A recent surge of initial public offerings of stock by a variety of technology companies has raised hopes that the iconic symbol of Silicon Valley wealth creation is finally on the comeback after years of fitful activity.

Aaron Levie, chief executive of cloud content management company Box Inc., thinks those hopes are justified, thanks to a healthy if volatile stock market and a raft of “unicorns,” or companies with a billion-dollar private valuation, finally showing signs that they have sustainable businesses. “It’s very clear that we’re now on the real wave of IPOs,” Levie said in an interview last week at Box’s headquarters in Redwood City, California.

Indeed, several major companies have either already filed their paperwork or are rumored to be filing it soon. Cloud storage company Dropbox Inc., seen as a competitor to Box but more aimed toward the consumer market, went public in late March, the same day that Pivotal Software Inc. filed the paperwork for its own IPO. DocuSign Inc. joined in less than a week later, followed in quick succession by tech education startup Pluralsight LLC filed as well.

In a conversation April 3, the day Spotify Technologies SA’s first shares sold to the public, Levie talked with SiliconANGLE about the current wave of IPOs, what’s likely to change for those companies after the big day, how Box is navigating life as an often misunderstood public company amid intense competition with everyone from Google LLC to Apple Inc., and why the big tech platforms under fire today will face more regulation whether they like it or not.

The IPO boomlet

What did you think of the Spotify offering, which involved offering only existing shares with using Wall Street banks?

It’s a very different model. Because it’s such a one-off, it’s hard to know if a pattern will emerge. But it would be pretty cool if we saw it again and that became more of the structure.

Do you think that’s a better structure for an IPO?

I don’t know. I think it is a better way to finding what the price of the stock should be. There’s a lot of inefficiency in today’s process of going public. Google attempted one innovation with their approach in the mid-2000s and I think people went back and said let’s just do it the regular way. Let’s wait maybe a week or two to see how Spotify continues to trade. But it would be a really interesting new route and a new approach for going public.

Whether it’s Zscaler or Spotify or Dropbox, it’s very clear that we’re now in the real wave of IPOs.

Is it that certain? It has been a long time coming, with lots of stops and starts.

We thought that it was going to happen maybe two or three years ago. We obviously went public and a couple peers went public, it was a bit more quiet than people had expected. The unicorn class is now at a stage of maturity where you have dozens of companies are at a scale where they can make sense as public companies. So as long as the market continues to hold up, I do think we’re in for a pretty strong burst of IPOs for at least the next year.

What else is driving this?

In general, the bigger you get, the more operationally savvy you get, the more you will be successful as a public company. You get better at your operations, your culture gets more refined, your strategy is more refined, you have a larger base of customers. The more of that you can do, the more likely you’re going to be a viable public company. The public market continues to be a very strong environment right now.

But it’s pretty volatile right now.

Very volatile, but within the range of 5 or 10 percent. We’re in a very bull market right now. There’s almost no question about that.

The meme in the Valley is also changing. If you go back five years ago, the meme was, “Stay private as long as you can.” While that’s true in a particular phase of your evolution, it’s not necessarily universally true throughout the life of the company.

The meme is now changing to people now see that being a public company can lead you to being much better at your operations, employees want liquidity, the transparency ends up improving the way you’re driving your culture, the way you’re running your business. So there’s a lot of benefits to being public and I think those benefits are becoming more clear to the next wave of entrepreneurs. This is just the next stage in the lifecycle of your company.

Is this true for most companies, or for enterprise tech companies in particular?

It’s especially important in the enterprise because your customers want to know that you actually have a viable, sustainable, healthy business. The more they have access to your financials, the better they’ll be able to understand that.

Also, the business model of enterprise software today, with recurring revenue and software as a service, is very conducive to being public because you get a lot more predictability in financial results and investors can model your business over a longer period of time. You don’t have a lot of the near-term volatility that you experience as a consumer technology company or even a perpetual-license software company. So enterprise in particular is very attractive to public investors, which then correlates to healthy valuations and more stability in the market.

What’s the upshot of this resumption of IPOs? They’ve always been seen as the engine of wealth creation that then feeds the flywheel of new startups, but we’ve had no lack of startups even without many IPOs in recent years.

At some point liquidity is necessary for that model to work, or else limited partners will not continue to fund venture capitalists. That liquidity, though, has been coming from mergers and acquisitions. It’s been a pretty active M&A market. If you were in Sequoia’s fund that had WhatsApp [acquired in 2014 by Facebook for $19 billion], that was a great return and that wasn’t an IPO. So there have been more ways to create liquidity.

But now, this just multiplies the ways that investors will get paid back and that will cause more investment to come into the system, which will cause more startups to get created. So IPOs and generally liquidity are vital to a thriving Silicon Valley ecosystem. This is just going to be a multiplier.

