Ben and Moisey Uretsky are the cofounders of DigitalOcean which is the third largest hosting company in the world. They have today more than 500 employees and over $200 million in annual revenues. They have raised for their business $123 million at a valuation rumored to be over $1 billion. Some of the investors include Andreessen Horowitz, IA Ventures, or Trinity Capital to name a few.
In this episode you will learn:
- The experience of going through a top tier accelerator
- Working on a hyper-growth business with a family member
- Product-market fit with real examples
- Fundraising from top investors
- Capturing the attention of investors
- Making do or die business decisions
About Ben Uretsky:
Ben is a co-founder and the former CEO of DigitalOcean. He now serves on the company’s board of directors.
As the founding CEO, Ben drove the company’s vision, strategy and growth from 2012 to 2018. Ben has more than 20 years of experience in systems and network engineering in the infrastructure space. Prior to DigitalOcean, he co-founded and built a managed hosting provider that supported some of the top websites in the world.
Ben holds a bachelor’s degree in information technology from Pace University.
About Moisey Uretsky:
Moisey is a co-founder of DigitalOcean and currently serves on the company’s board of directors.
During his time at DigitalOcean Moisey was responsible for driving DigitalOcean’s product vision, helping to guide the company from its early startup phase and growing the product and user community until 2017.
Throughout his life as an entrepreneur, Moisey has worn many hats and has a vast knowledge in various facets of business including new business incubation, venture investing activities, network engineering, technical support, project management, and business development.
Before founding ServerStack and DigitalOcean, he studied Mathematics at NYU and launched CorreGroup, a big data startup that provided valuable analytics to billion-dollar hedge fund firms in New York City.
Connect with Ben Uretsky:
Connect with Moisey Uretsky:
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FULL TRANSCRIPTION OF THE INTERVIEW:
Alejandro: Alrighty. Hello, everyone, and welcome to the DealMakers show. I’m actually very, very excited. I think this is actually the first time that we have two people. In this case, it’s going to be two brothers, and that’s the Uretsky brothers, Ben and Mosey. So, without further ado, guys, welcome to the show today.
Ben: Hey, thanks so much. I’m really excited to be here. This is Ben.
Mosey: This is Mosey. I’m really excited to be here as well.
Alejandro: So, guys, let’s do a little bit of walk through memory lane here because I know that you guys came when I think Ben was five years old from Russia. So, you came, and you grew up in Brighton Beach. How was that culture shock of coming here? I know you were a little bit younger, but how was growing up there in Brighton Beach?
Mosey: I think the good part was that we were both very young. So, at least, this is Mosey, so from my perspective, it wasn’t much of a culture shock because there wasn’t much culture that I had really attained back in Russia. So, America became all I knew rather quickly. I don’t know. Ben, would you say that’s kind of the same experience that you had?
Ben: Yeah, definitely, but then we stayed in the neighborhood for what feels like the next 20 years moving relatively close to King’s Highway, then to Sheepshead Bay, and so we really grew up in this Russian community. I think that certainly played a role in really understanding how you can find different communities as part of your life that have very different values and very different focus in areas of interest. So, I think that was an interesting contrast.
Alejandro: What about computers and mathematics? How did you both, Ben and Mosey, how did you guys start getting really excited about computers?
Ben: This is Ben. For me, I don’t know what it was, but I just loved computers from a very early age. I remember, I think it was late in elementary school or early junior high, so about fifth or sixth grade we were not able to afford a computer at home, so I would go to my friends’ houses and copy games from one friend and carry those disks over to a different friend’s house—this is before the days of the internet, and fix everyone’s computers around me. So, I fell in love with the kind of technology at a very young age. Before that, I wanted to be an astronomer.
Alejandro: Wow. Interesting. What about for you Mosey?
Mosey: It was sort of similar. Obviously, we immigrated from Russia with no money, so it was a bit later that our parents were able to afford a computer. Our first one I remember ever since we got it, we basically spent all of our time on it playing around with video games, going to AOL, all the usual stuff. I think as we got older, we got a lot more interested in what computers could do. So, obviously, for me, that was trying to figure out how to learn how to program just because it seemed exciting to create something from scratch. Ben, in the meantime, was really interested in Linux, and I couldn’t for the life of me understand why he would want to do that since I was using Windows and it was a lot easier to get things done, and he would sit there for hours trying to compile drivers to get his modem to work. I just thought that was really silly. Fast-forward a few years, and basically, my entire life has been around Linux and terminals and open-source software. So, it’s funny how your perspective can shift over time. Obviously, I really learned the value of Linux and really appreciate all of the great contributions, especially from that world and Open Source and everything else. So, it’s kind of funny how as a kid, you see it one way, and as an adult, you kind of expand your horizons.
Alejandro: Absolutely. What is the age difference between the two of you?
Mosey: It’s a huge difference of a year and three months which has absolutely led to no struggles between us because it’s obviously clear who’s the older one.
Alejandro: Right. Do you guys have other brothers and sisters, or is it just the two of you?
