DigitalOcean Raises $37.2M From Andreessen Horowitz To Take On AWS

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Cloud hosting company DigitalOcean raised a Series A round of $37.2 million at a $153 million valuation led by Andreessen Horowitz. Previous investors IA Ventures and CrunchFund also participated, but Andreessen Horowitz is by far the largest investor in this round — and Peter Levine will join the board. Previously, the company went through Techstars Boulder and had raised $3.2 million.

“We’re the 9th largest infrastructure provider worldwide and it’s such a capital intensive industry,” DigitalOcean co-founder and CEO Ben Uretsky told me in a phone interview. “Our users can buy a slice of a physical machine for a short period of time for a fraction of a penny. Securing this capital is very important to make sure that we stay ahead of our customers’ demand.”

DigitalOcean provides scalable virtual private servers with a few key features to differentiate itself from its competitors. First, it’s cheap. For $5 a month, you can run your virtual server (droplet) with 512MB of RAM, 20GB of SSD storage and 1TB of bandwidth — and you are billed per hour. It’s great to run a small app and experiment. When asked whether the company will be able to maintain these prices, Uretsky’s answer was straightforward. “We have no intention of changing our prices,” he said.

But it doesn’t mean that you can’t run more serious services. Creating a droplet takes 55 seconds and you can resize it in a single click — there are many different droplet sizes. You can run multiple droplets. The company has multiple data center locations in New York, San Francisco, Amsterdam and Singapore. It promises 99.99 percent uptime. In other words, DigitalOcean is all about providing low-level access to its users thanks to its virtual private server infrastructure. But you won’t have to manage and upgrade dedicated servers in a collocation center.

Flywheel built an entire WordPress hosting service on top of our cloud,” Uretsky said. “They are running over a thousand droplets for their users. The integration is so tight that customers can’t tell that we’re running the service.”

Another example, Beyoncé launched her new album in December. It turns out that Beyonce.com runs on DigitalOcean. The servers handled the album launch without breaking a sweat.

“We’ve seen 15 million visitors within the first 24 hours. She’s been pretty happy with the service,” Uretsky said.

How do we simplify web infrastructure so that it’s easier for developers to use but is still powerful enough to build significant things with it?

The company competes with many hosting providers, such as Rackspace, Linode, and in some way Amazon EC2 and OpenStack hosts. But why do customers choose DigitalOcean over its competitors? The company has some powerful community features. Customers can share tutorials and tips to run a particular stack or application. The website now has a large ever-expanding knowledge base. Developers can also ask for help if they are stuck.

“The idea is that we’re all working together to create this environment on top of DigitalOcean,” Uretsky said. “You’re leveraging the best practices of the community.”

Similarly, the company tries to make using the service as simple as possible. You still have to learn system administration skills, but it’s a bit easier than managing your own physical server. Setting up a droplet takes a few clicks. You also get a web console access. Soon, users will be able to share and use templates thanks to a new provisioning tool. The company is also working on IPv6, load balancing and eventually storage.

“After raising, we can switch our focus back to why we made this business in the first place. How do we simplify web infrastructure so that it’s easier for developers to use but is still powerful enough to build significant things with it?” Uretsky said.

With today’s funding, the company will hire more people to face great scalability challenges. The company’s growth started around a year ago. At the beginning of 2013, it only had a couple of thousands of customers. It now has 110,000 active customers, runs 5,000 physical servers and signs up a bit less than a thousand users every day. And it’s profitable.

When it comes to finding a VC firm to lead the round, the company’s growth was a key argument to close the deal.

Andreessen Horowitz walks away with the prize and they were actually number one on our list.

“We wrote a wishlist. We had about 10 different VCs that we wanted to reach on the West Coast,” he said. “Ultimately, Andreessen Horowitz walks away with the prize and they were actually number one on our list. They represent that perfect mix of capital and strategic investment. They share a similar view of the world where the developers have much more power than they used to.”

Peter Levine led the investment for Andreessen Horowitz. “I met DigitalOcean last fall. I was blown away by the growth and excitement around the developer community,” he told me in a phone interview.

According to him, the investment will allow the startup to create new products and to recruit new users from new countries. Levine was impressed by the growth rate of DigitalOcean. “The numbers speak for themselves,” he said.

He was also very excited about the community features. “I’m on the board of GitHub as well, and the power of the community became really evident to me at GitHub. Users sense the empowerment,” he said. “DigitalOcean has this very large community of users so they get a lot of feedback. It’s very uncommon for a startup.”

While Levine doesn’t develop anymore, he did try DigitalOcean before investing. He started a droplet to see if it was as easy as the team told him.

The interface is nothing like AWS or OpenStack. It was specifically developed to serve DigitalOcean’s market. Eventually, developing something completely new isn’t the easiest path, but the company thinks that it’s worth it. “We’re really proud of the work to build an alternative infrastructure,” Uretsky said. With this kind of growth, it won’t remain an alternative solution for long.

Disclosure: CrunchFund founder Michael Arrington previously founded TechCrunch.

Photo credit: Tristan Schmurr under a CC BY 2.0 license