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

477 points by drchiu 7y ago

dcchambers 7y ago
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 this spot? I want them to succeed and I will continue to support them as the big guys need the competition, but I fail to see how they compete against the likes of Amazon without undercutting significantly...and that won't bring profits. I think the margins on cloud infra is already pretty thin.
- raiyu 7y ago
  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.
  - neovive 7y ago
    Simplicity and reliability are the biggest reasons I've stayed with DO for so many years. The combination of droplets, spaces and simple load balancing is the sweet-spot for me. Not to mention a simple, consistent bill each month that makes budgeting much easier. Thanks DO and keep up the amazing work!
  - sdotsen 7y ago
    yeah I'm not sure about your last paragraph. when I interviewed at DO, the few business folks I spoke to were adamant on taking on AWS. I kind of scoffed but hey I'm not running DO.
    - raiyu 7y ago
      "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 AWS just doesn't add up. Certainly when you have 500+ people in a company everyone has different opinions and view points on where a company should be headed, or who it is competing with and so forth, but for me the priority has always been clear. Focus on the SMBs, and developer teams, that need the flexibility that AWS offers without the complexity because you aren't managing a $10MM hosting budget.
      - cj 7y ago
        I don’t necessarily disagree with you, not sure I’d place a bet on DO taking on AWS realistically, but: > So to think that DigitalOcean with a $300MM debt line and 250+ people in engineering is going to go after AWS just doesn't add up. Lots of Money + Lots of People =/= Guaranteed Success It’s more a matter of taking on the market from a slightly different angle. One viable path I see is for DO to ramp up their enterprise appeal by offering services on par with AWS, while cutting down the operational complexity of managing AWS services (using AWS = incredibly high overhead with configuration and everything else).
        muse900 7y ago
        > Lots of Money + Lots of People =/= Guaranteed Success I'll agree on that. I won't agree with the rest though, I don't think DO can compete in an enterprise level. Actually in the longrun I don't see DO ever being viable. AWS and google are going to become simpler as the time passes and they are going to take over that margin that is left on services like DO, ovh etc. I think the only viable business plan for them right now would be to focus on their simplicity and continue building on it hoping they will get bought out by the big players. Obviously thats not good for us -> amazon and google owning everything on the web but unless there is some crazy law that limits them from doing so, they are going to do it.
  - dkersten 7y ago
    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).
    - mattste 7y ago
      I just led a migration for my small team from Zeit Now to Render (https://render.com/ 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 https://feedback.render.com/features/p/autoscaling).
      - anurag 7y ago
        (Render founder) Glad to hear it, and I hope you've posted your feature requests on https://feedback.render.com 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.
      - Kkoala 7y ago
        How is Render different from Heroku? It seems like a slightly more expensive than Heroku with slightly fewer features?
        anurag 7y ago
        Render is more flexible than Heroku: you can host apps that rely on disks (like Elasticsearch and MySQL), private services, cron jobs, and of course free static sites. You also get automatic zero downtime deploys, health checks and small but handy features like HTTP/2 and automatic HTTP->HTTPS redirects. It's considerably less expensive as your application scales: a webapp that needs 3GB RAM costs $50/month on Render; on Heroku you'll pay $250/month for 2.5GB RAM, and $500/month for the next tier (14GB RAM). And you get free chat support.
  - sdesol 7y ago
    On a somewhat related note, what is the best way for startups to work with DO to get free cloud computing? My product is a search and analytics engine for github and I would like to offer a free version for people to use and I would like them to use DO since I find it has the best bang for the buck. I can see people that would like to use my solution to not need the bells and whistles of aws, azure, etc. Does DO provide startup assistance like Microsoft, which gives free cloud computing? My goal would be to say something like try DO free for a week and if you like it, continue using them.
    - nine_k 7y ago
      DO used to have referral credits. A $5 of referral credit could feed a $20 instance for a week, of the smallest instance for a month.
    - raiyu 7y ago
      Check out our Hatch program - that's probably what you are looking for: https://www.digitalocean.com/hatch/ https://www.digitalocean.com/hatch/
  - nailer 7y ago
    Where's your serverless product? I don't want to manage Kubernetes any more than I want to manage instances.
    - izolate 7y ago
      I agree. I’d like to use DO but I’m full in on serverless and GCP keeps me on their platform with Cloud Functions and now Cloud Run.
  - apple4ever 7y ago
    I do love the simplicity, but I think the big thing that is missing is private networking. I'd love to be able to build my own network that connects droplets together and assign them IPs, and that would let me setup VPNs between datacenter. Also, adding at least another US datacenter would be great.
  - daywednes 7y ago
    @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?
  - kokey 7y ago
    I've always believed that as cloud stacks mature and get commoditised various VPS providers will provide a decent alternative to being locked into the AWS or Azure ecosystem. I think the main drivers for people actually migrating will be cost and flexibility, where flexibility will be provided by software stacks that will be deployed on top of simple compute instances.
- avhception 7y ago
  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?
  - gramakri 7y ago
    Aren't enterprises that spend millions a year the niche and not the other way around ?
- numbers 7y ago
  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.
  - luladjiev 7y ago
    Check scaleway and hetzner https://www.hetzner.com/cloud https://www.hetzner.com/cloud https://www.scaleway.com/en/pricing/ https://www.scaleway.com/en/pricing/
  - tmpz22 7y ago
    Pretty sure Linode is comparable price wise and in Europe there are cheaper options like OVH. Digital Ocean pricing becomes pretty comparable with GCP and others when you start specing up to a "production-grade" server i.e. the kind of server you actually want to run Postgres on. Their K8s offering I think is the cheapest of all major providers but you lose out of secondary benefits like GKE's fantastic log analysis tools (I think its called stackdriver or something). Their database offerings are in about the same range as other providers (not comparing it to Google Cloud $panner).
