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Profit-free Box trousers $150m in funding. So much for an April IPO

Equity cushion, but no Twitter-style market float... yet

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Loss-making enterprise startup darling Box.com has swallowed another $150m in venture funding.

The cloud collaboration announced the funding Monday as part of a deal that reportedly boosts the company’s value from $2bn to $2.4bn.

The shot of private equity comes despite the company’s plan, announced in March, to go public with a stock market listing. The intention to IPO was made formal with a Securities and Exchange Commission (SEC) filing on 24 March.

The company had been expected to go public in April. Yet not only has that not happened, but Box has now taken on this round of private equity.

One source of the new money is investment firm TPG, which is adding one of its own people to Box's board of directors. Tellingly, TPG’s Jeff Wilson said in a statement he is “confident” that Box can continue to scale, while adding: “We are looking forward to helping them continue to grow.”

One report from the Wall Street Journal reckons Box still plans to go public but only after Labor Day – that’s a public holiday which falls at the end of August, for those of us living outside the US.

It’s unusual for a company locked on an IPO trajectory to take on further private money, so why has Box acted? It didn’t give away details of how the new cash would be funded. Typically, companies that receive funding give a reason, saying it’ll be deployed for product development or expansion of the business – in the latter case being spent on sales, marketing and new offices.

Given Box is a black hole for cash, the lack of explanation leads us to conclude Box will be using the money as an additional cushion should it still plan on floating.

Potted history

Founded in 2005 by Aaron Levi and Dylan Smith, the company is still making a loss. In fact, as it’s grown so have its losses: Box made $21m for the year to December 31 2011, with a loss of $50m according to the March IPO filing. Revenue to the end of January this year was $124m with losses of $168.8m.

That’s despite being in business for nearly 10 years with, so the firm claims, 240,000 business customers including Safeway, Nationwide Insurance and General Electric, as well as a claimed 27 million individual customers.

Competitors

We’ve since had collaboration and file sharing services: startups such as Dropbox, founded in 2007, Google’s Drive and Microsoft’s Skydrive and latterly Office 365.

Google and Microsoft in particular are bigger and better funded - and their free offering is the same as Box's paid-for business model.

Box has blamed its losses on expansion and on the existence of the limited free trial that it offers as well as the nature of subscription-based revenue, which delays the recognition of revenue.

It's an interesting sob story, and one not limited to Box. Industry giants SAP and Oracle have been singing from the same sheet, too, in their dismal financial results. Before this, we'd been assured by tech companies that cloud subscriptions would help their reporting by making revenue more predictable and less "lumpy" because they were no longer hostage to license renewals. According to Box, however, subscription renewals are no less certain than license renewals.

Since Box's IPO filing, Wall Street has tired of both tech stocks and loss-makers like Twitter talking big but lacking a clear idea of how to turn a profit.

Box itself admits it doesn’t expect to be profitable for “the foreseeable future.” It looks like there’s work ahead on what Wall Street types call the "fundamentals" before the glory of the IPO. ®

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