Ben: We have one other brother. He’s about five, six years younger. So, he’s currently the Director of Infrastructure at DigitalOcean. I would say he’s the most responsible brother at least from my perspective.
Alejandro: Right. Let’s shift gears here and talk about education. So, the two of you guys went to the same high school to Stuyvesant. Then I see that Ben went to Pace where you did information technology. Then Mosey, what you did is mathematics. So, we’ve talked about computers, but Mosey, in your case, why mathematics?
Mosey: Really, simply, I had a horrible guidance counselor at NYU. I always loved math. I was pretty good at it, and I was taking a bunch of math classes, and my guidance counselor told me, “Do you want to be a math major?” I didn’t really think about career or what any of that meant, so I said, “Yeah, sure. I guess I’ll do that.” So, I had really poor advice. Obviously, in hindsight, I probably should have focused more on computer science, and anyone that I talk to now that’s going through college or thinking about career, I steer them towards computer science and software engineering. So, really, it was kind of a bad decision on my part. The good part is that once you get past the really simple mathematics like calculus, you get into really abstract math, and that was very interesting because it really shifts how your mind thinks. I think that really understanding how to prove something from the ground up when you can’t even say 1 is 1, but actually, what is 1 to begin with? I think that is a valuable skill when you think about product/market fit and really understanding when is something actually true versus when something is an opinion?
Alejandro: Got it, and from your perspective, Mosey, and also with all the background and experience, how do you define product/market fit?
Mosey: Well, I think the classic phrase is if you have to question whether or not you have product/market fit, then you don’t have it. I think for DigitalOcean, that was pretty clear because we started our company pretty early. We did about six months of development work until Ben, who was the CEO said, “Why are you guys still coding? Can you ship something?” So, we did. We thought, “All right. Great. We’ll see how many people use it.” Then basically, no one showed up. Then we went down a longer journey going through TechStars and whatnot. Then finally in January of 2013 when we did hit our product/market fit, it was pretty much like everything was on fire. We went from signing up five customers a day to basically 200 customers a day every single day. So, I would say that analogy, as bad as it sounds to give that as an answer that if you have to question it, you don’t have it, our experience has really been true that when you have it, there’s no question whether or not you have it because literally it’s just like the ball has rolled down the hill and the momentum is so huge that you’re just trying to stay on top of it.
Alejandro: We’ll get into DigitalOcean in just a second, but I’d like to really talk about the beginning for you guys, and that was ServerStack. Perhaps, Ben, maybe you can share with our listeners like what was the incubation process behind the idea of ServerStack?
Ben: Yeah. I actually worked for a different hosting provider. So, ServerStack was also a managed hosting provider similar to what Rackspace does. So, I worked for this other hosting provider as a CTO. It was an interesting story because the CEO basically mismanaged the money and invested a lot into software development for stuff that no one cared about, a.k.a. no product/market fit and essentially bankrupted the whole company. So, as I reflected on what had happened, I realized that I ran the hosting division, basically the profit center of the entire business, and having the entrepreneurial blood I’d say from our father and also the entrepreneurial drive, decided to build the exact same company from the ground up. The funny thing is I started off, even though I was a CTO, I was still in the data center building out those initial racks, and it got kind of tiring, so then to delegate as any good executive does, I brought in Mosey, my brother, to take on the data center work. So, when that hosting company went bankrupt, basically Mosey, and I tapped into our savings. We bought ten servers and a switch. Found some co-location space and built the company from there. We were able to rescue a couple of customers from the now defunct company and get our start. Essentially, we were profitable you could say from the first month other than the $10,000 invested into creating the business, and we grew it from there. It was kind of hand-to-hand combat trying to go out and find new customers.
Alejandro: It’s interesting, Ben because there’s this book called The Founder Dilemma, and Mosey and Ben, you guys probably have read it or heard of it, but basically, he says how it’s a little bit tougher when you’re working with family members. Right? And look, I built the last business with my wife, so I know the drill. I guess in you guys’ case, how were you able to divide and conquer so that you would not step onto each other’s toes?
Mosey: Well, I wish I could say that we were able to divide and conquer effectively, but I think that took a long time. I think based on my experience, when it comes to family members or even close friends that start a business, usually whatever relationship you have prior to the business gets carried over into the business. Then if you hit product/market fit or various things happen where the stress level increases, it basically increases both the highs and the lows. So, wherever you found alignment or whatever brought you together, the highs are obviously higher because of your close relationship, but then at the same time, as the stress increases and there are disagreements, you’re naturally going to be bringing in the prior relationship as well just because it’s really hard to break that context when it comes to work. And especially for us, if you’re brothers, similar to you like with your wife, there’s not a lot of downtime because even if we go to our grandmother’s house for just a Sunday evening, naturally we’re going to talk about work. So, it kind of becomes this all-encompassing thing, but I think over time, we really begin to understand each other’s strengths and each other’s weaknesses, and then try to figure out how to actually align more around those things to put each person into a position of success.
