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Box: Building the Next Generation Enterprise Software Company

In: Business and Management

Submitted By cdipesa
Words 4269
Pages 18
Mid-Term Exam FINA6225

Christopher DiPesa
NUID: 000158745

Discuss Box's need for capital as it grew. Wasn't it benefiting from increasing returns to scale? Why the need for additional capital?

Box’s need for capital as it grew was to actually finance their growth. For instance, in 2004, Box received their first investment of $80,000. Levie and Smith were able to grow their user base to 1000 paying users in just a few short months. However, as the user base grew rapidly in a short period of time there were still only two employees, Levie and Smith. They had bootstrapped the company, which meant they had to do everything from coding of the platform to marketing, support and sales. Levie and Smith could not possibly support 1000 users by themselves therefore they needed an infusion of capital to appropriately scale the business and platform to accommodate the ever growing amount of users. Box would have actually experienced decreasing returns to scale if Levie and Smith continued without taking all the cash earned and investments obtained to finance growth.

Box could not sustain the growth it was experiencing, scale the product and properly service the diverse set of customers (consumer and SMBs) as well as follow through on enterprise business customer acquisition strategies with cash from operations only. Enterprise sales is a capital intensive launch process. Sales cycles can be greater than a year. Box will have to spend a lot of upfront capital to acquire enterprise customers like Coca-Cola. However, the upside reward is when Box closes an enterprise customer like Coca-Cola. When Box secures an enormous 22,000 seat, multi-million dollar and multi-year licenses deal. Annual recurring revenue (ARR) is the ultimate goal of any SaaS company, especially ARR from 22,000 seat license agreements. The cost and time to acquire an enterprise customer such as Coca-Cola…...

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