# DigitalOcean raised $83 million in Series B funding



## danielm (Jul 8, 2015)

DigitalOcean raised $83 Million in Series B funding. Plans to use it for "growing our team and expanding our product offerings with networking and storage features."

Full post: https://www.digitalocean.com/company/blog/series-b-funding-writing-a-new-chapter-in-the-digitalocean-story/


----------



## drmike (Jul 8, 2015)

I just got through reading this and here's my perspective on DigitalOcean's latest round of investment:

500,000 developers

6 million droplets deployed (total probably ever - which I probably deployed 100+ alone)

$83 million investment

With these numbers, per customer the current investment would be $166 per developer.

$83 million divided by 6 million droplets  = $13.83 per.

Pricing remains stuck at $10/GB.   We are speaking of selling 8.3 million GB's of RAM to cover the investment.

But... from their press, says they run over 10k servers at current.    

If we say investors believe the company is worth just this latest round:

83,000,0000 / 10,000 server = $8300 income per server.  That doesn't work out whatsoever.   Even if extended to a year (8300 / 12 = $691 income per month).

Big issues with 10k servers.  That's just a ton.  Hundreds of racks.

More likely to run ~ $300+ income per month.  $300 x 10000 = $3 million a month and $36 million a year.

Do the numbers jive though?  10k servers even at mere 32GB size = 30 containers~  per server.      10,000 servers x 30 containers = 300,000 containers live or 1/20th or 5% of all droplets ever created. Even if all 512MB instances they have 600k containers at 60 containers per server or 10% of all droplets active. 

If we take VC divided by high containers currently 83,000,0000  / 600,000 = $138 per droplet.  To make  $138 per droplet they would have to sell at 1GB for 16+ months to customers to break even just on VC vs. income with a bit thrown on top to cover clearing fees.   Realistically with costs accounted for we are talking 2+ years.

They are rolling a snowball down a mountain.  Even with the spectacular growth the income is marginal.  Company is going to have to mass invest in humans in real life which is very expensive where they are operating.  Even if they do the impossible and expand to 1 million "developers".  The per customer cost vs. this round of VC alone would be $83 per developer/customer.  To recoup that with their pricing would take nearly 1 year at 1GB level and 18~ months at 512MB level.  If customers are mass multiple containers live buy in isn't clear and if true means container counts realistically are goofy and low customer retention / active paying.  Right now at best they are running 1-1.2 customer to container ratio.  (500k customers vs. maybe 600k containers).

As grand as these numbers sound, to accomplish this they have prior VC funding and a big leasing line and still couldn't make it work well enough that had to hit VC very hard again.



> Last but certainly not least, we would like to thank you, our community! Thank you for growing with us and for challenging us to be better every day. We wouldn’t be here without you.


A nice touch.  Fact is DO wouldn't be where they are if it wasn't for VC investors.  Remember these guys aren't new to this business.   Been involved in multiple prior shuttered companies that closed in less that wonderful ways or experienced life ending incidents.  Whole company is an accounting formula with good top dressing "community" that they paid to have created.  

It's a VC play to disrupt the market, in case you haven't yet deduced such.  Easy to achieve these numbers with credit giveaways (total customers + all time deployed containers) and monopoly money.   But will those customers stay and pay? Probably not.  Better hurry up and flip the place.  Problem is, who has the deep pockets for such a buyout and wants to own a market disrupter?


----------



## drmike (Jul 8, 2015)

Stopped by their website and on it says $123 million raised total, 500k developers.

= $246 per customer / developer.

Quite high investment amount per customer.


----------



## Hxxx (Jul 8, 2015)

DO is punching hard its competitors. I'm a fan of their simple and smooth management panel.


----------



## clarity (Jul 8, 2015)

I have only given them $5, but they have given me $150 in credit. 

Their services are pretty good for throwing things up and down, but I don't see them being worth the amount of money they are getting. Some investors are going to be pretty disappointed.


----------



## Hxxx (Jul 8, 2015)

Well, I do use them for important things. If I do (and I'm a very skeptic person) , i don't see why other thousands won't. After all we are in the fake cloud era. 



clarity said:


> I have only given them $5, but they have given me $150 in credit.
> 
> Their services are pretty good for throwing things up and down, but I don't see them being worth the amount of money they are getting. Some investors are going to be pretty disappointed.


----------



## clarity (Jul 8, 2015)

I am not saying that their services aren't good. I enjoy the simplicity of them. I am saying the investors are overvaluing the company. It is a great VPS provider. They are not worth $100M though.


