Dropbox IPO target falls short of private value

Silicon Valley darling Dropbox Inc. is aiming to go public at a valuation well below the $10 billion it clocked in at after its last private funding round, despite posting healthy revenue growth and turning cash-flow positive in the intervening four years.

The file-sharing company is targeting a public market capitalization of $6.3 billion to $7.1 billion in its initial public offering, according to a filing Monday. Including restricted stock units, that range is $6.7 billion to $7.6 billion.

The San Francisco company is one of a class of wellfunded, closely watched technology companies that have achieved a private valuation of more than $1 billion. Investors wanting to get their hands on the next big thing piled into these “unicorns” in recent years, helping drive up valuations.

The gap between private valuations and public market aspirations highlights the disconnect between the premium that private investors put on potential innovation, and the financials-based analysis that public market shareholders are focused on.

Dropbox is aiming to raise as much as $648 million in its U.S. IPO, marketing 36 million shares of Class A common stock for $16 to $18 apiece, according to the filing with the U.S. Securities and Exchange Commission. At the high end of its offering size, it would be the third-biggest U.S. IPO by an enterprise technology company in the last three years.

Dropbox also agreed to sell $100 million in stock to Salesforce.com Inc.’s venture capital arm in a private placement concurrent with the IPO, the filing shows.

Drew Houston, co-founder and chief executive of Dropbox, will hold 22% of the shares outstanding after the offering, or 24% of the voting power, according to the filing. Arash Ferdowsi, co-founder and director, will hold 8.8% of the shares.

The pair started Dropbox in 2007. Sequoia Capital, one of Dropbox’s early investors, will own a 21.1% stake.