
Dropbox Shares Offered at 34% Discount in Secondary Market - peeze
http://www.buzzfeed.com/williamalden/dropbox-shares-offered-at-34-discount-in-secondary-market
======
msoad
The bigger story is that Dropbox is trending down in general. Look at Google
Trends[1] for Dropbox searches. I used to have files. But now I don't really
have any files. I use Spotify for music. A collection of streaming services
for movies and shows. Google Photos for my photos. Google Docs for storing my
spreadsheets and "word" documents and Google Drive to dump some useful PDF
files. I don't pay for any storage service anymore.

World has changed since Dropbox came out and it has become less relevant. In
my case it is completely irrelevant.

[1][https://www.google.com/trends/explore#q=Dropbox](https://www.google.com/trends/explore#q=Dropbox)

~~~
tim333
On the other hand

"The service hit 100 million users in November 2012, 200 million in November
2013, 300 million in May 2014, and 400 million in June 2015." and 500 million
in Mar 16.

So still growing merrily. Also the shared folder connections have gone from
1.3bn end 2014 to 3.3 billion recently.

They are changing focus from personal file storage to enterprise collaboration
stuff which may be why there is less on google trends, perhaps.

>That’s one of the big evolutions in terms of what people are doing when they
have a platform like ours, going from access into connections and a huge
collaboration network.

>The second big evolution has been the evolution from being an end-user tool
into an enterprise tool

[https://www.siliconrepublic.com/enterprise/2016/03/11/dropbo...](https://www.siliconrepublic.com/enterprise/2016/03/11/dropbox-
five-minute-cio-interview)

------
putlake
As others have noted, you could attribute the entire 34% "discount" to the
fact that these are common shares, not preferred. A few months ago when I
looked into investing in Palantir via EquityZen/Sharespost, the share price
being offered valued Palantir at between 25-30% less than their most recent
funding round valuation of $20B.

If anyone's interested in acquiring pvt company shares in the secondary
market, here's what I learned: * You have to be an accredited investor (i.e.,
net worth of over $1M excluding residence; or income of >$200K
individual/>$300K married for the last 2 years and reasonable expectation that
this income level will be sustained this year).

* You don't actually own common stock of the company (e.g. Palantir). It actually works like a mutual fund. You invest in an LLC that owns the stock. You get shares in this fund/LLC that correspond 1:1 to common shares in Palantir.

* There is usually a minimum investment amount e.g. $50K or $20K.

* EquityZen/Sharespost charge a commission (of about 5% iirc; 1 of them charged more than the other but had a lower minimum investment amount). They are managers of the LLC and investors have virtually no rights even though they are members of the LLC.

* When the company IPOs, your LLC shares are converted to the same number of company shares. This is common stock, and subject to the same lockup restrictions that employee shares are. That means you can't sell until 6 months after the IPO.

* There is no liquidity. EquityZen and Sharespost differ in this a little bit. But basically you can't sell your shares in the LLC without approval from EZ/SP; they can veto it and they can also require a holding period of 1 year.

* While the transaction is blessed by the underlying company, they don't reveal any information about financials or risks like they would in an IPO prospectus. You are investing blind.

In my opinion the biggest problems with such investments are (1) illiquidity,
and (2) the fact that shares are subject to 6-month lockup post IPO.

EDIT: formatting.

~~~
bogomipz
You've got some misinformation here, this was my experience two years ago but
on the seller side as an employee leaving a startup.

>"you could attribute the entire 34% "discount" to the fact that these are
common shares, not preferred."

I sold common shares via the secondary market and I got exactly what they were
valued at. This was a very well-known startup. So that's incorrect. In fact I
managed to get just north of that price given the scarcity of obtaining them.

> "You don't actually own common stock of the company (e.g. Palantir). It
> actually works like a mutual fund."

This is something specific to just EquityZen and this is a technique that is
used in instances where the company's employee option agreements forbids such
a sale. This is a loophole of sorts used only in those instances.

One other interesting point is that once I had a buyer lined up the company
exercised their right of first refusal which means they then had to buy the
shares for the same amount as the buyer agreed to purchase them from me for.
The company themselves of course didn't actually buy them but they put me in
touch with a well-known Hollywood celebrity's wealth manager who then bought
them.