----------



## eva2000 (Jul 8, 2015)

well VC's see the potential NOT where they're currently at i suspect


----------



## Clouvider-Dom (Jul 8, 2015)

Hxxx said:


> DO is punching hard its competitors.


Will see how long until their VC investors will look into heaving an actual return on this investment.


----------



## drmike (Jul 8, 2015)

clarity said:


> I have only given them $5, but they have given me $150 in credit.


That's the problem if we look at VC pile and cost per customer we have these soft giveaway costs just to get customers to try.  It adjusts the per developer spend a bit, but still quite high dollar per customer ratio and talking about PURE SPEND.  ROI is like somewhere in the future year 2 onward.  Brand loyalty that long at scale... I am unsure how that's going to play out.

I signed up when they were handing out money.  Burnt through it, they earned about the same since I was lazy and autobill happens.  But quickly I put stop to it and well, haven't spent a dollar since.

DO I'll call a get big and rich quick scam.  Sell out in the next 18 months and done. They don't care if they knock every small business under a bridge.    The numbers are better than lowend, but we are talking about a business with employees, real payroll, etc.


----------



## Hxxx (Jul 8, 2015)

Clouvider-Dom said:


> Will see how long until their VC investors will look into heaving an actual return on this investment.


You are right, but remember we are talking about millions. A lot can be achieved with millions.

The key in DO is the marketing department, these people are pretty good doing campaigns. Not to mention the front end developers, such great panel. 

Also the community of DO is big. Search anything about dev or linux vps , DO will be right in the top 10 results in google.

Now the real question, could these many investors be wrong? 

https://www.digitalocean.com/company/about/  (scroll down)


----------



## DomainBop (Jul 8, 2015)

clarity said:


> I am not saying that their services aren't good. I enjoy the simplicity of them. I am saying the investors are overvaluing the company. It is a great VPS provider. They are not worth $100M though.



They've raised over $100 million from VC investors but you're right _"they are not worth $100M though." _ The latest estimates put DO's valuation at around $680 million.



> analysts estimate DigitalOcean to be valued at about $680 million after this round of funding.
> 
> 
> http://www.bloomberg.com/news/articles/2015-07-08/amazon-web-services-competitor-digitalocean-raises-83-million


$680M (and I've seen estimates as high as $800M) for what is essentially a commodity IaaS play...someone say bubble?


----------



## DomainBop (Jul 8, 2015)

Hxxx said:


> Now the real question, could these many investors be wrong?
> 
> https://www.digitalocean.com/company/about/  (scroll down)


 I'll answer that question with the same reply I gave to DO's co-founder Ben a couple of years ago:



IaaS cloud is a highly competitive commodity business with a downward pricing trend. DO's best bet is to either sell out or do an IPO soon while their valuation is at a peak before the bubble eventually breaks (which it will).


----------



## drmike (Jul 8, 2015)

Hxxx said:


> You are right, but remember we are talking about millions. A lot can be achieved with millions.
> 
> The key in DO is the marketing department, these people are pretty good doing campaigns. Not to mention the front end developers, such great panel.
> 
> ...


DO is a VC trust fund + some advisors in biz roles + a panel they brought in at $250k invest before VC.

The dev docs and community   You realize they pay well for those right?

https://www.digitalocean.com/community/get-paid-to-write

In-Depth Tutorials

1,500+ Words

$200

 


Simple Tutorials

800+ Words

$100

 


Updates

e.g. CentOS 6 to 7

$50

 

 



Math time again.... 

Follow along with one of our 1161 

development and sysadmin tutorials.

1161 x $200 = $232,200.

1161 x $100 = $116,100.

Quite an investment.  Well worth it.  Who else can find that coin in their couch and then pay for professionals in roles to manage that?  They are 300-400k$ invest into the tutorials.


----------



## Tyler (Jul 9, 2015)

Hxxx said:


> Now the real question, could these many investors be wrong?
> 
> https://www.digitalocean.com/company/about/  (scroll down)


This hosting company has a "Senior Illustrator"... what?


----------



## drmike (Jul 9, 2015)

Tyler said:


> This hosting company has a "Senior Illustrator"... what?


Yeah there are some interesting titles in there.  Big picture I think most of the roles are good for a progressive company.  Having multiple illustrators is very unusual.   As a title in a shop aside from inside an advertising firm, will be unlikely to find any.  

Lends to confirming the nature of what DO is truly.  Not slapping at it for what it is...  Just not fond of 800 pound VC funded gorillas wrecking markets.


----------

