Earlier this month, Los Angeles-based web hosting and cloud computing provider DreamHost (www.dreamhost.com) raised a big, $30M funding round for the company--the first in the company's long history. The company- now has around $50M in recurring annual revenues. We caught up with CEO Simon Anderson to learn more about the big debt funding round and how it came about, the complexities of providing founder liquidity in a bootstrapped company--and how the company is looking to use those funds to take the company to the next level.
First, for those not familiar with DreamHost, talk about what your company does?
Simon Anderson: DreamHost offers a web hosting, and now, cloud computing platform and storage. Our target market is entrepreneurs, creatives, and developers. We're very much a global footprint company, and we have customers from all over the world who fit that type of description. Right now, we have around 380,000 customers, with about a third of those outside the United States. We're fairly evenly split between Asia, Europe, and North America. Our services range from basically any platform service to enable an entrepreneur or developer or creative, to get online with a website, or do things like set up a blog. We actually have a very big Wordpress user base, because of the work we've done with Wordpress, contributing code and integrating them into our platform. Now, more and more, we're extending our use cases into not just websites and blogs, but also to lots of web application use cases.
What's the story behind the big round, and why now for some funding?
Simon Anderson: DreamHost was founded 16 years ago. The four founders and the early team had very successfully bootstrapped the company as a shared hosting company, and then added virtual private servers, and more recently, dedicated servers. We're also a domain registrar. That has grown very nicely, even those we've not been overly aggressive with marketing. We'd relied on word-of-mouth for the first 13 years. However, the founder recognized back in early 2011 that they wanted to take the platform to another level, and get DreamHosting in front of a much bigger audience, worldwide. We saw early on that the cloud as we know it today--utility services, software, and so on--was an entry point to do that, including with hosting. I was hired back in the middle of 2011, and have now been ceo for about two and a half years. I really was part of the plan to take a year to two years of very intensely focused effort and investment, to improve our infrastructure from the ground up. We rebuilt our network with very scalable Juniper networking gear, and we've made some very deliberate decisions on hardware and storage.
We formed a relationship with Dell, which has been very successful in improving our core server infrastructure, and we've invested on the order of $15 million across our hardware upgrades to get ready for the next phase. We've also managed to grow quite nicely. DreamHost was doing around $30 million when I joined, and we're now approaching $50 million in recurring revenue, due to hosting growth and cloud hosting growth.
The investment was made to give some liquidity to one of the four founders. He'd been very happy with the first period of time, but was now starting to do some new, entrepreneurial ventures. We wanted to give him that opportunity, and came up with a deal and structure which helped him but also added fuel to the fire for product and marketing and growth activity. It's really a combination of the two. Giving liquidity to one of the founders, and adding some growth capital capacity to go after our chosen market.
Is the problem of giving liquidity to a founder something that's unique to a bootstrapped company?
Simon Anderson: It is. A lot of the time, unfortunately, is when founders want liquidity, they're often forced into the difficult choice of either keeping the company and staying in, or having to sell out entirely to get liquidity. One of the important things we set up as part of this deal, and achieved, was that because of its structure we were able to bring in debt, rather than equity, because of our cash flow. That meant we were able to get that liquidity and have it go out to the founder, without it overly affecting the rest of the team. DreamHost is not totally unique, but it's definitely managed and owned by the founders and team members. Every single person in the company has equity, and a lot of them see it as their long term retirement or long term financial security. Many of them, as well, don't see that journey as anywhere near toward the end. For the rest of us, the Internet as a whole is still in its early days, and there's a great opportunity for companies with a great technical talent pool, and ability to launch products, and a platform to enable the next generation of entrepreneurs and developers, and to do it over the next ten to twenty years. Structuring this deal like this was important. We were very pleasantly surprised and delighted by the interest we were able to attract from top tier investors in the process. Ultimately, we found a firm like Goldman Sachs would be a great fit for us.
Hosting companies are in a very dynamic environment, with lots of competition, new technology, the cloud--how does this all affect your company?Simon Anderson: There's a lot of competition in the market, undoubtedly. That's good if you're a company that feels you can executive, and that you're not relying on too many other companies or partners for your product or your platform. We've built almost all of our infrastructure, with our own code, our own programmers, and with open source software like Linux, Wordpress, Ceph, and OpenStack. So, for us, competition is good. I also think that the market is really ripe for some pretty massive expansion ove rthe next ten years. If you look at the numbers in our user base and organic growth, it's pretty clear to me that we're still in early days in terms of the number of web hosting/cloud services which are out there to enable individuals and businesses to do things on the internet, launch sites, applications, and handle internal data processing. We're basically providing basic, utility computing online. If you combine that with the fact that increasingly we're teaching kids in their teenage years to program, and that in high school, they're even taught that even if they're not in computer science, it's something that is becoming a basic skill. That will stand Dreamhosting in very good stead. It's just about us offering a product, but in helping the community to get going, to understand what choices there are in programming languages, and helping to support them along the way, as they grow and experiment and put up their first site or blog, or when they launch their first application and try to scale it, and help them with their challenges and obstacles and travails they run into. We want to partner with them, to help them learn, grow, and overcome those things. Even though the market is very competitive, we believe the market will grow very fast, and very big over the next ten years. That's why I think we're pretty bullish.
As a company that is involved in many technology projects, what's the most exciting thing you see happening right now?
Simon Anderson: The most execiting and interesting things that we see happening in a new wave of open source collaboration. We're particularly seeing that in the cloud with OpenStack, but we're also seeing that in storage with Ceph. AS you know, one of the cofounders of DreamHost created Ceph, the open source, distributed storage system while doing his Ph.D. At UC Santa Cruz. We incubated it, and a couple of years ago spun it out as a new, for-profit company to help folks all over the world implement Ceph.
The most interesting thing with open source, unlike a lot of other, big world problems, is that software has always been to a certain degree collaborative. However, that's mostly happened around the edges, but not necessarily the core. Linux has been the big exception to that. What we're seeing now, however, through OpenStack and other cloud platforms we're involved in, is that these platforms and software that we're developing are bigger than any one company. In order to accelerate the benefits of that software and applications, so that it can span the largest number of companies, service providers, and individuals, we have to figure out a new model of how we collaborate to build that core. You might compete on your application, but the core of the service can be used around the world. That's the exciting thing to me. Great technology is involved, but as much technology there's also an incredible disruption in how individuals and companies are dealing with each other, and it's transforming to some degree the skill set you need to have in a company and with your people. That skill set now includes communication, sharing of information openly, and the skill set to be able to collaborate on core, common projects--but still know that at some point, you may be competing with that collaborator when you go to market. But, that it will be okay, because the market will be big enough to serve many customers and companies. It's a really interesting dynamic, which is fascinating to me to be a part of and watching.