BOSTON Nov 20 A group of U.S. mutual funds led
by Fidelity Investments holds a combined stake of nearly $250
million in Dropbox Inc, positioning them for a big payoff if the
fast-growing cloud storage company can pull off a stock market
debut like that of Twitter Inc.
Two funds run by Fidelity portfolio manager Will Danoff -
Contrafund and Fidelity Advisor New Insights
- own stakes in Dropbox valued at $83.1 million, according to
Morningstar Inc data.
Danoff is considered one of the best stock pickers in the
mutual fund industry, with the $106 billion Contrafund beating
94 percent of its large-cap growth peers over a 10-year period.
Other large mutual fund investments in Dropbox include $47.4
million from the Morgan Stanley Institutional Mid-Cap Growth
Fund and $38.2 million from T. Rowe Price Mid-Cap
Growth Fund, according to Morningstar.
Fidelity and T. Rowe Price declined to comment.
Morgan Stanley was not available to comment.
Investments by portfolio managers such as Danoff in
early-stage companies can give them (the companies) an added
measure of legitimacy in their run up to an initial public
offering, said Kathleen Smith, a principal at Renaissance
Capital, an IPO investment firm.
"There is some credibility associated with those
investments," Smith said. "Mutual funds are fiduciaries and
they're seen as the smart money."
Dropbox, an online file-sharing and storage startup based in
San Francisco, is trying to raise $250 million in additional
funding in coming weeks, according to media reports. That would
give the six-year-old company, which was founded by two MIT
graduates, a valuation of more than $8 billion.
While mutual funds put the vast majority of investors' money
into shares of publicly traded companies, their bets on
promising companies before they hit the stock market recently
have yielded some exponential gains.
T. Rowe Price's $14 billion New Horizons Fund, for
example, invested $12.3 million in Twitter, some of it more than
four years before the company's initial public offering earlier
this month. That small investment is now worth $177 million, or
14 times more than the acquisition cost, as Twitter traded
Wednesday at around $41 a share.
To be sure, striking gold is not a given when betting on
early-stage companies, which are untested in the rough and
tumble world of public stock markets.
Mark Sunderhuse, a founder of Red Rocks Capital and a former
portfolio manager at what is now Janus Capital, said not all
mutual funds are set up to find promising young companies in
their early stages.
"They're not all set up to do the due diligence that venture
capital and private equity firms do," Sunderhuse said. "The
internal expertise generally is not there."
But at Fidelity, for example, there has been a concerted
effort in recent years for analysts to build relationships with
the management of early-stage companies, top Fidelity executives
A Dropbox IPO could happen early next year, according to
investors familiar with internal discussions. They requested
anonymity because they weren't authorized to talk about the
Smith said there will be further scrutiny of Dropbox as
there are indications the IPO market for tech stocks is showing
more discipline. She said some IPOs have been delayed while
others have priced lower than what was expected.
"Investors want to see the companies fill in the earnings
that come with some of these big valuations," Smith said.