Alejandro: Got it. What about for you, Ben?
Ben: Yeah, I think that everything that Mosey said, I agree with. It’s interesting that actually through the stress of building this company together, I think we hit a rock-bottom point where our relationship was at the absolute worst. In some ways, we were trending in that direction for the first 35 years ever since Mosey was born and entered into the family. So, it’s interesting that we hit rock bottom in the middle of the DigitalOcean adventure. But I’m super-thrilled that we were able to find this—I guess executive coach is the official title, but he’s so much more than that. Jerry Colonna from the Reboot Network. His background is really brief. He was a venture investor at a Flatiron Ventures here in New York with Fred Wilson in the early days, you know, kind of got to a point where he was almost on 20 boards. His life didn’t make sense, so he actually escaped out to Tibet and started going down a very Buddhist route, and now does leadership and executive coaching. He has worked with all the premier businesses. He really clicked with us. He said our family dynamic really reminded him of his, and he really wanted to help us out. I still remember that initial meeting, and I’d say if it wasn’t for Jerry, I don’t even know where our relationship would stand. But I’m also super proud and happy to say that right now, Mosey and I are on the best terms ever, and I don’t know if we would have gotten there if it wasn’t for DigitalOcean and Jerry, of course.
Alejandro: Was there like a breakthrough moment in you guys’ relationship?
Ben: Yeah, I mean multiple. Jerry follows the standard playbook. Hug it out. He makes you cry, and the other thing that I found really comforting is he basically says, “Look. It’s not really entirely your fault. Your parents did this to you, but the good news is it’s not your parents’ fault either because their parents did it to them.” Then he ultimately slaps you with the hardest question. Now I’m a father of two kids, so he basically says, “Well, is this the bull**** that you want to pass down to your kids?” He’s just very good at really focusing on your personal development and exposing the things that—kind of the shadow qualities. They’re your superpower on the one hand, but as a result, you also suffer some consequences. I think for me, I was very emotionally closed off, which was great because you’re able to stay levelheaded in very tough situations. You can optimize for the best interests of the businesses, but I think it came at a great personal toll of being perceived like an as*****. Very difficult relationships with my significant other who is now my wife, and all these other dynamics where, for a long time, you don’t actually feel like yourself, but you don’t even know it. Now, when I contrast back and look over the last ten years, I finally feel like myself again and wonder about all those years where I was kind of lost, walking around with a mask.
Alejandro: How do you see it as well, Mosey?
Mosey: Yeah, I think what Ben said is absolutely true. Definitely, without Jerry’s help, I don’t think that we would be where we are today. I think that it’s really unique to find an individual like him because he has a lot of business experience. You’re working on your personal relationship because ultimately, any company is a reflection of the leadership team, and especially of the founding team. If there are problems in that team, it’s going to trickle down into the organization. He has this unique ability because of his business experience, not only to discuss the business side of things but due to his own personal nature, really get to the heart of who you are as an individual. So, oftentimes when stress gets high, or there’s a conflict of opinion, you get a little bit too emotional, or you resort to these behaviors that don’t really work for you, and if you don’t have somebody from the outside who you respect and trust to really pull you back and give you a new experience, give you a new perspective, it’s really challenging to make that kind of progress. Basically, that’s the advice that I give to all founders is it’s okay to have founder conflict. It’s going to happen, and some companies have it more than others, but what’s not okay is not to bring somebody in from the outside who you trust who has the best interest of the founders at heart to help you work through it because this is not a unique experience. This happens to a lot of companies and a lot of teams. There are people like Jerry who are fantastic at helping you get through this. If you can get them onboard, you can really see clearly are you meant to move forward, or is there a problem that’s greater than what you can surmount? Or maybe it’s just you want to go in different directions. I think in business, in general, one of the main things that I would tell myself and any founder is you’re probably not facing a unique challenge. You’re probably facing a challenge that numerous companies and numerous individuals have faced before, so get advisors, build your network, and get the experience that somebody else has already learned through their mistakes and learn from theirs instead of doing it all over again and making the same mistakes over and over again.
Alejandro: Got it. So, moving from ServerStack to DigitalOcean, just so that listeners are able to understand the transition, what happened there? Maybe Ben. What don’t you go ahead and take it?
