Here's The Clearest Sign Yet That Box Is Gunning For An IPO, Whatever Its CEO Says Aaron LevieBox CEO Aaron Levie negotiated favourable terms.

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Business Insider has learned the exact terms of Box’s $125 million fundraising—and it makes it pretty clear that the company is gunning for an IPO.Officially, Box CEO Aaron Levie is downplaying the idea of going public.

“We can do way more as a private company than we can as a public company,” Levie recently told AllThingsD.

OK. But General Atlantic, which led the Series E round, agreed to take convertible preferred shares in Box, VC Experts tells us. Previous investors had gotten participating preferred.

What’s the difference? In the event of a liquidity event—a sale, in other words—participating preferred investors get to double dip.

Assuming typical terms, they’d get their money back, and then get a proportional share of the remaining proceeds.

Here’s an extremely simplified example, ignoring a lot of details: Say that an imaginary firm called Thomarow Partners invested $100 million for 10 per cent of a company that had a $1.5 billion sale, Thomarow Partners gets its $100 million back, plus 10% of what’s left, or $1.4 billion.

That means Thomarow gets $240 million—16 per cent—of $1.5 billion, instead of 10 per cent, more than doubling its money. Pretty sweet, huh?

Convertible preferred shareholders always get their money back, but they don’t get the participating double dip. If Thomarow got convertible preferred shares, it would only get $150 million in the scenario we just laid out. (It’s obviously more complicated than all of this—there are dividends and other negotiated structures to increase investors’ returns.)

Box clearly had negotiating leverage with prospective investors. But we’d point out that General Atlantic is a sophisticated operation which has backed now-public companies like ServiceSource and Facebook.

So General Atlantic has a strong incentive to hold out for a Box IPO. In the event of a public stock offering, both participating and convertible preferred shareholders typically convert their shares to common stock, which ends up with a more equitable outcome for everyone.

A Box spokesperson declined to comment.

Here’s what we think is going on: Levie wants to manage employees’ expectations, lest they get worked up over the notion of an IPO coming in the immediate future.

So he’s telling them one thing. The terms he agreed to say another.

Judging from past investments, we don’t think General Atlantic is in a rush to push Box into the public markets. It led a $66 million investment in ServiceSource, another enterprise startup, in 2007; ServiceSource didn’t go public until 2011.

But it’s clear that General Atlantic has an incentive to make sure Box goes public rather than selling to a larger concern—like Yammer just did to Microsoft. It’s right there in the terms of its investment.


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