    - lwb 7y ago
      Just popping in to say that OVH is the cheapest option for a reason -- support/monitoring/any other features you might want are just not there like they might be on other providers. I host a single tiny website on OVH and they restart it randomly every ~4 months without warning (seriously). It was annoying at first until I set our services to run on system boot. Some more discussion at discourse.org that's relevant: https://meta.discourse.org/t/migrate-from-digital-ocean-to-ovh/41180 https://meta.discourse.org/t/migrate-from-digital-ocean-to-o...
      - the8472 7y ago
        > until I set our services to run on system boot. Which pretty much is how things were always done, even in the PHP-CGI days.
- jdance 7y ago
  I'm a customer on DO as a small business (mobile game). I wanted some linux servers that I have control over, and I wanted a managed database where someone does backups for me. I also wanted simplicity and a nice UI. I didn't even compare prices, I just thought it was a good deal and didn't look back. At first I tried Heroku but it was too much adapting our application to their way of doing things. DO is just hyper-simple for me. So, thanks DO :)
  - WrtCdEvrydy 7y ago
    Heroku was really built for Web Apps (especially Rails)
    - YourMatt 7y ago
      Aren't they just a middleman for AWS anyway?
      - hnzix 7y ago
        AWS is infrastructure as a service (IaaS). You need to worry about load balancers, backup scripts, firewalls etc. Ie you need a plausible sysadmin to run it. Even Elastic Beanstalk requires some sysadmin. Heroku is platform as a service (PaaS). It abstracts away the complexity of AWS. The base cost is more expensive than raw AWS but you don't need to source and pay for a sysadmin. AWS, Heroku and DO aren't "better" than each other, they serve different use cases.
        serverQuestion 7y ago
        I have been dreaming of running my own heroku like interface on a DO droplet. Just for small sites, side projects and such. With heroku you need to pay to keep things running, though sadly with DO you need to do a lot of sysadmin work to keep things running.
        slig 7y ago
        Have you tried Dokku?
- toohotatopic 7y ago
  >How does DO get out of this spot? What if they package the available open source versions of AWS and GCP services and allow people to move off amazon and google? Have DO as one region and at first sell it as a backup. Then, make it enticing for people to scale it up so that they shift some work over. DO could become the place where people can run infrastructure that mixes AWS and GCP. After some acquisitions, companies will have services in both worlds. Why not unite them in one place?
- Tecuane 7y ago
  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 forward IMO.
  - mkj 7y ago
    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.
    - kiwijamo 7y ago
      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.
- mr_toad 7y ago
  > If I am an enterprise spending millions/year on cloud infra They do more than just VPNs. They do object storage, containers and K8. They have command line an API based tooling. A small enterprise could do a lot with that. If you were talking a $100 million dollar budget and you needed bells and whistles like IAM Lambda or Glacier I could agree.
- mercer 7y ago
  In my case I found it beneficial to just move everything to Hetzner. It offered everything I need at a lower price, and I foresee that for some of my projects I'll need to get 'proper' servers instead of the lowest-tier VPS offerings. It's easier to do that when it's all in the same ecosystem. That said, it's only been barely worth the hassle. The difference in cost for the lowest tier, at least, is almost a rounding error in my finances. Furthermore, it feels strange that I still often end up at DO pages for various tutorials or articles to help me set things up. I guess mostly I still find myself fond of DO, have been helped immensely by their free articles and tutorials, and am immensely impressed that they haven't gone to shit like all the shared hosting providers I've churned through in the years before I moved to DO. and while it was ultimately worth it for me to move all my projects to Hetzner, I wouldn't particularly recommend that approach to anyone unless <10$ a month is something they are concerned about.
Sohcahtoa82 7y ago
Does DO still disconnect your droplet from the Internet for three hours if you get DDoSed? That's what made me switch from DO to AWS a few years ago. I used my droplet as an IRC bouncer to hide my home IP address. I'm an op in an IRC channel and someone started spamming racial slurs, so I banned them. They responded with a DDoS. I could tell my connection was a bit slow, but nothing crashed, but then it dropped offline and I got an e-mail from DO saying they're taking my droplet offline to protect their network. Made me realize that I could never use them for any sort of game server, since the skids love to fire up LOIC whenever they get upset.
- staller 7y ago
  Did you continue to get DDoS after moving to AWS? I figure that AWS would take similar steps if you are not using Shield or one of their other products that would help mitigation. I'd like to know if anyone has experience there.
  - realmod 7y ago
    All instances use shield by default IIRC.
    - jerryoftheyear 7y ago
      There are two levels of AWS Shield, "Standard" and "Advanced". You are correct that all instances receive "Standard" protection from Shield by default. https://aws.amazon.com/shield/ https://aws.amazon.com/shield/
  - Sohcahtoa82 7y ago
    No idea. If they are, I don't know about it. I've never heard of AWS taking people's systems offline for being DDoSed.
- thaeli 7y ago
  This is why I run anything online-gaming related on OVH (or SoYouStart and Kimsufi, their cheaper offshoots that still use the OVH network) - they are very good about handling the everyday DDoSes you get in that sector without taking the site offline or charging extra. I think they will disconnect a site that draws a very high rate attack, but they've soaked the kiddie DDoSes just fine.
brianbreslin 7y ago
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.
- eropple 7y ago
  I don't think adding something the size of DO (which is not large) to AWS would materially impact anti-trust evaluation of Amazon.
  - peteradio 7y ago
    Something will break the camels back. Can only pack so many straws.
- wcarron 7y ago
  Crunchbase estimates $500M-$1B range https://www.crunchbase.com/organization/digitalocean#section-post-money-valuation-data-by-privco https://www.crunchbase.com/organization/digitalocean#section...
- deleted 7y ago
  [deleted]
- hamandcheese 7y ago
  I don’t see why they would except maybe to aquihire some talent.
  - ticmasta 7y ago
    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
  - brianbreslin 7y ago
    That's why it might make more sense for a second or third place cloud provider to catch up. I would love for AWS to adopt the DO interface.
mhb 7y ago