This last point irked me a bit when I thought about all the other engineers
toiling away to build a good product who were bound by all these options
restrictions yet some Hollywood celebrity with no connection to the company
was on a shortlist of preferred buyers should some options come available.
Sigh.

~~~
argonaut
To be fair, the common vs. preferred share distinction depends on the company.

It could be that in your case they were valued the same. You actually mention
that you sold at above the company's last fundraising valuation - it could be
the case that the preferred stock was valued _even higher_.

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mikekij
This isn't surprising to me at all. Investors that previously valued the stock
at $19 per share likely have a 1X liquidation preference. The employees'
shares sold on the secondary market won't have this liquidation preference. So
VCs are paying a 34% premium to basically guarantee a 1X return. Makes total
sense.

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gyardley
When the company's raised a ton of money, the common's behind a ton of
preferences, and in a time when there's no IPO window in sight, a 34% discount
to the preferred doesn't sound particularly terrible or notable to me.

Slow news day, I guess.

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sharkweek
If I'm an employee at [HIGHLY VALUED PRIVATE COMPANY] - this looks REALLY
appealing to me, to dump my shares for at least a nice guaranteed cash out
now.

So many VC rounds protected with liquidation preferences at a valuation that
the market probably ends up shredding if there's an IPO or a buyer comes along
to acquire the company. These latest devaluations certainly wouldn't help with
morale and I'd get nervous thinking about my shares eventually being worthless
if the company just sort of tinkers in the private market much longer.

I also tend to be relatively risk averse though, so I'm curious what others
here would do.

~~~
p4wnc6
Most employees would be in a situation where right of first refusal means
their employer would have to approve this -- and in a lot of places, the
employer's going to take it as a red flag that you want to sell and it could
create problems.

~~~
state
Could someone (perhaps with a throwaway or a 'wink') corroborate or elaborate
on this? I'm very curious to know (anecdotally) how the politics of these
sales work.

~~~
joshjkim
This is a copy/paste from a prior HN discussion that I had:

[it's definitely true] that employees are discouraged from seeking buyers
because there is an unspoken implication that this means the employee is
"losing faith" or "believes less" in the company, or is getting ready to
leave.

If the party line is: "hey, we are going to be a billion dollar company!" and
then one employee says "hey, I want to sell at this $100M valuation", even if
the $100M is a solid upside from the employees strike price the next natural
question for the founder is: "hey, why would you sell at this valuation if we
all know we are going to unicorn?" Lots of people are reasonable and could
understand many good reasons to sell at that point, but in high-growth culture
those are not always appreciated. Sure, employee can/should suck it up, but it
still makes it more challenging.

Generally, I think this is why company's should more regularly organize
secondaries, it removes this dynamic to a certain extent.

~~~
bogomipz
And with each round of financing your equity is likely getting diluted. If you
are a good employee and sell some shares on the secondary market and continue
to do a good job and remain at the company I don't think anyone can equate
that with losing faith or imminent departure.

------
dharmon
The last raise was two years ago, so if you figure the current valuation based
on recent markdowns, then this price is more inline with what you might expect
from common equity vs. preferred.

I am curious, will these secondary shares have the same lockup restrictions
that employees face after the IPO?

I am also curious how the market will price Box vs. Dropbox. I would expect
them to mostly move in tandem, but with Thiel propagating his "myth of the
monopoly", maybe people will consider any positive developments at one to be
negative for the other?

At any rate, I expect it will be rough roads ahead.

------
ChuckMcM
While it think it is great that Dropbox is allowing its employee shareholders
the ability to get value for their shares, the real story will be whether or
not the shares actually sell. That will depend on a variety of things of
course, not the least of which is how many shares are offered, but it will
give management a useful way to evaluate the practicality of trying to go
public or not.

~~~
jpmattia
> _the real story will be whether or not the shares actually sell._

As the saying goes: There ain't nothing that price won't fix.

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SilasX
Is this a normal discount? I thought a typical one was more like 50%, making
this a good deal.

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frogpelt
Buzzfeed is reporting stock offerings?

Who knew?

~~~
jfoutz
Buzzfeed news is pretty good. You won't believe how they fund serious
journalism. #8 will shock you. But seriously, they do seem to have a
commitment to producing quality news. [1] for example.

[1] [http://www.nytimes.com/2013/10/22/business/media/buzzfeed-
hi...](http://www.nytimes.com/2013/10/22/business/media/buzzfeed-hires-
pulitzer-winner-to-head-investigative-unit.html?_r=0)

~~~
throwaway7798
I strongly disagree. They produce a lot of biased news geared against startups
in Silicon Valley. It almost feels like they're anti-startup news feed. And
reading them, as an employee of a startup makes me feel pessimistic and
depressed.

~~~
B1FF_PSUVM
News in general will make you feel pessimistic and depressed. If not enraged.

Don't do news.

~~~
jfoutz
Media diet is important. IMHO staying aware of local, regional national and
global "stuff" is kind of nice, it makes it much easier to be social.
Occasionally I encounter stuff I want to know more about. But it takes a light
touch. 15 to 30 minutes a day is more than enough.