Ben: Okay, sure. About eight years into building ServerStack. We were in a fortunate position because we were generating real revenue. We grew into maybe 5 or 6 million in annual revenue. We had about 20 employees. No outside investments, so it was a bootstrap business. Things were going okay, but there were really two problems. Number one, we were going head-to-head with Rackspace on ideal prospects, on potential ideal customers. The conversations would sound really funny. It’s like, “We’re offering half the cost on newer hardware and basically an unlimited amount of support.” The customer would even say, “The reason I reached out to you guys is I’ve used Rackspace in the past. It wasn’t a great experience, so I’m looking for alternatives.” Then you get these two weeks of radio silence after which, when they finally surface, they basically say, “Well, we chose Rackspace.” You’re like, “Obviously, that was the best decision you could make.” I think that was very frustrating, and all of this really boils down to Rackspace owned the position in the market around managed service. They had a tagline, fanatical support. They were a publicly traded company, and essentially, no one got fired for choosing Rackspace. So, that was frustrating, but to make matters even worse and what we really felt was an existential threat, AWS had started a couple of years earlier and by 2011 had really become mainstream to a point where even we believed that a much better way if you’re building a new application, you know, a new service, the right way to build it is actually in the cloud rather than using a provider like ServerStack. So, that forced us to go back to the drawing board and really figure out like what do we want to do over the next five years? I think that was a great opportunity for us to take stock of what we knew and what we did well, essentially the business side, the technology as well, and also acknowledge where we needed to improve mainly on the marketing, on the positioning, on the differentiation. So, we started reading a whole bunch of literature, everything from Crossing the Chasm to Blue Ocean Strategy and beyond and started trying to apply those lessons to building a new company. One of the key things we learned in this is that many companies were expanding their brand portfolio by introducing cloud as yet another offering of what they do. But their brands were not strong enough. So, Rackspace is a great example once again where they introduced the cloud offering, but it never really took off to the same extent as Amazon. SoftLayer was another big name in the space, later acquired by IBM versus who today you see as the premier cloud providers like Amazon, Microsoft, Google. Their brands were strong enough. They were able to differentiate sufficiently and have a single laser focus. Anyway, my point was it became clear to us that we were not able to build a new offering within the ServerStack company, and we needed to start from the ground up with an entirely new business with a unique, differentiated position so we wouldn’t wind up in the same situation as we were with Rackspace. And also, far apart from the main competitors, mainly the AWS offering. So, we spent a lot of time trying to figure it out, and it kind of looks easy in hindsight, but I remember those conversations very vividly. It was very difficult to try to navigate a world where on the one side with AWS, you have at least perceived price leadership, engineering kind of talent or abundance, a ton of functionality. Then in the middle, you have Rackspace that’s able to provide that white glove service and support. So, it was hard to figure out where we would really stake our own ground. Then ultimately combine these two passions where I love building out infrastructure, as Mosey mentioned, from a very early age, and Mosey loved developing software. So, what we realize is that combining these two disciplines together, we were able to build something for developers because they were basically us and focus on the start of the small business segment, provide a much better user experience, make it really easy to use, but still powerful building blocks that allow developers to build their applications faster rather than going through the pain and the challenges of building something complex with an AWS or one of these other major clouds where things are opaque, they’re closed, a lot of proprietary terms, support is lack-luster, pricing is difficult to understand, and that kind of list goes on and on. We were able to build a product that customers absolutely love.
Alejandro: I want to ask you here. Obviously, DigitalOcean is born, but Mosey, walk us through why did you guys decide to bring other co-founders to the mix because you already had each other. You had been working on this other company and ServerStack for quite a bit, so why bringing other co-founders to the mix, Mosey?
Mosey: I think as Ben said, it’s about finding your strengths and weaknesses and understanding what you could and couldn’t do. For us, Ben was great on the infrastructure side. He was great on the operation side. I really loved software engineering, but I would say that due to my career and perhaps my choices in education, I was never going to be a great software engineer because I could never dedicate enough time to it. So, it became pretty clear very early on that we’re going to need a couple of engineers to help build out this cloud for us. Basically, at that point, I realized that my best role would be a product role since I understand all sides of the equation, and what I really wanted to focus on was the emotional connection to the customer. So, we were able to get Jeff Carr who we called the Cloud Father internally. He was the cloud architect. He built the entire backend singlehandedly himself. The amount of work he did is tremendous. It can’t be understated. Without him, there would definitely no DigitalOcean. Through a brief stint in between, I was able to meet this other individual, Alec Hartman who ended up becoming the frontend side of things, and I as the product person literally sat between the two of them. I would poke each one of them and also mediate “When are we going to side with the backend? When are we going to side with the frontend?” to bring this all together. Then through our experiences of learning how critical marketing obviously is, we knew that we needed to have—you know, having a position was great, and we started off with this simple cloud obviously. But you still needed to have somebody who was going to really focus on marketing. That’s where Mitch Wainer came into the equation as somebody who has done marketing for a while, and somebody who really fits into the culture of our company and into the founding team. So, between the five of us, we had a really good complimentary team. We had one person dedicated to the backend. One person dedicated to the front end. Me and the product sitting in between. Ben on the operations and infrastructure side and the fundraising side. Then Mitch solely focused on the marketing side. So, we really had a good complimentary team to move forward. That also helps to create a little bit of delineation about who’s responsible for what, and that allowed us to really focus and get things done rather quickly.
Alejandro: Really cool. Ben, why did you guys decide to pack up the luggage and go to TechStars?
