Banks are tripping over themselves to lend money to Box, the cloud computing start-up, in a race to get a slot on one of the next big Silicon Valley flotations

Last updated: June 12, 2013 6:21 pm

Banks prepare credit to gain edge on Box IPO

By Arash Massoudi in New York and Richard Waters in San Francisco

Banks are tripping over themselves to lend money to Box, the cloud computing start-up, in a race to get a slot on one of the next big Silicon Valley flotations.

At least five banks are in talks to give a credit line to Box, underscoring the lengths they are willing to go to to develop potentially lucrative ties with the next batch of high-profile technology companies expected to come to market.The loan is expected to be secured against Box’s assets, people familiar with its plans said. Credit Suisse and Morgan Stanley are expected to be among the banks involved, they added. Other banks involved in talks include JPMorgan Chase, BMO Capital Markets and Macquarie, other people familiar with the matter said.

Box provides cloud-based file-sharing services to businesses, and will use the funds to rapidly expand its business, those people said.

Dylan Smith, Box co-founder and chief financial officer, said the company is “very well capitalised, and as a course of business we regularly explore financing options to ensure that we’re always in a position to invest aggressively in our future growth, including possible acquisitions”.

Box, which is currently experiencing very high revenue growth of more than 100 per cent from a year ago, eats up far more cash than consumer cloud storage company DropBox, according to a person familiar with its finances. Like other internet companies that sell to businesses, it relies on a large sales and marketing effort, requiring a lot of upfront cash to fund its rapid expansion.

One of these people said that banks that end up working with Box ahead of its initial public offering may be not brought in to work with DropBox, a rival that focuses on file-sharing services for consumers.

The company said that it does not currently have a credit facility in place and does not comment on future plans for capital structure. Box does not disclose its financial information. Credit Suisse, Morgan Stanley, Macquarie, JPMorgan and BMO declined to comment.

Silicon Valley entrepreneurs once had little choice but to sell equity in their start-ups to investors to raise funds to grow their businesses, but in recent years the more successful technology companies have been able also to raise debt.

Bankers, meanwhile, have jostled for the opportunity to get in early with these companies with the hope of a securing a lucrative role underwriting an initial public offering as well as secondary share placements.

For Box, the move comes after a fifth round of private fundraising led by General Atlantic brought in $150m in January. The private equity group declined to comment. Aaron Levie, Box’s chief executive, has publicly said the company is looking to float sometime next year.

Tapping banks for money shortly before an IPO echoes moves made by other fast-growing internet companies recently. Facebook and Zynga both arranged credit facilities shortly before they went public, while DropBox has also used debt to supplement its capital.

The credit facility represents an evolution in the way Wall Street views Silicon Valley, as banks have not traditionally opened credit lines to newly established, privately-held companies.

Large banks tend to avoid lending to start-ups, which, unlike traditional corporate borrowers, lack a long financial record, therefore forcing the banks to hold more capital in reserve to cover potential loan losses.