Raising $100M in debt is the same as borrowing $100M, right?
- patio11 7y ago
  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 ability to do things you'd otherwise want to do or may cause those things to become more costly than you'd otherwise expect them to be. A few trivial examples of covenants: "Here's $50 million, but if you ever have less than $5 million in the bank, you're in default." or "Here's $50 million, but if your net cash burn ever exceeds $5 million in a quarter, you're in default." or "Here's $50 million, but if you need any more money, it has to come from us at whatever pricing we decide to make available. If you issue debt or equity elsewhere, you're in default." You very urgently do not want to default. One can imagine other features. Historically, the downside protections for debt investors in startups were extremely toothy [0]. This is one reason startups have been askance about raising debt historically. (Another reason is that VCs, who invest to get equity, tell founders "Please don't get money from my competitors", generally not in exactly those words.) [0] This is a polite way to say "They routinely were written to wipe out all common equityholders like e.g. employees and founders."
  - hinkley 7y ago
    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?
    - patio11 7y ago
      You might or might not be allowed to do that. US consumers generally expect there to be no pre-payment penalty. That isn’t a universal feature of all loans. As to particular features of particular loans ask the really expensive lawyers or investment bankers who negotiated them, but plausibly “I owe you $45M; here’s a new equity investor; we’re done after the wire clears right.” might lead to “We agree you owe us $60M.”
BonoboIO 7y ago
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-funding-rounds https://www.crunchbase.com/organization/digitalocean#section...
- raiyu 7y ago
  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.
- deleted 7y ago
  [deleted]
- OJFord 7y ago
  I've never heard of a 'secondary market round', but a secondary market doesn't raise funding for the company behind the share.
cdolan 7y ago
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!
- MuffinFlavored 7y ago
  > This is a low cost of capital line of credit, is it not (due to their infrastructure and broad customer base)? How low cost? What interest rate, what fees, etc.?
  - formercoder 7y ago
    Low as in much cheaper than equity no matter what.
- hinkley 7y ago
  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.
  - cdolan 7y ago
    Perhaps, but debt is real and you cannot be “profitable” if you are under a mountain of debt... in fact, you become insolvent if you can’t keep up with the interest payments and pay down the principal.
markus_zhang 7y ago
I don't see anything about the structure of the debt. Wish we could see more details.
rsync 7y ago
"Spruill told TechCrunch that DigitalOcean will 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." I find this to be incredible. DO is not a speculative e-business ... they are not a social network. They are the proverbial sellers of picks and shovels during the gold rush: "The way to get rich during the gold rush isn't mining gold - it's selling the picks and shovels." Here is a pick and shovel seller that can't make a profit and is going into debt ...
- outworlder 7y ago
  > Here is a pick and shovel seller that can't make a profit and is going into debt ... That's one way to see it. Another is that they need money to expand the business.
- djsumdog 7y ago
  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?
  - loldigitalocean 7y ago
    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 them, too, despite Rackspace subsequently burying that business in their wandering-through-tech mass grave. DigitalOcean, on the other hand, took a Sand Hill approach and is throwing money at becoming an AWS unicorn without realizing they are never going to be AWS. Read this carefully, DO: you will never, ever, ever be AWS. Full stop. You are not in the conversation, nor is Linode, nor is prgmr (but lsc knows that), nor is Vultr, and so on, and so on. Ask IBM about trying to take on AWS. DigitalOcean is an incredible waste of capital and appears almost as if they didn’t bother to look at Linode’s story at all. The companies are nearly identical behind the scenes and are pursuing the exact same addressable market, but one is a VC darling intent on burning capital on a completely solved problem and therefore gets VC ecosystem attention and expands to fill that attention. Seriously, you can address this market with Excel and some Python scripts; I exaggerate, but not much. The amount of money DigitalOcean spends given my intimate familiarity with the problem space has been baffling to me for the last decade. DigitalOcean should buy Linode with this debt so the Linode people can come in and fire the right people at DO and shed about seven hundred pounds of weight. When, not if, when DigitalOcean collapses, Linode will continue on and enjoy a sudden inflow of DO’s market share. Linode long predates DO and will postdate them, too. I have a poor opinion of Linode in a lot of ways, by the way, so.
nknealk 7y ago
To raise a material amount of debt, lenders generally require there to be collateralized physical assets against that debt. Compare that to equity financing which firms can use on literally anything (eg. marketing spend, hiring, etc). So my guess is the $100M is going to go towards expanding their data centers in some way. We might see new regions from DO in the coming years or additional server types/services that run on top of those new servers.
- cdolan 7y ago
  The first part of your comment I’d say is accurate, but why would they have to spend a meaningful part of the $100 mil debt on infrastructure? DO likely collateralized their existing infrastructure to get the $100 mil line of credit/debt, but will spend the $100 mil on other things in addition to some infrastructure (as the article suggested)
neom 7y ago
DigitalOcean has always had loads of debt, it's how you build such a capex heavy business, you use lease lines and credit.
- djsumdog 7y ago
  I wonder if they would have if they didn't have to cut prices to compete with Vultr.
  - Dirlewanger 7y ago
    First time I'm hearing of Vultr...they look like a carbon copy of DO. What does Vultr have that they don't?
    - porker 7y ago
      > What does Vultr have that they don't? According to multiple HN users, a more unreliable (internal) network.
      - bluedino 7y ago
        Ironically I moved from DO to Vultr because their network was more reliable
    - dwild 7y ago
      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.
    - toomuchtodo 7y ago
      Commodities have little differentiation between themselves. Compute alone is a commodity.
    - drewnick 7y ago
      DO has more managed services like databases, k8s, etc. Otherwise they are very similar. Vultr has more locations in the US.
chrshawkes 7y ago
I prefer Linode. Same level of service, if not better and cheaper. Linode does 100 million in revenue and as far as I can tell they aren't borrowing against their future to get it.
