Everyone seems to love Box, whether they use the cloud sync and storage company’s products or not.

Aaron Levie, the company’s co-founder and CEO, seems to be the perfect front man for a generation of digital natives that refuses to be tethered to their desks, to be told where to keep their “things” or to be asked to tone it down when they know it is their birthright to be bold.

More than eight years ago, Levie and his high school buddies stepped outside of their dorm rooms and committed their brains, their energies and their brawn to build a service that provides companies and individuals with the ability to store and synchronize their documents and other content in the cloud which they can later access from anywhere, at any time, via (almost) any device.

Their timing was perfect — within a few short years mobile devices emerged as our windows to the world and everyone wanted to keep their documents, and other content in the Cloud.

Box quickly became one of the most talked about companies in Silicon Valley.

That hasn’t changed. In fact the chatter just got louder.

Yesterday, via Twitter, Levie announced that Box was filing an initial public offering.

Numbers Game

While announcements like this always lend themselves to much cheer and elation, there was something sobering about what the documents filed yesterday held— last year Box spent $171.2 million on sales and marketing to bring in $124 million in revenues.

And while a second grader can tell you that that kind of spending doesn’t make sense, there’s Silicon Valley math to consider. But even so, some of Levie’s most ardent supporters are using words like horrid to describe his money handling.

Now if Box was a brand new company that no one had ever heard of and that hadn’t spent a boatload of marketing money in the past, this might not be as disconcerting. But Box was launched in 2005 and Levie is a tech celebrity, who was named Entrepreneur of the Year by Inc. magazine. In other words, the company gets plenty of free publicity.

“Sometimes  the hype is way ahead of the reality,” says Jeetu Patel, General Manager of the Syncplicity division of EMC, a Box competitor.

Box-watchers were also surprised to see that the $100 million in venture capital that the company had raised at the end of 2013 had, literally, arrived just in time. Yesterday’s S-1 reveals that its balance sheet showed just $108 million in cash and equivalents on Jan. 31.

Maybe not too close for Levie’s comfort, but ...

Learning Opportunities

And There's More

And then there’s this to consider, according to re:code , Box has been burning through cash at a rate of $17.5 million a month on its operations alone.  The S-1 filing says that Box wants to raise $250 million which, given its recent spending history, begs the question, how long will that last? Especially because Box’s marketing model is one in which “customers” can use Box for free until there are enough users within the Enterprise to warrant a corporate account. This means, that at least initially, that the more individual accounts Box wins, the more money it will have to spend to support them.

Compare this to Dropbox, which has many, many more individual users, and might fare better with its enterprise-level  acquisition strategy if it can only convince companies that their service is enterprise grade.

EMC Syncplicity, which was listed as a competitor in Box’s S-1, may have a better Enterprise model altogether. Not only is their Sync and Share solution  bullet-proof, it also has a slick, consumer-like interface that appeals to both users and Enterprise IT. According to Patel, Syncplicity sells directly to CIO’s and gets its strategic imperatives from the start. It’s no wonder that their largest customer has approximately twice the number of sync and share users as Box’s largest customer.

When we asked Patel about what he thought about Box’s IPO filing he was enthusiastic about the interest that Box has generated in the sync and share market. “This speaks to the fact that it’s hot,” he said, but then added that the amount of money it’s costing Box to generate revenues is extremely high.

Competitor Reacts

Vineet Jain, the CEO of Box competitor Egnyte, was taken aback by Box’s financials. In a statement he wrote:

While news of Box's official filing for IPO brings a lot of excitement to our market, the public release of their financials raises a lot of concern. It is public knowledge now that Box has claimed over $360 million in deficits to date, with no solid roadmap to profitability. This seems to have become a trend lately where companies are being rewarded with huge valuations for simply having a large customer list. This has created a major disconnect from the traditionally successful business model which used to be based on creating profitability and sustainability. This new evolution of the business model, with seven-figure funding rounds and 10 figure valuations being the norm, has taken pressure off of companies to be successful in the present but placed a heavy burden on them for the future. It is my hope that Box can become profitable and succeed in their IPO, strengthening the faith in our space."

This is reminiscent of the dot com bubble, we know how that worked out.

But Wait ...

It’s worth noting that Box says it has 34,000 paying organizations and 25 million registered users, many of them from Fortune 500 companies. Box’s future earnings will depend on turning those registered users’ employers into customers which, of course, may or may not happen.

And the final disheartening fact that we’ll refer to from the S-1 filing, for now, is that Levie owns only 4.1 per cent of Box. To some it’s cause to question his judgment. Unlike  Mark Zuckerberg who will control Facebook as long as he wants to, Levie could get the boot very quickly if the company doesn’t perform.

It’s worth questioning here why VC’s Draper Fisher Jurvetson, which owns 25.5 percent of the company, US Venture Partners, which owns 13 percent, General Atlantic which owns 8.4 percent, Scale Venture Partners, which owns 7.4 percent, Bessemer Venture Partners, which owns 5.6 percent, and Meritech Capital Partners, which owns 5.1 percent, are not calling the shots . We’ll see how much faith they have in Levie’s grand plan just after the IPO and discover how much stock they sold.