DigitalOcean Finalizes $37.2M In Series A Funding For Its IaaS, Virtual Private Server Offering

New York-based IaaS vendor DigitalOcean recently announced the finalization of $37.2M in Series A funding in a round led by Andreessen Horowitz with additional participation from IA Ventures and CrunchFund. As a result of the investment, Andreessen Horowitz’s General Partner Peter Levine will join DigitalOcean’s board of directors. Digital Ocean provides virtual server offerings on solid state drives at a price that begins at $5/month for 20 GB of SSD storage, 512 MB of RAM and 1 TB of bandwidth. Customers can sign up for “droplets” of server capacity of varying sizes, or decide to opt for several droplets to fulfill their infrastructure hosting needs. The funding will be used to support the company’s explosive growth and accelerate product development. According to The New York Times, DigitalOcean now boasts more than 100,000 customers in comparison to the 2,000 customers it had at the beginning of 2013. DigitalOcean’s customers are predominantly developers and start-ups that account for a vibrant online user community that impressed Peter Levine as recounted to TechCrunch:

I met DigitalOcean last fall. I was blown away by the growth and excitement around the developer community. 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. DigitalOcean has this very large community of users so they get a lot of feedback. It’s very uncommon for a startup.

The DigitalOcean community platform features the opportunity for developers to ask and respond to questions, review vetted tutorials and view and contribute to open source projects. DigitalOcean’s large online user community positions it to accelerate product lifecycles by drawing upon the experiences of its users. Potential product enhancements include the addition of Platform as a Service functionality as elaborated by Mitch Wainer, DigitalOcean cofounder and chief marketing officer:

We’re focused on building right now internally a PaaS model where we’re going to provide one-click provisioning for different images. So for example, a Rails image. These will be provided to make it easier for developers to instantly create new servers with preconfigured setups.

Other product development plans include additions to its application programming interface (API) that customers can use to manage their virtual private servers. In addition to supporting product development, the funding raise will also be used to maintain and expand DigitalOcean’s infrastructure footprint as evinced by data centers in New York, San Francisco, Amsterdam and Singapore.

The striking thing about DigitalOcean is its explosive growth and profitability in the developer and startup IaaS niche space that Amazon Web Services had dominated for years. Current high profile customers include Beyonce.com, Nike, TaskRabbit and Flywheel. The main challenge for DigitalOcean now will be to sign up more enterprise customers while continuing to innovate on what is currently a relatively simplistic platform that could be easily be replicated by a competitor unless the platform undergoes a healthy dose of enrichment that maintains, in the words of CEO Ben Uretsky, the “relentless focus on simplicity” that drew customers to its offering in the first place. That Andreessen Horowitz invested so heavily in this Series A financing, for a company not based in Silicon Valley, speaks volumes about the company’s growth. “The numbers speak for themselves,” Peter Levine noted, in what represents a notable reminder that the IaaS space is far from crowded out by Amazon Web Services, Windows Azure IaaS, Rackspace, HP, IBM, Piston Cloud Computing and Red Hat. The question now is whether DigitalOcean can manage its growth and scale to support its expanding international footprint and the increasingly complex needs of its customers as it gains more traction. The $37.2M Series A funding raise brings the total capital raised by DigitalOcean to $40.4M given that it raised $3.2M last year.

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