Box had a stop-and-start IPO but ultimately had a successful offering. What did you learn in that process?

A lot that stop-and-start was self-inflicted. We were burning a lot of cash and the market at the point we decided to go public was fine with that financial profile, and then it very quickly turned against us. In the new crop of IPOs, you see very strong business models, very strong cash flow generation or paths to get there. The year that we took to ultimately go public was really about making sure we could tell the right kind of capital story and have a financial profile that worked better for the public market.

The lesson is obviously to make sure you have strong financials, make sure you’re communicating as effectively and consistently as possible with investors. You go from being private for nine or 10 years and you have a very small investor base that deeply understands your story and your long-term vision to instantly you’re having to convince hundreds of investors and ultimately communicate with tens of thousands of investors to buy your stock. That really changes the dynamic of how you’re communicating your strategy.

Out of the box

How did you change how Box communicated with all those new investors?

In our space in particular, we’re not exactly what the industry thinks we are. Do a survey on the keywords that get talked about when you look at Box, like on CNBC or a financial analyst, it’s file sharing, file storage, collaboration software. All of those things are true, but those are features of what we do. What we’re really building is a cloud content management platform.

So the opportunity we’re pursuing is: What if enterprises had a single source of truth for their unstructured business information and you could secure it and manage it and drive the workflow on it in one platform? Sharing files is one way that manifests to the user, but the core value proposition is this platform for managing a company’s information.

So we had a more difficult struggle in that process because we were perceived to be one thing when we were really building something that was much more differentiated and much more strategic than was initially perceived. Fortunately, over time, the market largely figured that out, but it still is a complicated battle to make sure everybody understands that message and the opportunity we’re going after.

You had this basic idea going way back, though.

Yeah, we started the company about 13 years ago, and about two years in, we pivoted. The pivot is talked about as from consumer to the enterprise, but the implication of moving to the enterprise was that we were no longer just going to be a file sharing or file collaboration company. We had to build a platform for delivering what content management looks like in the digital age?

That was the start of a very different technical journey for us: What is it that the Documentums and the SharePoints and the OpenTexts and the NetApps and the EMCs do, and what is a better way of doing that in cloud to dramatically simplify the architecture for customers?

How do all these products, including many new ones in the past couple of years, come together into a platform, which is something just about every company claims to have?

We mean it. We mean two things. The first is that we think about Box as a platform in the sense that you put a large portion of your content into the system and we have a bunch of capabilities built on top of our platform that enhance how you secure and manage and govern all that information, such as Box Governance, Skills, Keysafe and so on. Then we have an open set of APIs that customers are building on top of. That’s ultimately how the market perceives a platform, being able to power how everything from how you work with your content inside Office 365 or Slack or Facebook Workplace or being able to embed content management into the applications that a customer is building.

So if you’re a large bank or hospital or insurance company and you have a lot of unstructured information that you use in your business, how can we be the back-end system for managing how you work with that content? So in an insurance claims process, you have a lot of documents, you have a lot of media files that have to be generated or captured in the field and you want all those to go into a single experience. We have a lot of customers that build custom applications using our APIs where we’re the back-end content management system but they’re building the front-end experience. In that case, we really are a platform.

How far along are you in that vision?

We’re there for a small set of our customers, and that’s our big opportunity. Last year, we did a little over $500 million in revenue, which from a startup perspective is awesome but we’re going after a $40 billion to $50 billion market. So from the top down, we’re still very, very early in the evolution of this space. Maybe we’ve captured a little more than 1 percent of the total addressable market. Think about how much more opportunity there is as you have companies in retail, finance, insurance, healthcare and life sciences all start to reimagine both the way that they’re going to work and their underlying business processes in the 21st century.

The future of software

You’ve talked about how the nature of software is changing. In what way, and how are developments such as machine learning affecting your business?

We see two parts of our business. One is employees coming into work every day and wanting to be more productive, want to share and collaborate. Generally that’s the future of work. The other half of our business is, “How do I build my underlying business processes for the digital age?” That’s my customer experience, that’s automating underlying business workflows and so on.

We think AI and machine learning impact both of them. Two examples: In the workplace, if you think about how we’re going to work in the future, just imagine how much time we spend as individuals either searching for information, trying to find things that somebody else created that we need to go work on, looking up the last data from our business performance a couple quarters ago, trying to find a customer record, trying to correlate multiple data sets and product some kind of answer about something. All of that work that is really just us interacting with computers to try to find information and do something with it. We think machine learning is the only real way to do that at scale.

What kind of specific benefits do you see from that?

