Does Box really need $284m in VC cash?

Look to Red Hat's model – it's better to make money than raise it

Open ... and Shut Once upon a time Joe Kraus dreamed that future start-ups would be 30 times cheaper to build. Clearly he hadn't talked to Aaron Levie, chief executive of enterprise collaboration company Box, which just raised $125m on a reported $1.2bn valuation. Box is playing a high-stakes poker game which will end in complete victory. Or dismal failure.

Levie, of course, is betting big on success. For the energetic Levie, the $284m he has raised for Box so far is the ante to get in on the biggest shift in enterprise computing history:

We're witnessing the most significant enterprise IT shift in history, which is why Box raised $125m: bit.ly/QV9ftS

— Aaron Levie (@levie) July 31, 2012

He may be right, but those are mighty expensive table stakes. Is it necessary to spend so much to win in the enterprise?

Maybe. Maybe not. After all, one of the most successful new enterprise players over the past 20 years is Red Hat, which raised hardly any venture capital at all. Of course, the company didn't need much since it managed to raise a boatload of cash on the public markets with a dot-com era IPO that helped it live through some lean years as it searched for a business model that would work.

But other big enterprise upstarts like VMware have also raised far less than Box's $284m, and still managed to break into the enterprise in a big way.

Even LinkedIn, which isn't an enterprise software company but does bring an enterprise flavor to social networking, raised far less than its consumer tech peers, and today is a much better stock pick than Zynga, Facebook, Pandora or any of its other free-spending web peers. Boring old LinkedIn just chugs away, making money rather than raising it.

So is Box wrong to raise so much?

I'm not sure it's a question of "wrong" so much as one of prudence. Let's face it: Box isn't going to beat Microsoft based on cash in the bank. Microsoft prints more profits in a week than Box raised in this round. Money is not going to buy Box success. Period.

What has been earning Box a lot of respect (and customers) in the enterprise is its ease of use. This is why I'm a bit troubled by Box's announcement that it raised so much money, in part, to "invest in consultants for big corporate clients." Its message of simplicity goes out the window if "simplicity" means "expensive consultants to make it work."

For Box to win in the enterprise against entrenched giants like Microsoft's Sharepoint, the company must deliver on Levie's pitch that Box is much more innovative than its peers. "If you compare Box to something like IBM Filenet, or Microsoft SharePoint, you get almost a 10x improvement on productivity, speed, time to market for new products." If he's right, he doesn't need $284m to convince enterprises. He just needs a friction-less way to get software into the enterprise.

Back in the 2000s, Red Hat did this with open source. Box is doing it with Software as a Service (SaaS). While no one can begrudge Levie for raising as much money as he can at a great, non-dilutive valuation, the hope is that money won't become a substitute for truly improving the enterprise content collaboration experience for users. Because unless he delivers on that, no amount of money will forklift IBM, Microsoft or anybody else out of their incumbent positions. ®

Matt Asay is senior vice president of business development at Nodeable, offering systems management for managing and analysing cloud-based data. He was formerly SVP of biz dev at HTML5 start-up Strobe and chief operating officer of Ubuntu commercial operation Canonical. With more than a decade spent in open source, Asay served as Alfresco's general manager for the Americas and vice president of business development, and he helped put Novell on its open source track. Asay is an emeritus board member of the Open Source Initiative (OSI). His column, Open...and Shut, appears three times a week on The Register.