- bklyn11201 7y ago
  My guess is that a company like Linode with 100 million in revenue is using lines of credit to make large purchases of servers that will pay off over time as their revenue grows. I'm not sure what's scary about D.O. borrowing 1/3 of this year's revenue to continue growing.
GekkePrutser 7y ago
I used them for my private VPSes but they became too big and business-like. I moved to Scaleway now, it's still in a much earlier stage, cheaper and with unlimited bandwidth. I like the way you can still talk directly to their guys on slack to ask questions. However they're becoming big too. I hope they'll still love us and I don't have to move again soon :)
- chrysoprace 7y ago
  What's your experience with the service? I'm with Linode at the moment, primarily because DO doesn't have an Aussie region. Seems like Scaleway is much better value for money; however reviews on Reddit don't seem favourable.
  - termau 7y ago
    Try binarylane if you're in aus
    - PixyMisa 7y ago
      BinaryLane are amazing.
  - stevekemp 7y ago
    I had a single server hosted at scaleway for a year or two, purely for "offsite" monitoring of services hosted elsewhere. I only had one complaint; using their online control-panel it was impossible to set reverse DNS for IPv6 addresses - something that you need if you want to send email. Otherwise the service was stable, reliable, and cheap. I retired the instance last month, but that was due to practical reasons rather than unhappiness with their services.
polote 7y ago
A lot of complains here but I don't understand why is that worse than raising the same amount of money from VC ?
- dwild 7y ago
  A VC does the deal in exchange of a part of the company. They will make their money once you exit, either by becoming public, or by an acquisition. The deal can be different and could certainly include some kind of repayment, but that's not the norm for a VC deal. A loan has to be repaid though, whether the company exit or not. The terms are fixed and you need to pay them. This can be quite hard when you get a few bad months, while a VC will just get sad if that happens.
  - icedchai 7y ago
    Assuming a successful outcome, VC deals are actually more expensive. They cost founders and common holders much more in potential returns. Don't forget about the dividends associated with preferred shares. Those shares are basically earning interest, just like debt. Given that nobody expects to fail, why wouldn't a company do debt if they can afford it and are credit worthy? And the bad outcome for both is the same: the company goes broke.
floatinglotus 7y ago
This company has always been a joke.
- Tokkemon 7y ago
  No.
humbfool2 7y ago
I host my websites on DO. Their UI and API is really cool. Linode and Scaleway both lost my data. DO is far more reliable than Linode and scale way. It's always good to have options to choose from. I hope they succeed. Companies like Netlify, Zeit and Heroku are also doing good but I don't see any Enterprise applications for such services. One thing I especially like about DO is that they are not stagnant in terms of features. They continuously keep adding new features.
- brandon272 7y ago
  How did Linode and Scaleway lose your data?
reedwolf 7y ago
What happens when one of these mini-cloud providers like DO, Linode, and Vultr folds? What are the consequences as a customer? Does all your data just evaporate into the aether?
- drewnick 7y ago
  Yes, which is why no matter who your provider is, you should have an off-site backup.
- paulddraper 7y ago
  I assume you download your data.
- stevekemp 7y ago
  If they literally turn out the lights then yes. Typically what happens in the low-end hosting world is that smaller providers get bought out by larger ones, (though large in this sense might mean a 4-person company with 200-1000 virtual machines gets acquired by a company 2-5 times larger). At that point you'll probably have your stuff running and you'll be "invited" to migrate. But in short you should always assume your stuff is going to disappear; take (offsite) backups, have (offsite) monitoring, and design applications to cope with rebalancing/relocation/redeployments easily.
chirau 7y ago
I was at fireside chat with the DigitalOcean CEO. Not once did he mention this. Very interesting though. I have always thought that debt would be the only way they grow and remain relevant in a crowded cloud space.
captncraig 7y ago
Didn't they just have layoffs recently?
- Tokkemon 7y ago
  For restructuring purposes.
  - almost_usual 7y ago
    Isn’t that every layoff?
spicyramen 7y ago
I love DO justo no GPUs
Tokkemon 7y ago
My company recently moved all their hosting to DO and we couldn't be happier. It's some of the best hosting we've ever had, especially their Spaces product.
gexla 7y ago
Echoing a lot of other comments here. I don't get why DigitalOcean exists. I would never use them over AWS, GCP, or Azure. They can't beat anyone on cost or functionality. I'm not convinced on simplicity. The other platforms aren't that difficult to use and for some you have to deal with regardless. For example, if you want to use Google Maps, then you need to use GCP to get access to the API. Since you're already in there, it's not much further to setup a VPS.
- btzll 7y ago
  "I don't get why Ubuntu exists, I would never use it over Mac or Windows" Having options is good, and there are many reasons someone would prefer them over AWS, GCP or Azure.
  - gexla 7y ago
    They just raised $100M and they aren't yet profitable. The markets will judge. And that judgement is still out until they become profitable.
- jdance 7y ago
  I'm a DO customer. I tried to figure out what running a windows server would cost on Azure once (since DO doesn't provide windows). I didn't manage to figure it out after like 20 minutes, and the complexity was just mind blowing. I literally got a bit of a shock, and felt pretty stupid that I couldn't figure out such a simple thing. The thought going through my head was something like "does people actually use this?". So that's a radically different perspective for you :)
  - gexla 7y ago
    I haven't used Azure much. But because it's Microsoft, it's going to be a default option for a lot of customers who are entrenched in the MS world. AWS is complex also, but I remember when you're only option to launch an EC2 instance was through the command line. And it's still easier to figure out than most of my tech stack. Not that I need to be adding anything with needless complexity. I do actually like DigitalOcean, but in an AWS / GCP / Azure world I feel it's best to learn one of those well.
Elect2 7y ago
What stopped me from using DO is that they will null your server IP address if the server got DDOS. I never heart aws/gcp did this.
luord 7y ago
I was reminded about the "debt is coming" post that was shared a couple of weeks back. This is a good example of that, I think.
- steve_adams_86 7y ago
  It seems from what I've read here that digitalocean has always carried relatively higher debt than other, similar companies. It might not be a good example.