What if we could give people one or two or five hours back in their day by making the software more intelligent and making the software do more work on behalf of us as opposed to the other way around? So I can take less time asking, “Hey, did anybody edit this slide?” and instead I know instantly that somebody just edited it a minute ago. Or I go into a meeting and it surfaces content that’s relevant to that meeting.

On the other side, which is how you change some of the customer experiences of the business, this is really about how do we take large, repetitive tasks and begin to use automation to improve the experience. If I’m an insurance company and I have people in the field who generate a million images of various claims, how do I automate the tagging and classification of the information, detecting objects inside the data so it becomes searchable? That’s where we see AI coming in, to help streamline at-scale business processes.

How do you pitch this broad vision of software when the reality is that many companies or departments still buy discrete products such as Slack for some specific purposes they need right now?

This is one of the most exciting areas for us right now. In software, there’s always this battle between best-of-breed and vertical integration or suites. You saw it mainframes, minicomputers, PCs, pre-internet, client-server and now you’re seeing it in cloud. We’re always going back and forth.

We fundamentally believe the cloud is the first time when you can actually have best-of-breed really work for the customer. You have web services and open APIs, you have way more modern user experiences that can be more easily created and you have way more of an appreciation of the interoperability … built on open-source technologies, built on this idea that the internet should be open and available to everybody. So when you look at the ethos of Slack or Facebook Workplace or Okta or Box or ServiceNow, you’re seeing a very different ethos and mindset compared with the ‘90s of Oracle and SAP and more traditional vertically integrated companies.

How will this new mindset affect the way customers deploy information technologies?

That is going to bear out in the IT stacks of customers. You start to see this modern architecture that is really going to be 10 or 15 or 20 different companies that come together and seamlessly interoperate with one another. We’re not there yet. We have a lot more work to do as an industry to better align the work we’re going on behalf of customers. But you can imagine a seamless integration so a customer can hop between Box for their content and Slack for their communication channel and Facebook for publishing internally and Office 365 to edit a document and then ServiceNow to kick off a business process.

They’re going to get the best version of each of those application areas as opposed to buying a traditional enterprise license from one vendor that has inferior technology in every one of those categories but they sold it all to you as one integrated stack. Actually what that really was was a collection of five acquisitions over the years where the engineering never really came together but on paper, at least, you could buy it all together.

Customers are really tired of that model. They want to have one set of best-of-breed solutions they can run on that are constantly innovating, constantly competing with one another but also integrating with one another to deliver a consistent experience.

No more Wild West

On the other hand, platforms are intended in part to make companies more of a central hub for many applications and services. Some people complain about getting locked into cloud companies such as Amazon Web Services that offer a huge and growing range of services themselves.

Amazon’s lock-in is interesting. They are not doing anything to intentionally lock you in. They just happen to be building proprietary services that are just finely tuned to the Amazon Web Services model. Maybe you can’t instantly move to something else because that other thing doesn’t exist [elsewhere]. I see Amazon as the enlightened form of computing, which is they live or die by how competitive each of their technologies is. That lock-in is only created by the customer because we happen to like Amazon so much that, well, the more compute and data I put into Amazon, the more likely I am to put more compute and data into them.

The kind of lock-in we need to move away from is where the terms of service of your APIs prevent you from moving data or prevent you from building on an application.

You tweeted recently, in the wake of criticism of rogue data use on Facebook and other services, that tech companies can’t be just platforms and pipes anymore. What did you mean by that and what does it mean for the industry?

Partly because of how the industry grew up, making routers and networking equipment and servers, we’ve seen ourselves as just utilities or pipes. We build our thing, that’s how people use it. What we’re finding out is that the way people are using these services and particularly multiplied by the fact that we’re using machine learning and AI to fundamentally change editorial and other decisions — what should the self-driving car do in these circumstances? — you can’t say we are dumb pipes if we are programming ultimately the outcomes of somebody’s life, or the news that we’re going to see, and the reality we end up experiencing because of that.

So I think we’re at a stage where we cannot claim that we’re just these dumb pipes. We also have such a significant impact on how the world works, on transportation and life sciences and healthcare and voting. The regulatory environment is not prepared for that environment — both our companies but also Washington — because we don’t really know how we should regulate malware that can change and adapt over time. How would you regulate the Facebook news feed? What objectivity would you require? How do you make sure that it can’t be exploited by a bad actor in the system?

These are things that I don’t think anybody knows the answer to. But you can see them coming. You can’t imagine a world five or 10 years from now where it’s as unregulated and Wild West as it is today. That’s the recognition that we as an industry have to have if we want to be able to innovate and actually impact the world in the way that we think is possible.

Photo: screenshot from YouTube