Digital Ocean’s Journey From TechStars Reject To Cloud-Hosting Darling

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The cloud hosting service DigitalOcean is one of the big startup success stories of the last year. Earlier this month, the company announced that it had raised a $37 million funding round led by Andreesen Horowitz, just a few months after raising a $3.2 million seed round. Maybe even more importantly, it’s adding customers at a rapid clip and it has now spun up over 1.3 million cloud server instances since its launch a year ago.

Getting to this point wasn’t all that easy, though. Earlier this week, I sat down with DigitalOcean CEO and co-founder Ben Uretsky to talk a bit about the company’s journey. It is, in many ways, the quintessential startup story. Uretsky has a background in hosting, but in 2012, he decided that a new approach to cloud hosting was necessary. Existing providers offered pricing plans that were too complicated and platforms that weren’t always meeting the needs of their users.

With Amazon ahead of the pack, however, the team had a hard time convincing potential investors that it could make a dent in the hosting market. In the process of trying to secure funding, DigitalOcean’s founders met up with IA Ventures’ Brad Gillespie who suggested the company apply to TechStars New York. The only problem with that suggestion: the application deadline was just about 24 hours away. So the team hunkered down for a day and finished the application.

“That was the first time we really solidified our mission in writing,” Uretsky admitted. In addition, the founders had to record 30-second video clips for one part of the application. Given the deadline, the founders used their iPhones to record them.

From there, the team got invited to the TechStars intro day and, as Uretsky put it, “walked away with a sense of awe” afterward because it made them realize what kind of network an accelerator program like TechStars could offer them “We knew at that point it was worth getting in,” Uretsky told me (and he was especially impressed by meeting Brad Feld at the intro day).

After this first introduction to the world of accelerators, the team went through the TechStars selection process. Uretsky especially remembers a key meeting with David Tisch who was running the NYC program at the time. That meeting must have gone pretty well, because the company was invited into the finalist round of about 20 to 25 companies. Despite making what Uretsky believes was a very solid pitch, DigitalOcean was rejected in the end and didn’t make it into the program.

After almost two months of going through the selection process, that was quite a letdown, of course. “We pleaded our case,” Uretsky told me, but to no avail.

The company continued working on the product, though, and two weeks after the finalists were announced in March 2012, Uretsky got an email from Tisch, inviting them to apply to the Boulder program. Out of all the companies that were rejects, Tisch felt, DigitalOcean felt like it should’ve been part of the class. “The main reason [Tisch] didn’t want to work with us was that his own experience in the server and infrastructure space wouldn’t be helpful,” Uretsky told me, which makes sense, given that Tisch’s experience is really in the consumer space.

By mid-May 2012, the company had been accepted into the Boulder program and the five-person team moved into a three-bedroom house in Boulder for the week. With just three rooms, Uretsky and one of his co-founders — who shall remain unnamed — ended up sharing a bunk bed. His co-founder turned out to be a very loud snorer, which probably didn’t make the whole experience, which Uretsky describes as “gruelling,” any easier. Still, he describes the accelerator program as “a great formative period for DigitalOcean.”

With no distractions — besides the snoring — the team was able to focus completely on the product. That is, after it made it through the first phase of the TechStars process, which has the teams meet with lots and lots of mentors. All of them, of course, have different ideas about the company and there was always a push to think about pivoting to a different product. And that’s what the team did at first. For a while, they worked on other ideas, including a community content network, a provisioning service and other ideas. “At the end of all those conversations [with mentors], we were still able to stick to our original thesis,” Uretsky said. “We decided to stick with the original value proposition.” Still, some of those potential pivots turned out to be the seeds for some of the features of DigitalOcean today.

With that phase behind them, the team went into phase two, which is about building the product, finding some early customers and getting traction. By demo day, the company had spun up about 10,000 instances and signed up just under 400 customers.

Talking about demo day, Uretsky recalled how the pressure for companies is to come out of the program and be able to set up a round, but in trying to raise a seed round, the team faced the same challenges as getting into TechStars: cloud hosting is a hard sell.

In the end, though, the team manged to convince enough investors to fund its early days, but to accelerate its growth, the team decided on a risky move. Even though DigitalOcean is known as an SSD-only hosting platform, it still used regular hard drives in 2012. The idea was to offer a simplified user experience, but SSDs weren’t on the original roadmap.

Still, DigitalOcean decided that in order to differentiate itself, it would move to SSDs. Those are more expensive than regular hard drives, though, so it had to sign up twice as many customers as before to stay in business. My colleague Romain Dillet wrote the first story about this move and Uretsky was able to recall the date of that post — January 15, 2013 — because he says that’s the day when he realized that this idea was going to work. That story then hit Hacker News later in the day and the company increased customer acquisition 10x from then on.

Over the last year, that growth story has only continued. For Uretsky as the CEO, though, this rapid growth also meant stepping away from product development himself and focusing on financing instead.

“It’s a little disheartening because I love technology.” he told me. “But nowadays I do meetings and phone calls most of the day.” With a large funding round behind him, he now focuses on hiring, something that isn’t exactly easy, either, and that often shapes a startup’s future for years to come.