477 points by drchiu 7y ago

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 this spot? I want them to succeed and I will continue to support them as the big guys need the competition, but I fail to see how they compete against the likes of Amazon without undercutting significantly...and that won't bring profits. I think the margins on cloud infra is already pretty thin.

raiyu 7y ago
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.
- neovive 7y ago
  Simplicity and reliability are the biggest reasons I've stayed with DO for so many years. The combination of droplets, spaces and simple load balancing is the sweet-spot for me. Not to mention a simple, consistent bill each month that makes budgeting much easier. Thanks DO and keep up the amazing work!
- sdotsen 7y ago
  yeah I'm not sure about your last paragraph. when I interviewed at DO, the few business folks I spoke to were adamant on taking on AWS. I kind of scoffed but hey I'm not running DO.
  - raiyu 7y ago
    "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 AWS just doesn't add up. Certainly when you have 500+ people in a company everyone has different opinions and view points on where a company should be headed, or who it is competing with and so forth, but for me the priority has always been clear. Focus on the SMBs, and developer teams, that need the flexibility that AWS offers without the complexity because you aren't managing a $10MM hosting budget.
    - cj 7y ago
      I don’t necessarily disagree with you, not sure I’d place a bet on DO taking on AWS realistically, but: > So to think that DigitalOcean with a $300MM debt line and 250+ people in engineering is going to go after AWS just doesn't add up. Lots of Money + Lots of People =/= Guaranteed Success It’s more a matter of taking on the market from a slightly different angle. One viable path I see is for DO to ramp up their enterprise appeal by offering services on par with AWS, while cutting down the operational complexity of managing AWS services (using AWS = incredibly high overhead with configuration and everything else).
      - muse900 7y ago
        > Lots of Money + Lots of People =/= Guaranteed Success I'll agree on that. I won't agree with the rest though, I don't think DO can compete in an enterprise level. Actually in the longrun I don't see DO ever being viable. AWS and google are going to become simpler as the time passes and they are going to take over that margin that is left on services like DO, ovh etc. I think the only viable business plan for them right now would be to focus on their simplicity and continue building on it hoping they will get bought out by the big players. Obviously thats not good for us -> amazon and google owning everything on the web but unless there is some crazy law that limits them from doing so, they are going to do it.
- dkersten 7y ago
  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).
  - mattste 7y ago
    I just led a migration for my small team from Zeit Now to Render (https://render.com/ 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 https://feedback.render.com/features/p/autoscaling).
    - anurag 7y ago
      (Render founder) Glad to hear it, and I hope you've posted your feature requests on https://feedback.render.com 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.
    - Kkoala 7y ago
      How is Render different from Heroku? It seems like a slightly more expensive than Heroku with slightly fewer features?
      - anurag 7y ago
        Render is more flexible than Heroku: you can host apps that rely on disks (like Elasticsearch and MySQL), private services, cron jobs, and of course free static sites. You also get automatic zero downtime deploys, health checks and small but handy features like HTTP/2 and automatic HTTP->HTTPS redirects. It's considerably less expensive as your application scales: a webapp that needs 3GB RAM costs $50/month on Render; on Heroku you'll pay $250/month for 2.5GB RAM, and $500/month for the next tier (14GB RAM). And you get free chat support.
- sdesol 7y ago
  On a somewhat related note, what is the best way for startups to work with DO to get free cloud computing? My product is a search and analytics engine for github and I would like to offer a free version for people to use and I would like them to use DO since I find it has the best bang for the buck. I can see people that would like to use my solution to not need the bells and whistles of aws, azure, etc. Does DO provide startup assistance like Microsoft, which gives free cloud computing? My goal would be to say something like try DO free for a week and if you like it, continue using them.
  - nine_k 7y ago
    DO used to have referral credits. A $5 of referral credit could feed a $20 instance for a week, of the smallest instance for a month.
  - raiyu 7y ago
    Check out our Hatch program - that's probably what you are looking for: https://www.digitalocean.com/hatch/ https://www.digitalocean.com/hatch/
- nailer 7y ago
  Where's your serverless product? I don't want to manage Kubernetes any more than I want to manage instances.
  - izolate 7y ago
    I agree. I’d like to use DO but I’m full in on serverless and GCP keeps me on their platform with Cloud Functions and now Cloud Run.
- apple4ever 7y ago
  I do love the simplicity, but I think the big thing that is missing is private networking. I'd love to be able to build my own network that connects droplets together and assign them IPs, and that would let me setup VPNs between datacenter. Also, adding at least another US datacenter would be great.
- daywednes 7y ago
  @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?
- kokey 7y ago
  I've always believed that as cloud stacks mature and get commoditised various VPS providers will provide a decent alternative to being locked into the AWS or Azure ecosystem. I think the main drivers for people actually migrating will be cost and flexibility, where flexibility will be provided by software stacks that will be deployed on top of simple compute instances.
avhception 7y ago
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?
- gramakri 7y ago
  Aren't enterprises that spend millions a year the niche and not the other way around ?
numbers 7y ago
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.
- luladjiev 7y ago
  Check scaleway and hetzner https://www.hetzner.com/cloud https://www.hetzner.com/cloud https://www.scaleway.com/en/pricing/ https://www.scaleway.com/en/pricing/
- tmpz22 7y ago
  Pretty sure Linode is comparable price wise and in Europe there are cheaper options like OVH. Digital Ocean pricing becomes pretty comparable with GCP and others when you start specing up to a "production-grade" server i.e. the kind of server you actually want to run Postgres on. Their K8s offering I think is the cheapest of all major providers but you lose out of secondary benefits like GKE's fantastic log analysis tools (I think its called stackdriver or something). Their database offerings are in about the same range as other providers (not comparing it to Google Cloud $panner).
  - lwb 7y ago
    Just popping in to say that OVH is the cheapest option for a reason -- support/monitoring/any other features you might want are just not there like they might be on other providers. I host a single tiny website on OVH and they restart it randomly every ~4 months without warning (seriously). It was annoying at first until I set our services to run on system boot. Some more discussion at discourse.org that's relevant: https://meta.discourse.org/t/migrate-from-digital-ocean-to-ovh/41180 https://meta.discourse.org/t/migrate-from-digital-ocean-to-o...
    - the8472 7y ago
      > until I set our services to run on system boot. Which pretty much is how things were always done, even in the PHP-CGI days.
jdance 7y ago
I'm a customer on DO as a small business (mobile game). I wanted some linux servers that I have control over, and I wanted a managed database where someone does backups for me. I also wanted simplicity and a nice UI. I didn't even compare prices, I just thought it was a good deal and didn't look back. At first I tried Heroku but it was too much adapting our application to their way of doing things. DO is just hyper-simple for me. So, thanks DO :)
- WrtCdEvrydy 7y ago
  Heroku was really built for Web Apps (especially Rails)
  - YourMatt 7y ago
    Aren't they just a middleman for AWS anyway?
    - hnzix 7y ago
      AWS is infrastructure as a service (IaaS). You need to worry about load balancers, backup scripts, firewalls etc. Ie you need a plausible sysadmin to run it. Even Elastic Beanstalk requires some sysadmin. Heroku is platform as a service (PaaS). It abstracts away the complexity of AWS. The base cost is more expensive than raw AWS but you don't need to source and pay for a sysadmin. AWS, Heroku and DO aren't "better" than each other, they serve different use cases.
      - serverQuestion 7y ago
        I have been dreaming of running my own heroku like interface on a DO droplet. Just for small sites, side projects and such. With heroku you need to pay to keep things running, though sadly with DO you need to do a lot of sysadmin work to keep things running.
        slig 7y ago
        Have you tried Dokku?
toohotatopic 7y ago
>How does DO get out of this spot? What if they package the available open source versions of AWS and GCP services and allow people to move off amazon and google? Have DO as one region and at first sell it as a backup. Then, make it enticing for people to scale it up so that they shift some work over. DO could become the place where people can run infrastructure that mixes AWS and GCP. After some acquisitions, companies will have services in both worlds. Why not unite them in one place?
Tecuane 7y ago
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 forward IMO.
- mkj 7y ago
  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.
  - kiwijamo 7y ago
    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.
mr_toad 7y ago
> If I am an enterprise spending millions/year on cloud infra They do more than just VPNs. They do object storage, containers and K8. They have command line an API based tooling. A small enterprise could do a lot with that. If you were talking a $100 million dollar budget and you needed bells and whistles like IAM Lambda or Glacier I could agree.
mercer 7y ago
In my case I found it beneficial to just move everything to Hetzner. It offered everything I need at a lower price, and I foresee that for some of my projects I'll need to get 'proper' servers instead of the lowest-tier VPS offerings. It's easier to do that when it's all in the same ecosystem. That said, it's only been barely worth the hassle. The difference in cost for the lowest tier, at least, is almost a rounding error in my finances. Furthermore, it feels strange that I still often end up at DO pages for various tutorials or articles to help me set things up. I guess mostly I still find myself fond of DO, have been helped immensely by their free articles and tutorials, and am immensely impressed that they haven't gone to shit like all the shared hosting providers I've churned through in the years before I moved to DO. and while it was ultimately worth it for me to move all my projects to Hetzner, I wouldn't particularly recommend that approach to anyone unless <10$ a month is something they are concerned about.

