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.
Well the debt really acts like a line of credit, in that we are using it for hardware which is then immediately put into service and generating revenue, so the available debt and the drawn down debt are different terms and really there is no need to draw additional down additional debt if the company stopped growing tomorrow.
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.
Question do you lease or buy your servers? It isn't quite clear which you do. Can see in evaluations that a lot of the kit is getting a little bit long in the tooth which I read as your not buying as you're growing but a lease model is the only way I personally see you running up enough costs to warrant the line of credit
I hope this comment ages well also! People deserve compensation for the value they've created.
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.
Yeah - they just lump everything together. They even include employees selling secondary as "raised" capital and the same for debt which is inaccurate.
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.
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.