double that count again over the next 12 to 18 months, according to Levie. Many of the new employees will fill sales, marketing, and support roles, though the company will also be looking for more engineers.
Another big chunk of the venture cash will go toward something more old-fashioned: servers and storage devices. That’s something you don’t hear much these days—the prevailing wisdom is that Web 2.0 startups can simply outsource their computational and storage needs to cloud services providers like Amazon, Google, or Rackspace. But Box.net, for better or worse, has largely outgrown that option.
The company relies on Amazon and other cloud providers for occasional “burst capacity, fault tolerance, and other secondary parts of our infrastructure,” Levie says. But it needs a level of control, reliability, and customization that it can’t get from outside cloud services, so it built two of its own data centers. “If you just think about our ability to audit our data center and our customers’ ability to audit us, those things are only possible if we store the information ourselves,” Levie points out.
Before Box.net can bring on millions more subscribers, it’s going to have to beef up those data centers. And the unfortunate catch in the company’s subscription-based revenue model—where customers pay from month to month, and only for what they use—is that the company can only amortize its infrastructure costs gradually over the life of each customer. Which means it has a lot of up-front capital costs, vaulting it well out of the ranks of the Web services startups that can get to the break-even point on a few million dollars.
Levie says he thinks there are a million businesses in the United States alone that could be using Box.net—so if the company wants to reach a decent fraction of them before the clock runs out on cloud technology and something even newer comes along, it needs to invest heavily now. “We see the opportunity in front of us as a one-time thing with this particular product,” Levie says. “We want to be able to deliver Box to as many businesses as we can in the world. That has some capital consequences.”
Box.net had specific reasons for wanting to add Emergence Capital, Andreessen Horowitz, and Meritech to its stable of investors, Levie says. Emergence Capital is becoming “the strong SaaS investor brand” in the Bay Area venture community, he says. (Holleran helped to build the AppExchange marketplace at Salesforce.com, and Emergence founder Jason Green, a new board observer at Box.net, has overseen investments in Yammer and SuccessFactors, among other companies.) Andreessen Horowitz partners Marc Andreessen and Ben Horowitz co-founded LoudCloud, which was perhaps the first cloud service provider company. And Meritech, says Levie, “is your quintessential late-stage investment firm, really helping companies go from tens of millions in revenue to hundreds of millions. Look at the experience they have had with Facebook, Salesforce.com, Netsuite, Netezza—those are all the kinds of companies we certainly look up to and want to be modeled after.”
The only difficulty with raising the big Series D round, says Levie, was that the new investors were so excited about Box.net that they wanted to buy major equity stakes. That meant Levie had to convince the earlier investors—Scale Venture Partners, US Venture Partners, and Draper Fisher Jurvetson—to accept fewer shares in this round than their pro-rata agreements entitled them to.
“That was a lot of work to do,” Levie says. “But at the same time, all of our investors have been really understanding and supportive and strategic around who else we wanted to bring to the table, and I think ultimately that will lead to a better outcome.”