Sohcahtoa82 7y ago

Does DO still disconnect your droplet from the Internet for three hours if you get DDoSed? That's what made me switch from DO to AWS a few years ago. I used my droplet as an IRC bouncer to hide my home IP address. I'm an op in an IRC channel and someone started spamming racial slurs, so I banned them. They responded with a DDoS. I could tell my connection was a bit slow, but nothing crashed, but then it dropped offline and I got an e-mail from DO saying they're taking my droplet offline to protect their network. Made me realize that I could never use them for any sort of game server, since the skids love to fire up LOIC whenever they get upset.

staller 7y ago
Did you continue to get DDoS after moving to AWS? I figure that AWS would take similar steps if you are not using Shield or one of their other products that would help mitigation. I'd like to know if anyone has experience there.
- realmod 7y ago
  All instances use shield by default IIRC.
  - jerryoftheyear 7y ago
    There are two levels of AWS Shield, "Standard" and "Advanced". You are correct that all instances receive "Standard" protection from Shield by default. https://aws.amazon.com/shield/ https://aws.amazon.com/shield/
- Sohcahtoa82 7y ago
  No idea. If they are, I don't know about it. I've never heard of AWS taking people's systems offline for being DDoSed.
thaeli 7y ago
This is why I run anything online-gaming related on OVH (or SoYouStart and Kimsufi, their cheaper offshoots that still use the OVH network) - they are very good about handling the everyday DDoSes you get in that sector without taking the site offline or charging extra. I think they will disconnect a site that draws a very high rate attack, but they've soaked the kiddie DDoSes just fine.

brianbreslin 7y ago

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.

eropple 7y ago
I don't think adding something the size of DO (which is not large) to AWS would materially impact anti-trust evaluation of Amazon.
- peteradio 7y ago
  Something will break the camels back. Can only pack so many straws.
wcarron 7y ago
Crunchbase estimates $500M-$1B range https://www.crunchbase.com/organization/digitalocean#section-post-money-valuation-data-by-privco https://www.crunchbase.com/organization/digitalocean#section...
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hamandcheese 7y ago
I don’t see why they would except maybe to aquihire some talent.
- ticmasta 7y ago
  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
- brianbreslin 7y ago
  That's why it might make more sense for a second or third place cloud provider to catch up. I would love for AWS to adopt the DO interface.

