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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

#91

Post by thanksthrowaway »

loldigitalocean wrote: post #81
tonyedgecombe wrote: post #69

Earlier quoted context omitted.

You may be right but it's hard to take throwaway accounts seriously.

Fine, ask lsc. I have tremendous respect for Luke given that he had, thanklessly and for years, tried to compete in this exact market singlehandedly . Even competing against him at Linode, that was remarkable to me. I have receipts for my Linode employment and I am unconcerned about the veracity of my analysis (I’m actually paid for said analysis IRL). Think about that bar you’ve set for a minute: “this person doesn’…

Thanks for whatever you contributed to at Linode <3

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

#92

Post by raiyu »

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, Spaces object storage, load balancing, kubernetes, managed databases, firewalls, and more.

Our goal isn't to be bigger than AWS or Google, but simply to provide a great service to our customers and to continue to expand our offering as those needs grow.

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

#93

Post by fleetside72 »

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,…

Almost all companies re-invest at the rate of depreciation, which is why depreciation rates are a good approximation of cash you are going to have to spend. Move on down to "investing activities" on your cash flow to see all that "non-cash" depreciation bleeding out. Better yet, check out a balance sheet. Net income = change in balance sheet YoY.

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

#94

Post by raiyu »

BonoboIO wrote: post #7

DigitalOcean has raised a total of $305.4M in funding over 11 rounds. Their latest funding was raised on Dec 27, 2018 from a Secondary Market round. [1] [1] https://www.crunchbase.com/organization/digitalocean#section...

Crunchbase lumps together everything including debt as funding. DigitalOcean raised $123MM in equity and the last raise was an $83MM Series B led by Access in 2015. There hasn't been a need since to raise equity investment and instead debt is being used to continue to grow the business and expand our infrastructure footprint.

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

#95

Post by dwild »

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?

Vultr allow running on bare metal and they also allow access to BGP. That's both niche needs, but that's also what you expect from a smaller player, to fill niche market.

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

#96

Post by avhception »

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…

I guess there is a niche, not every enterprise spends millions a year. We're a pretty happy customer that spends maybe a few thousands every month, if there are enough of us it could already be a sustainable business?

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

#97

Post by raiyu »

toomuchtodo wrote: post #16
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).

Thanks for your thoughts and prayers but no one is selling the business or nor are we looking for someone to buy it.

Debt is a normal way to fund a high growth up front capital intensive business and it is cheaper than equity because you aren't giving away parts of your company to do so.

If you look at AWS which is many times larger than we are they are also using debt to fund their continued expansion. It's under capital lease obligations and there are quite a few write-ups that detail how much exposure they have, but it's in the billions.

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

#99

Post by raiyu »

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…

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 to buy servers, you will be forced to turn customers away.

So if you are growing rapidly you will need outside investment, whether equity or debt, in order to grow the business.

In our case we raised equity that helped us to secure additional debt terms and also due to our high growth after product market fit we also needed additional cash to continue to build out our operations.

I'm a fan of bootstrapping businesses and not raising outside capital unless it is necessary, but in our case the choice was to raise capital or turn away customers.

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

#100

Post by bklyn11201 »

toomuchtodo wrote: post #16
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).

You're bearish on profitable SAAS companies growing at 20%+ year with huge total addressable markets? D.O. is clearly not growing like DataDog and Zoom, but it has a nice niche, a good rep, and borrowing cheap money to grow should make everyone happy, including the common stock owners.
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