No more free shuttle bus in San Francisco to drive workers to and from Dropbox’s China Basin headquarters, no more free after-workout clothes washing service, no more unlimited guests at free company dinners.
Welcome to Silicon Valley’s new normal, where venture capital funding is more limited and previously free-spending startups — even those valued at more than $10 billion like Dropbox — pay attention to the bottom line.
“This is not just about Dropbox; it’s a reflection of what’s been going on in the Valley,” an industry source told Business Insider, according to the San Francisco Chronicle newspaper.
“We were overfunded; everyone was treating us like we’re recession proof,” the source said.
The incredibly good times couldn’t last forever, and emerging companies are being forced to be careful about burning through their startup cash.
“The public market has shifted their mentality considerably around companies being cash-flow breakeven,” said Matt Murphy of Menlo Ventures.
“When you get to a certain stage, you’re optimizing for things that public markets care about, which is earnings per share and how quickly you’ll get to cash flow positive,” Murphy said.
That appears to be because investors are becoming more conservative and quicker to lose patience with startups that fail to generate returns as the venture capital environment slows down, Business Insider said.
Research firm CB Insights said recently that it expects more “down rounds,” in which companies raise less money than in previous rounds, this year than in 2015.
First Round Capital said last year that its survey of tech company founders found 95 percent of them thought funding would be the same or harder to come by in 2016.
Warnings of an impending downtown also have come from Benchmark Capital’s Bill Gurley and Union Square Ventures’ Fred Wilson, who have appealed to startups to begin cutting back on extravagant spending.
“Because of the recent changes in the financing environment, I would guess that most startups are carefully rethinking their spending and becoming more conservative with cash management,” David Skok of Matrix Partners told Business Insider.
“Over the long haul, that’s likely to be a very good thing, and is when the great entrepreneurs will shine,” he said.
Spending cuts also have impacted unicorn startups Evernote, Jawbone, Tango and Prosper, the newspaper said.
The changes at Dropbox are expected to register an almost immediate uptick to the company’s bottom line, assuming a company email in March was accurate when it said employee perks exceeded $25,000 per employee per year.
With 1,500 employees, Dropbox spends $38 million on perks, the newspaper said.
But Dropbox might have other ambitions that go far beyond animal-themed furniture.
Given that Houston has repeatedly said his company may not have to raise capital in the private market anymore, Dropbox could be preparing for an initial public offering, the newspaper said.