mhb 7y ago

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

patio11 7y ago
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 ability to do things you'd otherwise want to do or may cause those things to become more costly than you'd otherwise expect them to be. A few trivial examples of covenants: "Here's $50 million, but if you ever have less than $5 million in the bank, you're in default." or "Here's $50 million, but if your net cash burn ever exceeds $5 million in a quarter, you're in default." or "Here's $50 million, but if you need any more money, it has to come from us at whatever pricing we decide to make available. If you issue debt or equity elsewhere, you're in default." You very urgently do not want to default. One can imagine other features. Historically, the downside protections for debt investors in startups were extremely toothy [0]. This is one reason startups have been askance about raising debt historically. (Another reason is that VCs, who invest to get equity, tell founders "Please don't get money from my competitors", generally not in exactly those words.) [0] This is a polite way to say "They routinely were written to wipe out all common equityholders like e.g. employees and founders."
- hinkley 7y ago
  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?
  - patio11 7y ago
    You might or might not be allowed to do that. US consumers generally expect there to be no pre-payment penalty. That isn’t a universal feature of all loans. As to particular features of particular loans ask the really expensive lawyers or investment bankers who negotiated them, but plausibly “I owe you $45M; here’s a new equity investor; we’re done after the wire clears right.” might lead to “We agree you owe us $60M.”

BonoboIO 7y ago

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-funding-rounds https://www.crunchbase.com/organization/digitalocean#section...

raiyu 7y ago
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.
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OJFord 7y ago
I've never heard of a 'secondary market round', but a secondary market doesn't raise funding for the company behind the share.

cdolan 7y ago

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!

MuffinFlavored 7y ago
> This is a low cost of capital line of credit, is it not (due to their infrastructure and broad customer base)? How low cost? What interest rate, what fees, etc.?
- formercoder 7y ago
  Low as in much cheaper than equity no matter what.
hinkley 7y ago
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.
- cdolan 7y ago
  Perhaps, but debt is real and you cannot be “profitable” if you are under a mountain of debt... in fact, you become insolvent if you can’t keep up with the interest payments and pay down the principal.

markus_zhang 7y ago

I don't see anything about the structure of the debt. Wish we could see more details.

rsync 7y ago

"Spruill told TechCrunch that DigitalOcean will 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." I find this to be incredible. DO is not a speculative e-business ... they are not a social network. They are the proverbial sellers of picks and shovels during the gold rush: "The way to get rich during the gold rush isn't mining gold - it's selling the picks and shovels." Here is a pick and shovel seller that can't make a profit and is going into debt ...

outworlder 7y ago
> Here is a pick and shovel seller that can't make a profit and is going into debt ... That's one way to see it. Another is that they need money to expand the business.
djsumdog 7y ago
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?
- loldigitalocean 7y ago
  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 them, too, despite Rackspace subsequently burying that business in their wandering-through-tech mass grave. DigitalOcean, on the other hand, took a Sand Hill approach and is throwing money at becoming an AWS unicorn without realizing they are never going to be AWS. Read this carefully, DO: you will never, ever, ever be AWS. Full stop. You are not in the conversation, nor is Linode, nor is prgmr (but lsc knows that), nor is Vultr, and so on, and so on. Ask IBM about trying to take on AWS. DigitalOcean is an incredible waste of capital and appears almost as if they didn’t bother to look at Linode’s story at all. The companies are nearly identical behind the scenes and are pursuing the exact same addressable market, but one is a VC darling intent on burning capital on a completely solved problem and therefore gets VC ecosystem attention and expands to fill that attention. Seriously, you can address this market with Excel and some Python scripts; I exaggerate, but not much. The amount of money DigitalOcean spends given my intimate familiarity with the problem space has been baffling to me for the last decade. DigitalOcean should buy Linode with this debt so the Linode people can come in and fire the right people at DO and shed about seven hundred pounds of weight. When, not if, when DigitalOcean collapses, Linode will continue on and enjoy a sudden inflow of DO’s market share. Linode long predates DO and will postdate them, too. I have a poor opinion of Linode in a lot of ways, by the way, so.

nknealk 7y ago

To raise a material amount of debt, lenders generally require there to be collateralized physical assets against that debt. Compare that to equity financing which firms can use on literally anything (eg. marketing spend, hiring, etc). So my guess is the $100M is going to go towards expanding their data centers in some way. We might see new regions from DO in the coming years or additional server types/services that run on top of those new servers.

cdolan 7y ago
The first part of your comment I’d say is accurate, but why would they have to spend a meaningful part of the $100 mil debt on infrastructure? DO likely collateralized their existing infrastructure to get the $100 mil line of credit/debt, but will spend the $100 mil on other things in addition to some infrastructure (as the article suggested)

neom 7y ago

DigitalOcean has always had loads of debt, it's how you build such a capex heavy business, you use lease lines and credit.

djsumdog 7y ago
I wonder if they would have if they didn't have to cut prices to compete with Vultr.
- Dirlewanger 7y ago
  First time I'm hearing of Vultr...they look like a carbon copy of DO. What does Vultr have that they don't?
  - porker 7y ago
    > What does Vultr have that they don't? According to multiple HN users, a more unreliable (internal) network.
    - bluedino 7y ago
      Ironically I moved from DO to Vultr because their network was more reliable
  - dwild 7y ago
    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.
  - toomuchtodo 7y ago
    Commodities have little differentiation between themselves. Compute alone is a commodity.
  - drewnick 7y ago
    DO has more managed services like databases, k8s, etc. Otherwise they are very similar. Vultr has more locations in the US.

chrshawkes 7y ago

I prefer Linode. Same level of service, if not better and cheaper. Linode does 100 million in revenue and as far as I can tell they aren't borrowing against their future to get it.

bklyn11201 7y ago
My guess is that a company like Linode with 100 million in revenue is using lines of credit to make large purchases of servers that will pay off over time as their revenue grows. I'm not sure what's scary about D.O. borrowing 1/3 of this year's revenue to continue growing.

