Can Dropbox survive an active hedge fund?

Fresh off victorious activist campaigns against Dell and AT&T, hedge fund Elliott Management is going after Dropbox.

In 2007, when Drew Houston was pitching Dropbox — the cloud-based file storage provider — to investors, he often had this exchange:

Can Dropbox survive an active hedge fund?

Venture Capitalist: “There are [already] a million cloud storage startups.”
Houston:Do you use any of them?”
Venture Capitalist:No.”

Houston went out and built Dropbox…

… into what is now an $11B public company with 700m registered users and — in 2020 — revenue of $1.9B, per The Wall Street Journal.

There’s a problem, though.

Unlike Houston’s conversations from the early Dropbox days, there are countless cloud storage companies now… that people do use. You may know these 2: Apple and Google, which both offer loads of free storage.

Dropbox has expanded its product line

It includes efforts in centralized document editing and 2 notable acquisitions: DocSend (document tracking) and HelloSign (digital signatures).

However, revenue has slowed and its core cloud business is largely commoditized.

Activist hedge fund Elliott Management…

… has taken a sizable stake in the company, per WSJ. To get a return on its investment, the hedge fund will likely have to find a private equity buyer for Dropbox or a merger partner.

The hedge fund has notched some recent high-profile wins, catalyzing change at AT&T (to leave the media business) and Dell (to spring off VMware).

However this shakes out, Houston will likely be facing much tougher investor conversations than he did in 2007.

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Topics: Saas

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