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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

#11

Post by ticmasta »

mhb wrote: post #4

Raising $100M in debt is the same as borrowing $100M, right?

maybe? sometimes (often?) a debt-raise at this level comes with options to convert to equity if it turns out to be desirable. So unlike a bank loan (where the bank most certainly doesn't want to be your partner) a debt raise might end up with someone like Warren Buffet owning a sizeable part of your company.

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

#12

Post by TuringNYC »

mhb wrote: post #4

Raising $100M in debt is the same as borrowing $100M, right?

Correct. However as you borrow more and more it often goes from a b2b lend-borrow transaction to syndicates etc where many people lend to a pool which gets borrowed — or a bond which gets marketed by a banker to bond buyers (lenders). The more complicated borrows involving many parties are often referred to as “raising money”

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

#13

Post by ticmasta »

hamandcheese wrote: post #9
brianbreslin wrote: post #2

What is their current valuation? I wondered if google or microsoft would buy them, amazon can't due to anti-trust issues, but the others might be able to.

I don’t see why they would except maybe to aquihire some talent.

If they are successful in a particular segment an acquirer could look to just buy that part of the market rather than earn it organically

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

#15

Post by cdolan »

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 statements like this not met with scorn? “... scale to $1 billion in revenue in the next five years, and it will become free cash flow profitable (something the CEO also referred to, loosely, as profitability) in the next two.“

On point #2 - thats NOT profitability. Thats called “Cash Flow Positive”, and its an incredible achievement, but definitions matter. In my opinion, “cash flow profitable” isn’t a real thing (its “cash flow positive”), but the real issue is - cash flow positive ≠ profitability.

Edit: On why definitions matter, recall WeWork “Community Adjusted EBITDA”.

Edit #2: The Author knows that the CEO is making stuff up, which is why this bothers me. It’s evident by the parenthetical disclaimer, “...(something the CEO also referred to, loosely, as profitability)”.... Then call the CEO out, Alex Wilhelm (author), if you think its BS!

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

#16

Post by toomuchtodo »

brianbreslin wrote: post #2

What is their current valuation? I wondered if google or microsoft would buy them, amazon can't due to anti-trust issues, but the others might be able to.

Would likely be a private equity leveraged buy out transaction, someone who leans out the operation and squeezes the margins up.

Anyone with tech chops has their own cloud, and DO isn’t even cash flow positive yet. Thoughts and prayers to anyone with common stock (which isn’t looking too good at an exit).

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

#17

Post by hinkley »

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…

Am I correct in thinking this is an EBITA situation?

You can be making money and paying it all to Uncle Sam and your bank loans. 100 million is gonna be a lot of interest payments.

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

#19

Post by Mikeb85 »

mhb wrote: post #4

Raising $100M in debt is the same as borrowing $100M, right?

Yes. But in this case that debt will be raised by selling bonds versus borrowing from an institution.

Edit - read it closer, it seems they are borrowing from commercial lenders. In which case I have no idea why they used the word 'raised', as it usually implies bond sales.

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

#20

Post by hinkley »

patio11 wrote: post #10
mhb wrote: post #4

Raising $100M in debt is the same as borrowing $100M, right?

Those are two ways to phrase the same thought, yes, but there are things about raising corporate debt which don't necessarily line up 1:1 with expectations consumers might have about borrowing money. One example, which is de rigeur for raising debt via bond issuance or for very large loans from banks, is "covenants" (restrictions on your future behavior for the duration the debt is in place), which may foreclose your…

Is there a hypothetical situation where I could broker a deal where some new investor with extremely deep pockets makes that loan go away and gives me extra money all in one transaction?

'default' means 'pay us back now or give us your collateral', right?

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