Ben: The reason we applied to TechStars in the first place, and our first attempt was in New York is we had the ambition of building a company for massive scale. We’re really proud to say that we built something that even exceeded those expectations by a whole football field, but that’s a different kind of consideration. So, because we wanted to build something that would be ready for scale, we assumed that we would need some additional outside capital to help fund the project. We had no network inside of the venture community. So, it looked like TechStars was a great environment in which we could build those connections and really learn about venture funding, venture back startups, and have not only a great set of mentors, but also a great set of peer companies that are going through the same building process as us. So, long story short, we didn’t get into the New York program, but about two weeks after the final decision, David Tisch reached out and was the managing director and said, “Hey, I really regret passing on you guys because you had a awesome team and an awesome product, but I don’t really know what a server is. I wouldn’t be that helpful for you.” And he recommended that we apply to Boulder, Colorado which is where TechStars started, and ultimately, we got into that program. We were really making big bets at the time, so this felt like yet another one that you just have to do on your journey. It was especially tough for me because I just got married the year before in August of 2011, and by May of 2012 I’m flying out to Boulder for three months, and I don’t see my wife. I came back just a few days throughout that three-month period. So, that was definitely very challenging on this new blossoming relationship.
Alejandro: Absolutely. I can’t even imagine. So, Mosey, you’re really the product guy here in the picture, especially at this time, so after going through this program and optimizing a little bit, and like Ben was saying really understanding the different processes whether it is fundraising or let’s say hiring. From a business model perspective, what ended up being the business model of DigitalOcean when you guys came out of the program?
Mosey: The good news for us is that we didn’t really have to struggle with the business model because we were in existing market environments where developers and businesses were comfortable and used to paying for cloud and hosting infrastructure. So, there was really never a question around that. We would basically follow the same model. We’re going to provide you a virtual server. You’re going to pay us money. We’re going to charge you more than it’s going to cost us, and we’re going to make some profit and move forward. I think the complicated part was really finding the product/market fit to scale that. When we first built the company, we had this experience of really loving the product that we built. I remember the first time that I launched the droplet, I fell in love with the experience so much so that I wanted to quit the company and just become a full-time Rails engineer so I could launch more droplets. It was that exciting. Obviously, as somebody who’s creating the products, it’s hard to be objective. Obviously, I have a subjective point of view, but a lot of the customers we did acquire were really echoing those very same strong sentiments of love, love, love. When we applied to TechStars, that was really written into our applications when they said, “What’s your differentiator?” And I felt it was a bit challenging for us to say we’re going to have a stronger engineering effort with 2 1/2 developers than a company the size of AWS, so we put down love. At first, Nicole Glaros, who was the Managing Director of TechStars, Boulder, at first, she looked at us like we were crazy. Why did we put down love as a differentiator? How is this going to scale? This doesn’t make any sense. But we told her look out into the ecosystem. Look at the comments that users are saying about Rackspace or AWS, and then look at the same comments they’re saying about DigitalOcean. There was a really stark contrast between the experience that we provided to our customers and what our competitors provided. So, the customers that we did acquire really did love us. That was something that we nurtured from the very start just because of how much we passionately cared about them and about the product we were developing. The thing that we realized over time is that love by itself is actually not enough to get your product/market fit, and that’s where that big question always came up for us after we left TechStars is: we have some customers that love us, but we’re not really growing as quickly as we would like. And, obviously, at the time we were bootstrapping the business ourselves, so we didn’t really have an infinite runway to do this, and we already had the product company’s server set as kind of a benchmark of saying, “We hope to be at least as successful as this company.” We were nowhere close to hitting those numbers. That’s when it became quite obvious that we didn’t have product/market fit because we were still struggling to find it. The one thing that kept us going was actually this message of love because we knew that we had built something that resonated with customers and what we were lacking was something on the marketing side. Like we did not have enough awareness. We experimented a lot with that trying different forms of advertising and so forth, but that was difficult to scale and very expensive, so we knew that the only way to basically grow this company is to get organic awareness. For us, that was basically Hacker News. That’s the main place for developers to hang out, but the challenge with Hacker News is that you can’t advertise there. So, you have to have some sort of a message that’s strong enough that the community over there will pick it up and get excited about it. That question which stuck with me was the one that led us through the whole notion of maybe we should build an SSD cloud. I was sitting behind my laptop. It was the first one that I had gotten because I hated laptops, and I’m working on it. I’m thinking to myself, “My laptop has SSDs, and this is a consumer product. Meanwhile, the cloud is supposed to be the future of business, and nobody has SSDs in the cloud. From ServerStack, we knew that if you put SSDs into a server, the server becomes four times faster because the hard drive is a limiting factor, especially for databases. So, I came to Ben, and I said, “You know what? We’re going to put SSDs into the cloud. Our entire cloud is going to be SSD only.” Ben said famously, “Well, you know if this doesn’t work, we have to kill this idea because all of these servers are going to be twice as expensive. We’re not making any money as it is. So, you want me to spend even more money, and you have to wait three months to get enough inventory to even announce that we have an SSD cloud.” Between myself with the SSDs, Jeff having a lot of opportunities to improve the efficiency of the cloud because of the SSD drives, we were able to double the RAM. Ben always loved the $5-foot-long Subway sandwiches in terms of the ads that they did. So, he said it’s going to be $5. That was basically when we came to market, it was an SSD cloud which had a wonderful user experience that customers already loved. It was going to cost you $5 when the closest competitor would charge you $20 for the same service, and they wouldn’t even have SSDs, to begin with. That message was quite strong and resonated quite strongly with Hacker News and that community. We basically overnight went from five or a trickle of signup a day to several hundred every single day.
