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 doubt any of those providers would want DO. Unless they just want to buy the developers, they're not going to get the customers unless they provide some type of automatic migration pattern where yesterday everything was a Digital Ocean Droplet and DO LoadBalancer and hosted database and today we've magically and transparently migrated all of that to EC2, ELBs and RDS.
It's easier to just market to the customer base and get them to migrate their stuff on their own.
Getting funding as a startup is another. If you are alone in your vertical nobody wants to talk to you. If you have competition, well, then you must be doing something interesting.
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).
let's say you have a mortgage on your house and your equity in it is roughly 10% of the house. now imagine you take a second mortgage/HELOC to invest-renovate the house, buy new furniture, build a pool, etc. - in good case your equity will be 10% of the higher price of the house due to renovations, so your equity will increase in dollars. But what if you will never find a buyer? and the house price will stay the same, if not lower. then your equity in your house will be wiped out and the mortgage will become underwater.
Versus selling equity you can burn through the capital without repercussion however you are also giving away future upside.
Also the benefit to a debt is that banks want to be repaid. The last thing they want is for the company to go out of business so there is a much larger review of the financials of the company. This forces good accounting practices as well as good spending behavior.
Versus when you sell equity you don't really have those same financial controls and as has become more and more common especially in the last few years companies then go and spend that capital inefficiently to grow their revenue base but never get their costs under control.
Then you end up with a business model that doesn't work. The most recent example of which is Casper. Which raised well over $300MM in equity but is still losing $60-80MM a year and required an IPO to continue financing their suboptimal business model. The investors here got burned because the last private valuation was $1B and now that it is publicly traded it is $419MM.
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.
I don't disagree that debt is a normal way to fund a business; arguably, it is the best way to fund a business once the business has been derisked. As you mention, you're not suffering dilution to get access to the capital, and as long as you're able to generate a multiple of value using that debt, you should take it on. My comment communicates pessimism about the value that debt will be able to generate (I'm not debating the present value already inherent in the business, that's already obvious and proven based on revenue).
The argument breaks down when you compare DO to AWS; DO isn't in the same class as AWS, Azure, or GCP. These are top tier cloud providers; not only do they have access to capital markets (or firehoses of profit from other business lines) at terms most startups could only dream about, they have world class sales, account management, and technology teams. They are able to generate an immense amount of value from the leverage they're obtaining with their available capital resources. I agree there is growth left for DO, but not at the same rate as the cloud providers I mentioned, and the growth remaining is the value up for discussion when considering 1) what DO has already raised in equity and debt and 2) current and forward looking revenue.
It's kind of a moot point: if I'm wrong, you still end up wealthy. If I'm right, I get...internet points with no value. I hope your common shareholders are able to realize upside from the value they've created (I have friends who worked at DO), but I'm not optimistic based on how common shareholders make out, historically, in venture backed orgs. This is my chief concern: common shareholders (who put their most precious resource, their time, into the business) getting blown away because an org overextends itself attempting to reach an unattainable target.
That aside on the equity side we only raised $123MM. Assuming that the acquiring entity sees the debt as a line of credit that is backed by a revenue generating asset (servers with customers on them) then the company would need to be acquired for $123MM for common shareholders to end up with nothing.
Given that we are already over $250MM in revenue that seems very unlikely.
PS> I hope this comment ages well =]
I appreciate that you took the time to reply; you might have Crunchbase update their info, as my comments are based off them showing >$300MM in equity funding. Your numbers make the scenario look much better.
I'd be happy to tell them that, but I'm a little annoyed with them because they used to list everything publicly and then put a bunch of stuff behind a paywall. Doubt, that it would matter much to them regardless plus we are one of the few startups that raises both equity and debt, so I don't think it something that happens often enough for them to really change how things operate on their end.
They seem to have some regions running at near capacity already.