Salesforce sets store by storage company Dropbox

Salesforce usually only invests in companies close to its own verticals - hence, their interest in Dropbox is surprising.
27 March 2018

Salesforce’s acquisition of Dropbox shares is probably not a statement of takeover intent, at least for now. Source: Shutterstock

Salesforce has mounted what it has termed “one of its largest strategic investments to date,” by announcing its intention to buy US$100 million of Dropbox stock.

The cloud-based ERP company’s investment arm, Salesforce Ventures, will purchase 5.8 million options, each valued at US$17; Dropbox has previously announced it is looking to raise around that figure per share when it goes to IPO, when it will sell a total of 36 million shares.

The deal has caused some surprise in tech news publications and financial circles, with Barclays analyst Raimo Lesnchow telling Business Insider that the investment is “not typical.”

While the long-term prospects for Dropbox may include a future acquisition by Salesforce, this appears not to be on the cards at present, despite there being some history of tech buyouts on the eve of companies going public: in January 2017, Cisco acquired AppDynamics right before its IPO.

Dropbox’s US$7.5 billion valuation has dropped from the US$10 billion it was last pegged at by private markets. The company is seeking to raise up to US$648 million from its public listing and will trade on Nasdaq with a ticker symbol of DBX.

“The lower potential valuation suggests that public market investors don’t share nearly the same enthusiasm for technology companies that venture capitalists once did, raising questions for a horde of other high-priced start-ups that are edging their way toward the public markets,” said Michael J. de la Merced, in the New York Times.

While there appear to be no signs of an intended takeover, it is easy to see the synergy between the two companies, with Dropbox able to add significant functionality to the Salesforce platform, as well as considerable technical prowess and experience in the storage sphere. Despite being infamously “warned off” by Apple’s Steve Jobs in the company’s early days (and Apple’s iCloud service operating in direct competition), Dropbox continues to make progress.

The size of the Salesforce investment is, however, extraordinary in of itself, as Salesforce Ventures has invested less than US$100 million elsewhere in total this financial year to date.

Salesforce Ventures has five investment funds, including a US$50 million fund for artificial intelligence technologies as they might apply to the Salesforce platform, plus a US$100 million fund destined for Israeli and European cloud start-ups.

The Salesforce deal with Dropbox will complete as soon as Dropbox goes public. The company had mentioned the deal in passing in its annual report recently when it highlighting its earlier US$5 million investment in Dropbox in 2015. Despite the two outlays, Salesforce’s total stake will comprise less than 5 percent of all of Dropbox shares.

Salesforce usually only invests in companies close to its own verticals, so the size of this investment in a company so far removed, for now, is quite surprising.

The other notable tech flotation this year is expected to be of music streaming service, Spotify. The Swedish company’s shares will begin trading on the NYSE, but without a formal IPO, in what is termed a “direct listing”. Spotify is expected to be valued at over US$20 billion.