Earlier quoted context omitted.
But wouldn’t your profit be awesome the years you didn’t have to claim depreciation?
Hence you’ve invented EBITDA and EBITDA less capex :)
Damnit that was a major self own I just did wasn’t it?
DigitalOcean raises $100M in debt as it scales toward revenue of $300M
211–220 of 289 posts
Re: DigitalOcean raises $100M in debt as it scales toward revenue of $300M
#212Re: DigitalOcean raises $100M in debt as it scales toward revenue of $300M
#213Earlier quoted context omitted.
Software is not typically depreciated though. DO is writing code now that will last for decades but they have to take the accounting hit for it in one year.
Code rarely last decades without maintenance and complete rewrites over time - unless you’re the government.
Plenty of enterprises are running decades old code that powers their core business.
Re: DigitalOcean raises $100M in debt as it scales toward revenue of $300M
#214Earlier quoted context omitted.
> It's common to describe both debt and equity rounds as a 'raise'. I disagree, I always interpret "raise" as equity. > 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. Debt and equit…
Raising debt is a very common phrase in my world. Edit: Also debt and equity are not always that straightforward, they are shades of grey. Convertible notes are debt that look like equity.
> Edit: Also debt and equity are not always that straightforward, they are shades of grey. Convertible notes are debt that look like equity.
Right, but that just reinforces my point. Debt is different from equity, which is different from a note. Legally and commercially, outside investors (or acquirers) are going to treat them all differently. It's not as simple as "raising $X means you have to repay $X+Y, no matter whether its debt, equity or note".
Re: DigitalOcean raises $100M in debt as it scales toward revenue of $300M
#215Earlier quoted context omitted.
Depreciation still makes plenty of sense today. A company with very little capital equipment will simply not have a lot of depreciation. Digital ocean as a cloud hoster has a lot of capital equipment (servers etc) to worry about as well.
Many analysts will capitalize R&D spend.
Which makes a lot of sense, especially when it comes to compensation where not capitalizing end would lead to incentives to not invest in it even if it is profitable. It doesn't make sense to expense it right away when it's something that, like capex, is meant to essentially purchase assets that can pay off later. If those revenues fail to materialize, then the bottom line takes a hit then, just as a company would take a hit if expenditure on a factory proves to be worthless. The goal of this sort of accounting is to reflect economics better, we have statements of cash flows to keep a track of cash and you're more than free to use that in valuing a company (and many analysts do ignore everything but cash)
Re: DigitalOcean raises $100M in debt as it scales toward revenue of $300M
#216Earlier quoted context omitted.
Not counting depreciation as part of your loss in a business is about like all of the Uber drivers who don’t take into account the wear and tear on their cars when calculating how much money they are making. Depreciation is a real expense. If you depreciate an asset down from $1000 to $0 in 3 years, you’re accounting for the fact that in three years you are going to have to replace it. There is a reason we have GAAP,…
> If you depreciate an asset down from $1000 to $0 in 3 years, you’re accounting for the fact that in three years you are going to have to replace it. but does a company have to be "honest" about such depreciations? What if the asset isn't actually losing value at the stated depreciation rate? Then at the end of the depreciation period, the company may still extract the residual value by either selling or continue us…
This might be different in various countries, but in general companies cannot play games with depreciation.
The financial audit is done according to certain rules and common practices.
In reality some of these investments might be hard to properly calculate and audit, but simply reporting them as zero is malicious.
EBITDA numbers should provide the insight into profitability without hiding anything.
Re: DigitalOcean raises $100M in debt as it scales toward revenue of $300M
#217Earlier quoted context omitted.
What I really wish for is a simple way of running docker containers (like AWS Fargate, or at least ECS), because I want to run docker containers across multiple droplets, but I don't want the full complexity of Kubernetes. Also something akin to auto-scaling groups. If DO had those, I'd use it a whole lot more than I do (currently I only spend use approx. $140/month on DO).
I just led a migration for my small team from Zeit Now to Render ( https://render.com/ ). It has filled this need pretty well. There are some features that I wish existed but overall the simplicity has been great for our use case. They do not have auto-scaling but it's planned ( https://feedback.render.com/features/p/autoscaling ).
(Render founder) Glad to hear it, and I hope you've posted your feature requests on https://feedback.render.com. We're investing heavily in growing the team and putting a strong engineering foundation in place so we can keep adding new features quickly and reliably.
Re: DigitalOcean raises $100M in debt as it scales toward revenue of $300M
#218Earlier quoted context omitted.
Not counting depreciation as part of your loss in a business is about like all of the Uber drivers who don’t take into account the wear and tear on their cars when calculating how much money they are making. Depreciation is a real expense. If you depreciate an asset down from $1000 to $0 in 3 years, you’re accounting for the fact that in three years you are going to have to replace it. There is a reason we have GAAP,…
Imagine you're a growing startup, and you have a yearly recurring investment (you're growing, after all!) of $1000 that's linearly depreciated over 5 years. Let's say your income is 1100$ each year. Your profit, according to accounting, would be 900$ for the first year, counting only $200 of the investment, then for the following years you'll see a profit of $700, $500, $300, and $100, as the investments accumulate.…
I'm not sure that I understand your scenario. If you actually need to replace the equipment after 5 years, the accounting approach seems like the most valid approach.
Re: DigitalOcean raises $100M in debt as it scales toward revenue of $300M
#219Earlier quoted context omitted.
"Business folks" :) But all kidding aside, the numbers just don't make sense. AWS is doing $30B in revenue and has tens of thousands of engineers. Google which many can argue has some of the best engineering on the planet is going after AWS investing billions in datacenters and again using thousands of engineers. So to think that DigitalOcean with a $300MM debt line and 250+ people in engineering is going to go after…
ye I agree, it feels impossible to penetrate that market unless you have many billions and the actual engineering knowledge behind it. I think DO is good for the small/average player that doesn't wanna invest time into having his team learning the AWS quirks because his business isn't in heavy need of it. If AWS or even google ever goes after the small/average user by creating an easier to understand/navigate service…
I disagree, you can't just tack on simplicity to an incredibly complex product. Elastic Beanstalk is not in the same class as Heroku (despite both running on AWS). When you look at AWS the strength is in breadth and loose coupling. This allows internal teams to push a massive set of products forward in parallel, but the tradeoff is that the seams show everywhere, which directly works against having a simple and cohesive product experience. Theoretically it is possible, but I think you'd need to brand it outside AWS and probably dedicate way more headcount than a beancounter would deem reasonable to compete with DO, and even then I'm not sure AWS or Google are structurally capable of producing such a thing.
Re: DigitalOcean raises $100M in debt as it scales toward revenue of $300M
#220Earlier quoted context omitted.
Our original business was bootstrapped with no outside investment so we know that growth model very well. In fact that bootstrapping allowed us to build DigitalOcean when no VCs were interested in funding us by self-funding through the profits from our original business. The problem with the approach you detailed is that it is based on growth rate. If you have more customers coming to you than you have cash on hand t…
> raise capital or turn away customers If you have to borrow $100MM to provide the same basic service that you’ve been providing for 8 years, then aren’t these “customers” less customers and more recipients of free services? Perhaps, that’s the point, no? Buy the remaining VPS market with unsustainable pricing, and then raise the price...
Let's say a server costs $10000 and gives you $500 a month in profit.
Borrowing money to buy that server is definitely not giving away free stuff. Nor is that pricing unsustainable.
No matter how profitable a business is, there's a limit to how fast it can expand debt-free based on how fast the profits accrue.