Alejandro: That’s really cool, and I believe that when it was posted on Hacker News, it was a TechCrunch article. Is that right?
Alejandro: Really cool. So, Ben, let’s talk about fundraising here because I would assume that now you guys are on a really nice growth trajectory, so financing is required. All in all, how much capital has been raised that is publicly reported?
Ben: We’ve raised 123 million. 1-2-3.
Alejandro: 1-2-3. Okay, great. I see that you guys have unbelievable investors. So, people like Andreessen Horowitz, and people like IA Ventures. How did you find those investors and how did you close them?
Ben: Each Round is a very unique story, but IA Ventures—actually, I’d love for Mosey to talk about IA Ventures because he really struck up that relationship first. Then I can take on the Andreessen Horowitz for the A Round.
Mosey: Yeah, sure, IA Ventures. Between ServerStack and DigitalOcean I had a brief stint as a co-founder with a friend of mine doing a financial services company focused on hedge funds. One of the few investors in New York City that actually had a FinTech focus was IA Ventures. So, we reached out to them with kind of a cold email and said, “Hey, we’d really love to show you what we’ve been working on.” And Brad Gillespie replied back. “Yeah, this doesn’t really fit our portfolio of what we’re looking for.” I told him, “Ah, man, that’s really disappointing. I’d love to give you a demo and get your feedback.” Brad being a product person himself, he has a hard time saying no to a demo. So, even if he’s not going to invest, he’s definitely a people person. He said, “Yeah, sure. Come by and let’s have a conversation.” So, we came by. He didn’t love it. He didn’t invest, obviously. Then a few months later, we started working on DigitalOcean, and I remembered the age-old advice which is: if you go asking for money, you won’t get it. If you ask for advice, you might get some money.” So, when we first built DigitalOcean, again same thing. Reached out to Brad. Came by. Showed him a demo. He looked at it, and we told him we’re going to compete with AWS. He thought that we were crazy and out of our minds, but I recommended to him “Hey, do you think TechStars is a good idea? I knew, of course, that they were an investor in TechStars, so he gave us an introduction to David Tisch. Then we went through the whole program, and we would send him updates basically on a weekly or monthly basis whenever something happened. The entire time, he would always reply very quickly, but it was always like, “Oh, this is great. Keep going. Keep going. Keep going.” Like, all right. No investment yet. Then after we hit product/market fit, I sent him another email saying, “Hey, here’s our revenue. Here’s where we’re at.” For the first time, he didn’t get back to us. Usually, it’s within a day; it’s an immediate response. This time, it was like the response came two weeks later which was a bit surprising especially because our numbers are pretty exciting. It turned out that they were actually adding a partner to the business, so they were a bit busy with that. So, we came into the office to kind of catch up, the first thing we told him was, “Just so you know, in the three weeks that we haven’t spoken, the company has grown another 66%. So, at that point, Brad was like, “Okay. This sounds super exciting. Definitely very interesting.” It was really interesting because Ben was trying to raise an Angel Round during the TechStars program, but he decided that it really wasn’t worth the investment of time and the amount of capital we would raise would not really significantly change the business. So, our Seed Round was really a pitch to one investor, but it just took about two years to get the deal done. But, obviously, we are very excited and happy to have Brad onboard and to have him be a part of the company from the very first moment, get in the first demo before the product was even live. I think from there, the story about the A Round with Andreessen is equally as exciting, but that one, Ben led the effort on.
Alejandro: Really cool. So, Ben, how was that effort like?
