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DigitalOcean raises $100M in debt as it scales toward revenue of $300M

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Re: DigitalOcean raises $100M in debt as it scales toward revenue of $300M

#71

Post by baybal2 »

loldigitalocean wrote: post #67
walrus01 wrote: post #66

Earlier quoted context omitted.

I don't disagree with you on your premise that AWS has an entirely different, and much larger size and scale than DO. And has a competitive advantage due to that. But your comment also seems to make the assumption that everybody should be content to let AWS (or Azure, etc, entities with very deep pockets) become a literal monopoly, and everybody should be totally fine with that.

Nope. I didn’t say anything like that at all. You just don’t best AWS by trying to replicate them, since they have enough capital to create four of you several times a year (and do, i.e., Lightsail).

Saying that, they themselves really need to look at Baidu, or Alibaba.

In the approach of "throwing money on the problem until it works" few can beat them. Alibaba's losses were surreal when they tried to get even to the tenth of AWS scale, but they went way further, and now they are profitable.

Re: DigitalOcean raises $100M in debt as it scales toward revenue of $300M

#72

Post by texasbigdata »

danesparza wrote: post #28
gruglife wrote: post #24

Earlier quoted context omitted.

Regarding point #2, many in the finance world (which I work in) consider cash flow positive a better representation of actual profitability than the actual net profit/loss reported on the P&L. In short, cash flow shows if the actual core business is bringing in money or losing money, while the net profit includes a lot of "noise" (probably not the best word to use but can't think of how to phrase this). For example,…

"consider cash flow positive a better representation of actual profitability than the actual net profit/loss reported on the P&L" Wow. What a sad indictment of modern accounting practices that its accepted practice to create 'noise' to prop up a P&L (or avoid paying tax). I suppose you could do this with household expenses, but if you don't look at P&L in a household you would be ignoring things like credit card debt…

It's perhaps not nefarious. A lot of GAAP and the standards came about when manufacturing was a lot more prevalent. Concepts like depreciation make a lot more sense when you mentally place yourself in the 1920s.

Re: DigitalOcean raises $100M in debt as it scales toward revenue of $300M

#74

Post by wu_187 »

loldigitalocean wrote: post #58
djsumdog wrote: post #48

Earlier quoted context omitted.

Did they miss their window? Would this business make more sense during the 2001 dot-com craze? Are startups currently afraid to go with anyone who isn't AWS/GCE/Azure because they understand the cost of moving platforms is high?

No. Compare Linode and DigitalOcean. Linode bootstrapped, took very few financial instruments to aid the journey, had a few missteps along the way, completely reinvented the entire business more than once, and still serves a niche that makes them a successful (and profitable, as in real profitable, not imaginary profitable) company. Their margins are quite good. Slicehost had a solid business when Rackspace bought th…

Linode tried to hide the fact they were compromised multiple times. I don't trust anything they say.

Re: DigitalOcean raises $100M in debt as it scales toward revenue of $300M

#75

Post by JumpCrisscross »

rahimnathwani wrote: post #70
JumpCrisscross wrote: post #51

Earlier quoted context omitted.

> What a sad indictment of modern accounting practices that its accepted practice to create 'noise' to prop up a P&L Income statements include things like depreciation. That's real, in a sense. It's future CAPEX. But for the present health of a business, particularly a levered one, cash is king. One way to think of it is in time frames. Cash flows are immediately relevant. If they're out of whack, it's an urgent prob…

"Income statements include things like depreciation. That's real, in a sense. It's future CAPEX." Depreciation is past capex, not future capex. You could argue that the two are equivalent, because the assets being depreciated will need replacement in the future. But: 1. The assets' useful life may be longer (or shorter) than the depreciation schedule. 2. The future replacements may cost less (or more) or just not be…

> Depreciation is past capex, not future capex

Technically (from an accounting perspective), yes. Practically (from a financial/economic perspective), not quite.

Past capex is a sunk cost. Investors care about future cash flows. If you strip out depreciation, you’ll be surprised by the bill when your machine breaks down. (You may still be surprised. Life is unpredictable and depreciation schedules are an estimate. But that’s one of the problems the concept tries to solve.)

