Cloud storage company Box debuted in the public markets last Friday with a strong performance that pushed the price per share to $23.23 which represents an astonishing $2.7B market capitalization. The Box IPO represents the successful conclusion of a process that started last year when the company filed its first S-1 but later delayed the process to correct some of the concerns expressed by investors and analysts while also wait for a friendlier IPO climate.
All things considered, the Box IPO has been both incredibly successful and very atypical. Talking to a few friends about the IPO on Friday evening, we dicussed a few points that I thought would be interesting to summarize in this blog post.
The Risk of Raising at a Sky High Valuation
After retracting from its initial intentions of going public in 2014, Box raised $150M at a sky high $2.4B valuation. While the Box traded slightly over that valuation in the initial day, some of its investors are not yet seeing great returns based on the last round. In that sense, this is a great example of how, sometimes, raising at incredibly high valuations can fire back on investors looking for 2-3x returns.
It’s All About Going Fast
The Box IPO clearly puts the company as one of the market leaders in the cloud storage category which is getting increasingly competitive and commoditized. Since the early days, Box has done a masterful job accelerating customer acquisition, sometimes at the expense or revenues, to create distance between them and the incumbents in the space. Box’s relentless pursue of growth should be an example to follow by all startups in high growth enterprise software categories.
The market reaction to Box’s initial S-1 was far from warm. The company showed revenues at $124M with losses at $168M which represented an increase from the year before ($112M). After the initial filing, Box updated the S-1 showing strng progress closing the gap between revenues and expenses and a clear path to profitability. As much as we reward growth in the enterprise software world, it is important to remember that profitability is a super important criteria for a strong performance in public markets.
The initial price of $14 share proven to be correct for the Box IPO in this climate and Box ended up raising $150M with this initial public offering. This price highly contrast with Box’s initial S-1 with which the company was hoping to raise $250M. Similar to other IPOs like ZenDEsk, the strategy of pricing reasonably low mitigates any investor anxiety for the first weeks of trading.
Enterprise Software Continue to Perform Strong
Prior to the Box IPO, there was a lot of skepticism within the VC community in terms of the future of enterprise software IPOs. Similar to the Facebook phenomenon in 2013, a weak IPO for Box could close the window for enterprise software companies eyeing a public offering in the next few months. Thankfully, Box performed incredibly strong and the IPO window remains open for enterprise software companies.