Ben: Yeah, sure. We closed a Round with IA Ventures. We think “Okay. We have 18 months of runway, and we’re ready to go back to executing.” Then about three months into it as we keep up the breakneck pace of growth, we’re like, “Oh, my gosh, we’re running out of cash again. I can’t believe it.” So, we decide “Let’s go and raise capital yet again.” In under six months after having closed the Seed Round, we put together like any respecting entrepreneur, a beautiful spreadsheet of the top ten VCs out west in Silicon Valley this time. Then we leveraged TechStars as well as IA Ventures to get introductions to all of them. We picked a horrible week to do it which was the week right before Thanksgiving, so everyone’s already starting to go on vacation, but we managed to pull it off, and we did like a mini-roadshow out there, four days where we pitched everyone from Sequoia to NEA, Excel, and the Who’s Who of Silicon Valley. The interesting thing is it was the initial meeting with Andreessen Horowitz where Peter Laven, who is now on our board. We love reminiscing about this. He takes the meeting very reluctantly. You can tell by his body language because he’s kicked back, both legs up on the table. What looked to be checked out on his phone for the first 30 minutes, and I have Mosey and Carl, our Chief Operations Officer that are pitching him hard, and Peter doesn’t say a word for 30 minutes. I’m kind of looking at my watch going like, “Oh, no. This meeting is going horribly.” The reason is, the preferred investor, and so I finally decided to take over. I leaned and like, “Peter, are you getting any of this?” The thing is, I hadn’t looked up his background before the meeting, which is a huge shame on me not knowing that he was the CEO of XenSource and knew virtualization inside out. Sold that company to Citrix for 500 million. It really jolted Peter back to life, and he’s like, “Yeah. Yeah. I totally got all of that.” So, he completely switched on a dime and said, “Look, Andreessen and the firm here we had a thesis that will be a huge enterprise player that would really give competition to AWS, so it’s super exciting to see a startup like you guys that is differentiated and really making traction here.” That ultimately turned into getting a deal done with Andreessen Horowitz. I think we found this really amazing partner to bring along for the ride.
Alejandro: Really cool. How have you seen, Ben, for example like the expectations shift from financing cycle to financing cycle?
Ben: I think, especially in super successful businesses that scale rapidly, your seed investors are typically over the moon because the returns are just amazing. Even the A Round can be very thrilled. Then as you get into the later stages, it becomes a little bit more of a financial equation. Are you delivering on the IRR expectations and things of that sort? So, sometimes, those conversations take on a little bit more of a financial undertone rather than maybe a strategic. But overall, I think it creates a really good board dynamic because you have the whole spectrum of perspectives available at the table. Then it’s been actually great to bring in a couple of independents to help balance out just an investor-only perspective.
Alejandro: Mosey, for the people that are listening as well, so that they get a sense of how big DigitalOcean is today, how big is it?
Mosey: Today, we have 500 people, over 200 million dollars in revenue. So, to think about where we started with five individuals and zero dollars in revenue, it’s obviously very exciting. I think as Ben mentioned before, I think in our wildest dreams we didn’t think it would grow to this size, so I think that’s fantastic. We’re really super excited about it, and more growth is to come. We’ve launched the most number of products we have in the last 18 months, and the roadmap looks really good for the next 18 months as well.
Alejandro: That’s really cool. I saw that recently, you brought on board a new CEO. How was this experience, especially for you, Ben because you were the founding CEO, kind of like to let it go and to step it up on the board? How was this experience?
Ben: It’s very unique. It’s not often that you are able to build something and then pass it over to someone else. It really is a part of you. In many ways, it’s challenging, but I think what was very helpful, and I feel like I’ve done this a few times in the role is to remove my self-interest out of the equation and really think on behalf of the company. Like what does the company need? What decisions should the company make? So, what it really boiled down to was the next logical step seems to be taking the company public. As I thought about that journey and that challenge, while it’s super exciting to be able to IPO the business, I thought about the couple of years thereafter in running a public company, and it really was not where I got my energy and passion. So, I had to make this really difficult decision on what is in the best interest of the business? Obviously, you’re holding on as a co-founder, as kind of the creator because you really don’t want to let go of that part. It’s a huge ego trip if you will, but ultimately, I came to the decision that bringing onboard the right CEO could actually continue to grow the business and would be in the best interest of everyone including myself. I put in a lot of work. I knew that this was the last decision I was going to make that would have in many ways some of the biggest impact on the business going forward. So, I really put a lot of time and effort into making sure that we got the right person onboard. Actually, there’s a really interesting background story here. Peter Laven from Andreessen who is on our board made an introduction to Mark Templeton who is the new CEO. A few months prior to us making this decision, because Mark is in the later stage of his career. He was advising companies and things of that sort. So, we built this amazing relationship, and it was only halfway into the recruiting process where the best candidates I saw were maybe a 4 out of 5, but there was no 5-star candidate yet. The only way that we could ever close and bring on a new CEO was if they met this unreasonably high bar of being a 5-star candidate. It was funny because Mark was actually helping. He was saying, “Hey, I’m a chairman on this other board. We just did a CEO search. Your exec recruiters probably sent you a ten-page document. Nobody has any idea of what you’re looking for. What we found to be helpful is if you can condense it down to just a single page, 4 or 5 bullets. Here, let me share with you the template that we use.” Once I got that template, and I refactored it for what DigitalOcean needed and reviewed it, I’m looking over the bullets, and I’m like check, check, check, check, check. It turned out that Mark was actually 5 out of 5, a perfect fit for the job. So, I send him back the edited version, and on the very last line of the email, I’m like, “Mark, what do you think about the role?” So, it was this very serendipitous kind of coming together of all these different experiences and different paths. Ultimately, Mark accepted, and we’ve built an amazing relationship. The three of us, Mosey, and I, and Mark, we have a chance to sit down every four to six weeks, and we hash out in an afternoon working session. We’ll do some dinner. We’ve really grown to be more than just business partners, and I’d say I’d even call him a friend at this point. For me, I feel great as well. Just a lot of changes on the personal side, so it’s just interesting that when we signed the term sheet with Andreessen Horowitz, my first, my daughter was born on the same day. There was an office pool on what’s coming first, the term sheet or the baby? Then when Mark started last summer in July of 2018, I had my second kid. My son was born on July 3rd, and Mark’s official day is July 1st. So, in the same week. I went into paternity leave/transitioning out of the role. Just seeing these two experiences side-by-side has been amazing.
