BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

Box.net Shows How Strategic Investors Can Be Key

This article is more than 10 years old.

I’ve been following Box.net since its early days (the seed funding came from $8,000 in online poker proceeds).  Yes, it is always cool to see a company become a tremendous success.  Then again, Box.net certainly made the right choice to focus on providing secure storage solutions to the enterprise market.  And Microsoft’s (Nasdaq:MSFT) SharePoint is a huge target for disruption.

Well, this week Box.net announced that it snagged a whopping $81 million in financing.  According to Forbes' Nicole Perlroth, the company took this route instead of selling out to Citrix (Nasdaq:CTXS) for $600+ million.

Of course, there were top-notch venture firms in the Box.net round, such as Bessemer Venture Partners, Andreessen Horowitz and Draper Fisher Jurvetson Growth.  In all, Box.net has raised $162 million.

But this is typical nowadays.  Instead, what struck me was that Box.net included two key strategic investors:  Salesforce.com (NYSE:CRM) and SAP (NYSE:SAP) Ventures.

True, this is a funny combination.  Salesforce.com is the dominant player in the cloud space whereas SAP is really a traditional software operator, which relies heavily on license and maintenance revenues. 

Despite all this, the combination actually makes a lot of sense.  Essentially, it is a great way to expand Box.net’s distribution footprint, regardless if the potential customers are cloud shops or not.

But I also think the timing was important.  Too often, the temptation is to bring strategic investors in the early stages of a company.  After all, the valuation is usually lower as they want to get a "window" on new innovations. 

However, this can bring about unneeded complications.  This is especially the case if a strategic investor wants a board seat.  The result could mean delays in decisionmaking and innovation.  In other words, it could be the death of a company like Box.net. 

But there are even more traps.  Examples include exclusive distribution arrangements, which can limit growth, as well limitations on intellectual property.  Another big mistake is to hand out a "right of first refusal" on any acquisition offers. 

But when a company gets to a critical mass with its product offering, then there are big-time benefits from the heft and credibility of a strategic investor.  Even a top-notch product can have a tough time breaking through the noise and the sales cycles.  This gets even tougher when dealing with international markets.  As a result, a company like Box.net will likely come up with a go-to-market roadmap for its strategic investors.  Might as well get traction early, right?

Besides, Box.net will need to move not just against Microsoft but other entrenched players like IBM (NYSE:IBM) and EMC (NYSE:EMC).  There is too much money at stake for them to roll over.

So all in all, Box.net's round is yet another sign that the company is on the right track.  And if it keeps up the momentum, it is poised to be a major player in the enterprise world.