Dropbox Inc. is opening a $600 million credit facility from six banks led by JPMorgan Chase & Co. The cloud file-sharing startup pushes toward an initial public offering as soon as this year.
Dropbox has said it’s not in a hurry to go public and that the business is nearing profitability. The company is cash-flow positive, with annualized revenue of more than $1 billion, Chief Executive Officer Drew Houston said last summer. Dropbox could tap debt if it wants to expand more aggressively or make acquisitions, said one of the people. It never touched a smaller credit facility, which was expiring, the person said.
After opening up in 2007, Dropbox gained a loyal following from people looking to store photos and other files in the cloud, making them available from any computer or mobile device. It rode this wave to a $10 billion valuation in early 2014, vaulting it to become one of Silicon Valley’s most valuable unicorn startups. A few months later, it secured a $500 million credit facility led by JPMorgan.
Box Inc., a rival file-storage company, went public in 2015. After popping on the first day of trading, Box lost 40 percent of its market value over the course of that year. Dropbox’s private investors soon began scrutinizing the startup more closely, and mutual fund backers wrote down the values of their stakes.
Dropbox has shifted to focus on selling its cloud service to larger businesses, which has helped boost revenue. It has also cut costs, partly by building data centers instead of relying on Amazon.com Inc.’s cloud storage. Dropbox’s growth is encouraging, and its cash generation is impressive compared with most other unicorn businesses, said a banker close to the deal.
In addition to JPMorgan, participants in the new debt facility include Bank of America Corp., Deutsche Bank AG, Goldman Sachs Group Inc., Macquarie Group Ltd. and Royal Bank of Canada, said the people. For the banks involved, taking on the risk of lending to an unprofitable private company can help them win a role underwriting an eventual IPO.
Dropbox’s cash flow and more predictable subscription revenue make it a less risky investment. Dropbox’s incentive for raising the new credit facility was to replace the one that’s expiring and wasn’t determined by IPO timing, said one person familiar with the plans.
Source: Bloomberg (31/03/2017)