Re: DigitalOcean raises $100M in debt as it scales toward revenue of $300M

#76

Post by toomuchtodo »

Dirlewanger wrote: post #61
djsumdog wrote: post #50

Earlier quoted context omitted.

I wonder if they would have if they didn't have to cut prices to compete with Vultr.

First time I'm hearing of Vultr...they look like a carbon copy of DO. What does Vultr have that they don't?

Commodities have little differentiation between themselves. Compute alone is a commodity.

Re: DigitalOcean raises $100M in debt as it scales toward revenue of $300M

#77

Post by walrus01 »

baybal2 wrote: post #71
loldigitalocean wrote: post #67

Earlier quoted context omitted.

Nope. I didn’t say anything like that at all. You just don’t best AWS by trying to replicate them, since they have enough capital to create four of you several times a year (and do, i.e., Lightsail).

Saying that, they themselves really need to look at Baidu, or Alibaba. In the approach of "throwing money on the problem until it works" few can beat them. Alibaba's losses were surreal when they tried to get even to the tenth of AWS scale, but they went way further, and now they are profitable.

Alibaba and Baidu have a totally other market segment, which is domestic Chinese companies that want and need to be fully compatible with Chinese law for domestic data hosting, retention, government compliance. There is a venn diagram overlap between the markets addressed by the (AWS, Azure, DO, etc) and the Chinese virtual machine providers, but it's nowhere near 100%.

Re: DigitalOcean raises $100M in debt as it scales toward revenue of $300M

#78

Post by baybal2 »

walrus01 wrote: post #77
baybal2 wrote: post #71

Earlier quoted context omitted.

Saying that, they themselves really need to look at Baidu, or Alibaba. In the approach of "throwing money on the problem until it works" few can beat them. Alibaba's losses were surreal when they tried to get even to the tenth of AWS scale, but they went way further, and now they are profitable.

Alibaba and Baidu have a totally other market segment, which is domestic Chinese companies that want and need to be fully compatible with Chinese law for domestic data hosting, retention, government compliance. There is a venn diagram overlap between the markets addressed by the (AWS, Azure, DO, etc) and the Chinese virtual machine providers, but it's nowhere near 100%.

No, they have tons of business outside of China, just take 5 minutes to google that.

People can of course challenge their bookkeeping, but still...

Re: DigitalOcean raises $100M in debt as it scales toward revenue of $300M

#79

Post by drewnick »

Dirlewanger wrote: post #61
djsumdog wrote: post #50

Earlier quoted context omitted.

I wonder if they would have if they didn't have to cut prices to compete with Vultr.

First time I'm hearing of Vultr...they look like a carbon copy of DO. What does Vultr have that they don't?

DO has more managed services like databases, k8s, etc. Otherwise they are very similar. Vultr has more locations in the US.

Re: DigitalOcean raises $100M in debt as it scales toward revenue of $300M

#80

Post by smallgovt »

cdolan wrote: post #15

This article had more detail and substance than I usually find on TechCrunch or startup coverage in general. I do want to point out two things that bothered me in the article: 1. Using the word “raise” when talking about financing via debt seems inappropriate and very start-upy. This is a low cost of capital line of credit, is it not (due to their infrastructure and broad customer base)? 2. Why in the world are state…

>> Using the word “raise” when talking about financing via debt seems inappropriate and very start-upy.

Why would it be inappropriate? It's common to describe both debt and equity rounds as a 'raise'.

My guess is you're operating under the assumption that debt is inferior to equity because you're forced to pay it back. But, in reality, when you raise an equity round, you also have to pay back the principal + "interest"-- it just delays the repayment date til your liquidation event.

>> This is a low cost of capital line of credit, is it not (due to their infrastructure and broad customer base)?

Based on the wording "secured $100 million in new debt from a group of investors", my guess is it's a term loan of sorts vs a LOC (since banks typically issue LOC's, and they're generally not referred to as investors).

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