computer scientists, philosophers, psychologists, linguists, lawyers, theologians and human rights experts are trying to breathe ethical life into robots, the New York Times reports.

Meet North Korea’s version of Firefox. WhiteHat Security takes us on a tour of the official operating system of North Korea, the Naenara Web Browser.

Gentrification wars. USA Today's Jon Swartz takes a look at East Palo Alto, the last bastion of affordable housing in an area dominated by Facebook, Google and the venture capital stronghold SandHill Road.  And Oakland pushes back against tech-induced gentrification, the Guardian reports.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the editor on this story:
Timothy L. O'Brien at