Dropbox IPO oversubscribed: sources

(Reuters) - Cloud storage company Dropbox Inc's initial public offering was oversubscribed, two people familiar with the matter said on Monday, indicating healthy demand for the first big tech IPO this year even as tech stocks opened the week on sour note.

While investor appetite looked encouraging with three days to go before final pricing, it was not clear if that would be strong enough to lift the deal above of the initial range of $16 to $18 a share that Dropbox set last week. The offering is expected to price Thursday, and the stock will start trading on the Nasdaq on Friday.

"It is early to predict the pricing. But what I can say is that from the conversations it seems the market is interested in it and IPO seems to be bright," a separate source told Reuters. The three sources asked not to be named as the IPO pricing process was still underway.

Dropbox's IPO comes in what is sizing up to be a challenging week for stocks, with the U.S. Federal Reserve set to raise interest rates on Wednesday, a day before the Dropbox deal is set to close.

Tech shares also fell hard to open the week, with Nasdaq down more than 2 percent on reports of Facebook Inc's latest data privacy problems.

Dropbox's IPO also comes on the heels of an upsized deal last week from cyber security firm Zscaler Inc and is being watched as a barometer of investor enthusiasm for tech unicorns - young companies valued at more than $1 billion - after Snapchat owner Snap Inc's shares cratered following a much-touted IPO a year ago.

Dropbox and existing stockholders are selling 36 million shares, and the offering could be increased by 5.4 million if underwriters exercise their right to buy more stock. At the high end of the indicated pricing, it could raise nearly $650 million, making it the largest tech IPO since Snap hit the market just over a year ago.

"The book is oversubscribed, with very good quality," one of the sources said.

The current price range suggests the San Francisco company, co-founded in 2007 by Andrew Houston and Arash Ferdowsi, will hit the public market valued at roughly $7 billion, a hefty discount to the $10 billion implied by its last funding round in 2014.

Houston is the largest shareholder and will retain 24 percent of Dropbox after selling 2.3 million shares in the offering. Sequoia Capital is the largest shareholder among outside investors, with about a 25 percent stake.

The company has 500 million users and competes with Alphabet Inc's Google, Microsoft Corp , Amazon.com Inc and has Box Inc as its main rival.

(Reporting by Sweta Singh, Nikhil Subba and Diptendu Lahiri in Bengaluru, Editing by Dan Burns and Saumyadeb Chakrabarty)