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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

#221

Post by ian0 »

nmfisher wrote: post #183
smallgovt wrote: post #80

Earlier quoted context omitted.

>> 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 + "interes…

> 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…

I kind of agree, theres an obvious difference between a bank loan and typical startup equity seed round. However it does get very blurry in practice, eg:

- Redemption rights & liquidation pref in preferred shares effectively turn it into a loan

- Convertible notes are debt instruments but most obviously should be described as "raising"

- Venture debt typically has upside in the form of share options in addition to the debt repayment mechanism

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

#222

Post by m10i »

kaetemi wrote: post #186
scarface74 wrote: post #170

Earlier 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.…

For my understanding, do you mean that cash flow would show $100 profit each year on the 5th year, whereas in the first year it would show $900 profit? Thanks.

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

#223

Post by dannyw »

dcchambers wrote: post #156
numbers wrote: post #118

Earlier quoted context omitted.

I thought their $5/mo machines are the cheapest on the internet for the specs available. Are there cheaper options? I’m hosting a low traffic page that gets maybe 500-1000 views a month and even at $5/mo it seems overkill IMO.

For static site hosting there are a ton of "good enough" free options these days like GitHub Pages, Netlify, etc. For pure VPS, there are cheaper options, especially if you don't need a ton of customer support like DO offers. For example, buyvm.net has a VPS with 1 vCPU, 1GB RAM, 20GB SSD, and unmetered bandwidth for $3.50/mo. DO's cheapest VPS is 1 vCPU, 1GB RAM, 25GB SSD, and 1TB bandwidth for $5.00/mo. Digital Oce…

Very happy BuyVM customer. The unmetered bandwidth really is unmetered, and support from the founder has been remarkably transparent and often minutes when he's awake and working.

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

#224

Post by amscanne »

kaetemi wrote: post #186
scarface74 wrote: post #170

Earlier 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.…

In year one, you’re generating $1100 of income with $1000 of capital invested (that will last 5 years).

By year five, you’re generating $1100 of income with $5000 of capital invested (that will require $1000 each year to keep up).

You’re _way_ better off in year one here, so it seems the GAAP approach is actually showing the decline accurately. This isn’t a growing startup, it’s a startup needing more equipment to make the same money each year.

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

#226

Post by daywednes »

raiyu wrote: post #92
dcchambers wrote: post #87

I have some personal stuff hosted on DO. I really like their options, service, their branding, UX/UI, etc...but they are kind of in a weird spot. Halfway between being good for cheap personal projets, and being good for enterprise. If I want a simple VPS there are cheaper options. If I am an enterprise spending millions/year on cloud infra I am probably only looking at AWS, Azure, GCP, etc. How does DO get out of thi…

You hit the nail on the head, we are best for SMBs and teams that want to get things done quickly and don't need the hyperscale and added complexity of AWS. Our focus has always been on simplicity and as our customer needs and our own internal needs have grown we've added additional products to continue to allow customers to scale with us. We launched with just Droplets in 2012 and have since added block storage, Spa…

@raiyu Any more insight about this debt-raise round? Why didn’t DO raise from a VC and increase their valuation to the next level?

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

#227

Post by kiwijamo »

mkj wrote: post #205
Tecuane wrote: post #144

Earlier quoted context omitted.

DO's branding and a lot of their offering is pretty good, but their locations for non-US customers are much worse than many of their competitors. For instance (and a particular point for me), they still don't have any presence in Australia after over half a decade of it being marked as "under review" on their customer feedback page. Having geographical locations to back up the quality of the offering is a step forwar…

Most likely Telstra (40% market share telco) charge too much for peering network traffic in Australia? Same as how Google Cloud free tier excludes only China and Australia.

Vultr has a POP in Sydney and seem to manage just fine, offering plans similar to DO. I like DO but as I'm based in New Zealand, it's a no brainer to go with Vultr due to their Sydney POP.

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

#228

Post by hef19898 »

gruglife wrote: post #24
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…

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,…

Which makes perfectly sense. A company can be cash positive and profitable, cash negative and profitable (worked at a place like that, didn't end well), cash positive and not profitable (at least that company would be by default alive, and if revenue is growing quite healthy IMHO) or cash negative and not profitable (in that case death could happen any moment).

I understood the OP that mixing cash and profitability in one term is wrong. So yeah, I agree that the CEO told BS.

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

#229

Post by kiwijamo »

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?

They have POPs in parts of the world DO doesn't have. E.g. they have a Sydney POP which attracts customers from Australia and New Zealand. Location was pretty much the main reason why I chose Vultr over DO as I found everything else was more or less on par.

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

#230

Post by hef19898 »

chii wrote: post #175
scarface74 wrote: post #170

Earlier 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…

There are rules in place which assets depreciate at which rate. Otherwise companies could just cheat their way through accounting.
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