Boxed In

We look for two characteristics when we make an investment, a great big market trend that will last many years.

Last week Box.net announced Scale Venture Partners had made an investment in Box.net. We are happy to finally be investors, after having been foolish enough not to invest in early 2009. We were admittedly distracted by financial armageddon but there can be no good excuse for missing a great deal. The only mitigation is to follow up, and invest later. This we have now done.

The team, led by founders Aaron Levie (CEO) and Dylan Smith (CFO), has built a great service and are building a great company. Box allows users to store content "in the cloud" and access it anywhere and share it with anyone. For individuals it solves the "what computer is my stuff" on problem by making it available everywhere. For businesses it allows teams to cost effectively share documents and collaborate with users both inside and outside the enterprise. It is, as the billboard on the 101 points out, just like Sharepoint, but without the expense, hassle, servers …. (you get the picture). Sharepoint has been a major success for Microsoft with over $1 BN in revenue and so it is a pile of revenue worth aiming at.

We look for two characteristics when we make an investment, a great big market trend that will last many years and allow the company to be a standalone success, and strong near in out- performance at the company level in attacking that market. Box has both.

The market trend of "putting your stuff in the cloud" is a big one and one we have been gnawing on that bone for a few years. About a year ago we, as a group downloaded and tried 13 different products, all of which were leveraging the, "stuff in the cloud" trend. We tried individual consumer back up products, like Carbonite and Mozy, we tried consumer synch products like Sugar Synch and Dropbox, and we tried collaboration products like Box.net. Our big picture conclusion was that there was a role in the market for all of them. All depend on the mega trends of plummeting bandwidth and storage costs but all were going after different markets, with different customers, different patterns of usage and different ways of making money.

We liked Box.net and the enterprise space because enterprises have money to solve this problem. They are solving today and Box can offer more functionality for less money. I am not sure that consumer online backup is a cheaper solution than a Seagate hard disc (though it may be better) but I am sure that Box is cheaper than any on premises collaboration software package out there.

The other thing we look for in an investment is near in out-performance. This is our version of the eternal Silicon Valley discussion, do you invest in big markets or great management. We try for both and when it comes to assessing management at the stage we invest, we can look at the most reliable predictor out there of what a team can do, namely what they are doing right now. Great execution is its own validation and in between appearances on Bravo TV, Aaron, Dylan and the team, have grown revenue over 3x in a market where the overall industry is flat to down.

In any event we are now Boxed in and glad to be here.