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Dropbox, an online storage firm, has filed to go public. According to disclosures in its S-1 form, it had revenue of $1.1 billion last year and lost $111 million. The initial public offering is another example of the hunger for fast-growing tech companies that carry heft valuations, even if they are losing hundreds of millions of dollars. Even as Dropbox has grown, its losses have been substantial.

Another challenge from Dropbox is that its revenue growth has slowed, an issue that has been a problem for tech IPO companies once they come public at higher valuations. According to the filing:

Our revenue was $603.8 million, $844.8 million, and $1,106.8 million in 2015, 2016, and 2017, respectively, representing an annual growth rate of 40% and 31%, respectively. We generated net losses of $325.9 million, $210.2 million, and $111.7 million in 2015, 2016, and 2017, respectively. We also generated positive free cash flow of $137.4 million and $305.0 million in 2016 and 2017, respectively, compared to negative free cash flow of $63.9 million in 2015.

Dropbox has a small number of paid customers, another challenge to its revenue growth. The paid subscriber number in the filing is just over 11 million. The document also says a major hurdle Dropbox has is its attempts to move free users of the service to paid ones. Dropbox has 500 million registered users, which means the conversion rate to paid has been extremely low. And the paid user base has grown very little. It was 6.5 million in 2015 and 8.8 million in 2016.

Another threat to shareholders is that, like many other recent tech IPOs, including Facebook, founders and management will have voting share rights that effectively will allow them to completely control the company. This was disclosed in the S-1:

Our Class A common stock, which is the stock we are offering in this offering, has one vote per share, our Class B common stock has ten votes per share, and our Class C common stock has no voting rights, except as otherwise required by law. Following this offering, our directors, executive officers and holders of more than 5% of our common stock, and their respective affiliates, will hold in the aggregate % of the voting power of our capital stock (including the Co-Founder Grants). We are including the Co-Founder Grants in this calculation since our co-founders are able to vote these shares immediately upon grant and prior to their vesting. Because of the ten-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively will continue to control a majority of the combined voting power of our common stock and therefore be able to control all matters submitted to our stockholders for approval. This concentrated control will limit or preclude your ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our stockholders.

Among other things, this means management will be impossible to replace, unless it is at their election.

If Dropbox cannot get more paid users quickly, Wall Street may decide its losses cannot be converted to profits.

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