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Dropbox scores $250 million in venture funding

The online storage site has raised $250 million in Series B funding, which it plans to use to build the business, beef up its internal team, acquire other companies, and establish new partnerships.

Screenshot by CNET

Online storage site Dropbox already knows how it's going to spend the $250 million that it just received in funding.

Bringing in the extra cash through Series B financing, the company said it plans to rapidly build up its operations, increase internal staffing, make some acquisitions, and look for new business partners.

Offering people a way to store, sync, and share videos, music, and other files online, the site counts more than 45 million users among its customers, collectively saving around 1 billion files every three days.

The $257.2 million in financing was orchestrated by Index Ventures and includes investments from Benchmark Capital, Goldman Sachs, Greylock Partners, Institutional Venture Partners, RIT Capital Partners, and Valiant Capital Partners. Prior investors Sequoia Capital, Accel Partners, and Hadi and Ali Partovi also kicked in some funds.

"Our goal has always been to build a service that hundreds of millions of people would love and trust," Drew Houston, co-founder and CEO of Dropbox, said in a statement. "We're inspired by the consumers and businesses who depend on Dropbox, and we will continue to make sure that the world's devices, services, and apps work together seamlessly. We're thrilled to have such world-class investors joining forces with us."

Beyond giving customers online storage via their PCs and Macs, Dropbox offers mobile apps for iOS, Android, and BlackBerry devices. Targeting businesses as well as individuals, the company provides 2 gigabytes of storage for free, a 50GB plan for $9.99 a month, and a 100GB plan for $19.99 a month.

Dropbox has been dubbed "tech's hottest startup" by Forbes, which is offering an inside look at the company in its latest issue.

The online storage site has shot up the charts recently, tripling its user population from a year ago and looking to bring in sales of $240 million this year, even though 96 percent of its customers opt for the free service. Houston also said the company is turning a profit, though he won't reveal the numbers, and told Forbes that sales will still double next year even if no new customers climb aboard.

However, the company's service is hardly unique as online storage has become commonplace. Other players abound, including SugarSync,, Bitcasa, CX, and a company called Apple. In a story related by Forbes, Houston recalled how he had met with Steve Jobs in December 2009 to demo his product for the late Apple leader. But in a turnabout, Jobs told Houston that Dropbox was a feature, not a product, and that he was going after their market. Less than two years later, Apple unveiled iCloud.

Houston himself is more than aware of the competitiveness of his market, ticking off a list of rivals.

"Apple, Google, Microsoft, Amazon in a way, then there's IDrive, YouSendIt,, dozens of startups, even e-mail...people sending themselves everything," Houston told Forbes. But among them all, iCloud and Google's rumored Drive are the two services he fears the most, anticipating a huge built-in customer base for both.

In June, Dropbox also ran into one of the potential pitfalls of storing data in the cloud--a security breach. A programming error allowed any password to access any account for several hours, prompting Houston to personally e-mail the affected users to express his apologies.

To shore up his resources, Houston has cut a deal with mobile-phone maker HTC to make Dropbox the default online storage option on all its Android phones. Similar arrangements with six other phone makers are almost complete. Next on the list are PC and TV manufacturers. Houston also has an team in place trying to gear his service more for the business world, while 200 developers are busy making apps for Dropbox.

But ultimately, will we even need software to sync content between local devices and the cloud? CNET's Rafe Needleman sees the concept as "anachronistic," forecasting that down the road we won't use special software to create and store local files and will rely more on strictly cloud-based apps such as Google Docs and Microsoft's Office 365.

In the meantime, though, Dropbox will certainly be busy spending its new $250 million trying to ensure that it remains a major player in an increasingly crowded and competitive market.