GekkePrutser 7y ago

I used them for my private VPSes but they became too big and business-like. I moved to Scaleway now, it's still in a much earlier stage, cheaper and with unlimited bandwidth. I like the way you can still talk directly to their guys on slack to ask questions. However they're becoming big too. I hope they'll still love us and I don't have to move again soon :)

chrysoprace 7y ago
What's your experience with the service? I'm with Linode at the moment, primarily because DO doesn't have an Aussie region. Seems like Scaleway is much better value for money; however reviews on Reddit don't seem favourable.
- termau 7y ago
  Try binarylane if you're in aus
  - PixyMisa 7y ago
    BinaryLane are amazing.
- stevekemp 7y ago
  I had a single server hosted at scaleway for a year or two, purely for "offsite" monitoring of services hosted elsewhere. I only had one complaint; using their online control-panel it was impossible to set reverse DNS for IPv6 addresses - something that you need if you want to send email. Otherwise the service was stable, reliable, and cheap. I retired the instance last month, but that was due to practical reasons rather than unhappiness with their services.

polote 7y ago

A lot of complains here but I don't understand why is that worse than raising the same amount of money from VC ?

dwild 7y ago
A VC does the deal in exchange of a part of the company. They will make their money once you exit, either by becoming public, or by an acquisition. The deal can be different and could certainly include some kind of repayment, but that's not the norm for a VC deal. A loan has to be repaid though, whether the company exit or not. The terms are fixed and you need to pay them. This can be quite hard when you get a few bad months, while a VC will just get sad if that happens.
- icedchai 7y ago
  Assuming a successful outcome, VC deals are actually more expensive. They cost founders and common holders much more in potential returns. Don't forget about the dividends associated with preferred shares. Those shares are basically earning interest, just like debt. Given that nobody expects to fail, why wouldn't a company do debt if they can afford it and are credit worthy? And the bad outcome for both is the same: the company goes broke.

floatinglotus 7y ago

This company has always been a joke.

Tokkemon 7y ago
No.

humbfool2 7y ago

I host my websites on DO. Their UI and API is really cool. Linode and Scaleway both lost my data. DO is far more reliable than Linode and scale way. It's always good to have options to choose from. I hope they succeed. Companies like Netlify, Zeit and Heroku are also doing good but I don't see any Enterprise applications for such services. One thing I especially like about DO is that they are not stagnant in terms of features. They continuously keep adding new features.

brandon272 7y ago
How did Linode and Scaleway lose your data?

reedwolf 7y ago

What happens when one of these mini-cloud providers like DO, Linode, and Vultr folds? What are the consequences as a customer? Does all your data just evaporate into the aether?

drewnick 7y ago
Yes, which is why no matter who your provider is, you should have an off-site backup.
paulddraper 7y ago
I assume you download your data.
stevekemp 7y ago
If they literally turn out the lights then yes. Typically what happens in the low-end hosting world is that smaller providers get bought out by larger ones, (though large in this sense might mean a 4-person company with 200-1000 virtual machines gets acquired by a company 2-5 times larger). At that point you'll probably have your stuff running and you'll be "invited" to migrate. But in short you should always assume your stuff is going to disappear; take (offsite) backups, have (offsite) monitoring, and design applications to cope with rebalancing/relocation/redeployments easily.

chirau 7y ago

I was at fireside chat with the DigitalOcean CEO. Not once did he mention this. Very interesting though. I have always thought that debt would be the only way they grow and remain relevant in a crowded cloud space.

captncraig 7y ago

Didn't they just have layoffs recently?

Tokkemon 7y ago
For restructuring purposes.
- almost_usual 7y ago
  Isn’t that every layoff?

spicyramen 7y ago

I love DO justo no GPUs

Tokkemon 7y ago

My company recently moved all their hosting to DO and we couldn't be happier. It's some of the best hosting we've ever had, especially their Spaces product.

gexla 7y ago

Echoing a lot of other comments here. I don't get why DigitalOcean exists. I would never use them over AWS, GCP, or Azure. They can't beat anyone on cost or functionality. I'm not convinced on simplicity. The other platforms aren't that difficult to use and for some you have to deal with regardless. For example, if you want to use Google Maps, then you need to use GCP to get access to the API. Since you're already in there, it's not much further to setup a VPS.

btzll 7y ago
"I don't get why Ubuntu exists, I would never use it over Mac or Windows" Having options is good, and there are many reasons someone would prefer them over AWS, GCP or Azure.
- gexla 7y ago
  They just raised $100M and they aren't yet profitable. The markets will judge. And that judgement is still out until they become profitable.
jdance 7y ago
I'm a DO customer. I tried to figure out what running a windows server would cost on Azure once (since DO doesn't provide windows). I didn't manage to figure it out after like 20 minutes, and the complexity was just mind blowing. I literally got a bit of a shock, and felt pretty stupid that I couldn't figure out such a simple thing. The thought going through my head was something like "does people actually use this?". So that's a radically different perspective for you :)
- gexla 7y ago
  I haven't used Azure much. But because it's Microsoft, it's going to be a default option for a lot of customers who are entrenched in the MS world. AWS is complex also, but I remember when you're only option to launch an EC2 instance was through the command line. And it's still easier to figure out than most of my tech stack. Not that I need to be adding anything with needless complexity. I do actually like DigitalOcean, but in an AWS / GCP / Azure world I feel it's best to learn one of those well.

Elect2 7y ago

What stopped me from using DO is that they will null your server IP address if the server got DDOS. I never heart aws/gcp did this.

luord 7y ago

I was reminded about the "debt is coming" post that was shared a couple of weeks back. This is a good example of that, I think.

steve_adams_86 7y ago
It seems from what I've read here that digitalocean has always carried relatively higher debt than other, similar companies. It might not be a good example.