Interview: Box CFO Dylan Smith

POKER HUSTLER, reality television star, entrepreneurial whizz kid and chief financial officer – not a collection of words that you normally expect to sit together. But all apply to Dylan Smith, CFO of Box, a file-sharing and cloud-based storage service that he co-founded with high school friend Aaron Levie.

Without an accounting background, Smith has not taken a typical CFO career path. But an economics degree from Duke University, a natural flair for maths and a keen entrepreneurial spirit have arguably been just as important as an accounting qualification in building Box from a dorm room project to a multi-national business with an estimated value of $1.5bn (£930m), 20 million users and 97% of the Fortune 500 as customers.

Begun as a project in one of Levie’s college classes in 2004 – Smith came on board in the winter of that year – Box started life as a simple online file storage service for consumers and businesses, before later evolving into a collaborative service where businesses can communicate about document updates, add third-party integrations with applications such as Google apps, NetSuite and Salesforce, and sync files remotely. But this was still some way in the future when the pair began the project, working out of Smith’s parents’ attic before upgrading to a small garage in Silicon Valley in early 2006.

Since its launch, the business has raised more than $300m in venture capital, and Mark Cuban, the US businessman and owner of the NBA’s Dallas Mavericks, was the first angel investor to come on board with a cheque for $350,000. However, Smith stumped up an initial $20,000 in seed money himself paid by winnings from playing online poker.

“The World Series of Poker was becoming popular and there were a lot of really bad poker players out there. The misperception was that I was really good, but I just ground it out. It was a good way to make money for Box,” Smith tells Financial Director.

Smith says that first round of investment from Cuban “came out of the blue”. Since then, the business has been very strategic in picking its financial backers. “We had to focus on getting the right partners and that meant raising capital at a lower valuation to make sure we got the right people who were philosophically aligned,” Smith explains. “We did a lot of due diligence. A lot of entrepreneurs don’t do that enough.”

Takeover rebuff
Investors on board, the company began to scale rapidly and soon started taking on tech giants IBM, Oracle and Microsoft for a slice of the $30bn market. The company’s “hockey-stick” revenue growth attracted the interest of its rivals, with Box reportedly rebuffing a $600m takeover bid from Citrix Systems in 2011.

Such a deal would have delivered a lucrative return to Smith, Levie and the company’s early investors, but Smith is adamant that Box is right to remain fiercely independent. “We are focused on running a very large independent company,” Smith says. “The nature of our platform means it makes more sense as an independent company. Cloud is such a massive market and we are just a small part of that. To sell would give away that upside for growth.”

That decision didn’t dampen investor support. A month later, Box bagged $81m in new funding, with a further $125m added to its coffers in mid-2012 from General Atlantic and some of its original investors.

Smith says the company is using its war chest to “ramp up its international expansion” with France, Germany and Japan all being considered, while making acquisitions that support Box’s “core user experience” such as picking up Crocadoc earlier this year. The HTML5 document rendering and viewing solution will be integrated into the Box experience and become a core standalone platform offering.

Remaining independent also set a clear goal for the business to eventually become a public company. According to Smith, its “next big capital raise” will likely be its IPO, which is earmarked for some time next year. Indeed, the company has “started to build that relationship with investors for a potential IPO” by holding mock earnings calls to prepare for life as a listed business. “We could use capital [from the IPO] for M&A, global expansion, data centre expansion or making our infrastructure better,” Smith explains.

Adverse conditions
Running the finance function of one of the fastest-growing enterprise start-ups in the technology space naturally throws up some unique challenges for Smith. For one, like many start-ups, Box has yet to turn a profit. Revenues are set to top $100m this year, but profit is still up to five years away.

So far, the business has been investing heavily to carve out market share and achieve a leadership position in the market, and has the investment and growth to support that. Nevertheless, Smith recognises that the business needs to be insulated from adverse market conditions.

“We make it one of the ways in which we invest that we have the principle where we have enough cash in the bank – at any given point – that we have got the cashflow to break even without raising capital if we pull back on growth,” Smith says. “It’s very important that we control our own destiny and we make sure we have a balance sheet to do that.”

Another unique challenge has been the rapid increase in staff, which now stands at about 700. But Smith explains the key was in making sure they built the right leadership team to “scale effectively”. That saw the business hiring the likes of former Intuit veteran Dan Levin as chief operating officer, who was also highly influential in shaping Smith’s own style of management.

“When you are growing so quickly, there is a tendency for a lot of companies to throw bodies at the problem. We have been good at holding the bar on quality and raising it as we grow,” Smith says. “Great companies have been reduced by hiring executives that don’t work out.”

Interestingly, Smith has not been challenged on the accounting side of the business. Part of Box’s success has been due to the unique relationship and complimentary skillsets of the two founders and respective CEO and CFO. Levie focuses on product, design and technology while Smith deals with the business model.

However, that does not extend to running the back-office functions. Here, Smith explains, it was important to build an accounting team that was “rock solid”.

“My strength is the investor relations side, financial planning and understanding our model,” he explains. “On the accounting and systems side – and the nuts and bolts operation – it’s not really my strength.”

Yet in many ways, Smith’s entrepreneurial acumen has been as important to Box’s success as his financial nous. Being a dab hand at poker also proved helpful, but as the business is now going from strength to strength and a public listing on the horizon, Smith has no plans to return to the tables.

“I haven’t played in seven years. I had a good run,” Smith says.

Tech match
As chief financial officer and co-founder of file sharing and online storage service Box, Dylan Smith took a remarkably hands-on approach to marketing his and Aaron Levie’s business. In 2010, he appeared on Bravo reality TV show Millionaire Matchmaker.

The show, now in its seventh season, follows Patti Stanger, owner of the Beverly Hills-based “Millionaire’s Club” dating service, as she helps single wealthy people look for love.

Somewhat unfairly described on the show’s website as a “nerdy and very young entrepreneur”, Smith was supposedly “looking to fulfil his five-year plan of finding a relationship that will lead to marriage”.

However, Smith saw the opportunity in a more calculated fashion. “I met our sales team, who thought it was a smart thing to do. It is not a traditional way to market the company,” he says.

In any case, host Stanger appeared to see through Smith’s ploy. As the show’s site points out: “Patti questions if this … techy is really ready for love.”