Alejandro: Absolutely. And Mark, for the listeners, is Mark Templeton, and he was the President and CEO of Citrix Systems from 2001 to 2015. So, incredible CV. I always ask this question to guests that are on the show, and I like to get the answer from you, Mosey, and then from Ben. The question is if you had to go back in time knowing what you know now and give yourself one piece of advice before launching a business, what would that be and why, Mosey?
Mosey: Well, I think there are two pieces of advice that I would give. It’s funny because the first piece of advice is actually what we followed between ServerStack and DigitalOcean. That was mainly around education. That is to read a tremendous amount of books because, again, the problems you’re facing are not unique, and if you have the understanding about how business operates, and you understand things like Positioning, and Crossing the Chasm, and Innovator’s Dilemma, you’re not going to make silly mistakes. So, #1 is definitely read, get a network, and things of that nature. If you can’t get a network, the smartest people in the world are writing books, and those are available for a very small cost and gives you direct access to their thoughts and knowledge. So, we followed that piece of advice, and obviously, the business is 100 times larger than ServerStack was. So, that seemed to work well. Then, I guess as I reflect on my time at DigitalOcean, I think the second piece of advice that I would give is really one that’s more personal which is that once you have this logical understanding which is great, it’s kind of hard, you have to remember that you’re still a human being, as surprising as that sounds. What that means is that it’s going to be a lot of emotions involved in what you’re doing. As Ben mentioned before, you’ll have some shadow qualities which on the one hand are very powerful because they’re your main motivators and they allow you to get stuff done. But taken to excess, they can cause problems. So, I think the second part of that equation is really to understand yourself as an individual and to really focus on your emotional wellbeing and your emotional growth because once the business is no longer five people of co-founders, those interpersonal relationships with the leadership team, the founding team, the investors you bring onboard, the employees you bring onboard, take on a heightened meaning. I think that lesson was one that I’ve continued to learn throughout DigitalOcean’s journey, and I think it’s one that I’ve only really begun to, I guess, understand or hopefully operate well in as I became just a board member and not a full-time individual of the business because it’s given me so much more clarity to step back and see where a lot of problems were ones that I created, and they weren’t based around logic. They were based around just me as an individual and how much more I had to grow and mature and really understand other people and myself as well.
Alejandro: I love it. What about for you, Ben?
Ben: For me, I’d say the advice is that a business ultimately becomes about the people. I know that it’s a little kind of cliché, but I think when we were building out the business model for DigitalOcean, we spent a lot of time on the product and the technology. We spent a lot of time on the go to market, how would we build awareness and reach, and how would we enable sales? By the way, we’ve gotten here without salespeople, and everything is really done through the website. But the point really is I don’t think I had a model for what people and culture means for a business as I had always worked in relatively small companies where the culture is very implicit, but it’s easy to manage because when you have at most 20 people, you’re still all in the same room. You know what everyone’s working on, and it’s implicit in the environment. I would say that first year, as soon as we got our funding and traction in 2013, we grew from just about 20 people or so to a little bit over 100, and it was a totally different world. I already came from the perspective that it’s easier to manage a server than it is to manage a person. That only really became that much more complicated as the business grew. I think an area where we would have been able to build a much stronger foundation is if we had built in a people philosophy and a really strong cultural underpinning. I think we’ve gotten there and our culture’s the best that it’s ever been, but it would be really exciting to be able to build a business where you’re able to incorporate what I believe are these three key pillars for any company between the product technology, the go to market, and then the people on the culture side. So, if anything, I would say that it’s not just about you. It’s about everyone you’re going to hire, and really think about how do you build the right environment for them to be successful?
Alejandro: Got it. For the people that are listening, what is the best way to reach out and say hi, Mosey, for you?
Mosey: I’m pretty easy to find. You can find me on Twitter @moseyuretsky. I still have my DigitalOcean email address: mosey@digitalocean. So, I’m not a difficult person to track down, and I’m always happy to talk to anyone if they need any advice. Right now, I’ll say that because we’ve gotten a lot of help on our journey, so I consider it paying it forward and helping other people as well is part of what makes the world successful. So, I’m easy to find.
Alejandro: Amazing, and what about for you Ben?
Ben: Yeah, same. So, Twitter is @benuretsky and email is email@example.com. Either one works great.
Alejandro: Got it. Well, guys, it has been a pleasure to have you both. Thank you so, so much for being on the DealMakers show.
Ben: Absolutely. Enjoyed it. Thanks a lot, Alejandro.