DigitalOcean acquires Paperspace (YC W15) for $111M in cash
finance.yahoo.comDillon here (CEO @ Paperspace, YCW15). I want to give a huge thanks to the YC community and all the support over the years. We have always admired DO and couldn't be happier to join forces!
Is there a way to sign up on paperspace without a phone? I've used the same VOIP number for half a decade but unfortunately it's still automatically blocked from being used for many services, this prevents me from creating an account.
Hi Dillon - congrats on the offer! I adore your product. Quick question though - how sure are you DO won't be interfering with the product and the current team will continue doing its job? Alternatively, would you like DO to take a dominant role in running the product?
Stop dreaming. The acquirer does whatever they want with what they've bought.
To be fair, parent only asked for a level of sureness. Which of course is zero.
The acquirer does whatever they want with what they've bought.
The acquirer does whatever is specified in the purchase agreement and contract.
Buying a business isn't like buying bananas in a store.
Congrats! Are you keeping the office space in Bushwick?
Sad to see your company going away. Your boxes were great for hosting Plex servers.
Grats on the sale either way.
Congratulations!
congrats, dude.
congrats to you and the team!
I’m surprised by this. Digital Ocean is in no position to be splurging on new revenue streams. They’re underwater and making a loss [0].
They’ve got growing revenue but falling profits and they’ve got more debt than assets. They may want to raise their droplet prices, or issue more stock and then refocus on making their business profitable.
[0] valustox.com/DOCN
I worked there relatively recently.
DigitalOcean is organizationally incapable of making anything in-house anymore.
I want to blame leadership - and to be clear, leadership sucks - but the problems are pervasive through every layer of the organization.
The only significant launches in the last 4-5 years have all been acquisitions or built by partner companies and whitelabeled.
Every system and every team has massively circular dependencies on one another , so it's just a massive circle of "we can't move until they move".
The tech debt is insane. Everything is slowed down by terribly-run and massively underfunded internal "platforms" teams for kubernetes, CI/CD, various internal databases, etc.
If you want to build something useful you basically have to ignore upper management and do it in secret until it's done and so integral to the systems that they have no choice but to allow you to support it.
Asking leadership outright to invest in minor maintenance for systems the entire company depends on is never approved.
The bar for engineering practices, code quality, and system design quality is comically low.
All the systems are massively distributed, but there is no understanding of distributed systems issues.
I was told multiple times that "CAP theorem doesn't apply here" and gaslit that an asynchronously replicated MySQL instance that sometimes spiked to multi-minute replication lag to the read replicas should just be used as if it were completely consistent between master and read replicas.
Tons of stuff was just run as singletons with hand-rolled in-memory rate limiting to avoid having to understand distributed locking or semaphores. These systems inevitably start falling over a few months after creation, but you're not allowed to evolve it into a correct system, you just have to support that garbage forever.
Brain drain everywhere due to low salaries. Even engineers barely capable of committing working code were getting fat raises to leave.
So that's why my droplet increased costs by 50% last year.
You can say this about the majority of tech companies. Cloudflare is unprofitable and they are used by the majority of the web.
They have been buying companies non-stop for a while. It's their new operating model.
What would be the strategy you think they're going for?
The I pretend I know what I'm doing strategy.
Most acquisitions fail. It's a difficult path unless it fits a very specific need.
Yet a common management / product strategy is to buy random companies as though they are ingredients of a dish and think it'll just work.
Digital Ocean to me has lost their core focus and appeal. They aren't upgrading their hardware, software and other crucial pieces of their infrastructure. There's been gimmicks, acquisitions and marketing.
Someone said the executives there don't believe they can compete with the big cloud providers and so are poking at different areas to see what works.
> Yet a common management / product strategy is to buy random companies as though they are ingredients of a dish and think it'll just work.
Acquisitions are an easy way to juice top line growth. Acquisitions also offer ample opportunity to put lipstick on your finances. After all, any acquisition has many one-time costs and you can use this to juice your margins. You also forecast substantial cost savings by eliminating redundant positions. All in all, your gross margins and YoY growth look a lot healthier after the acquisition even when nothing has fundamentally improved about your business.
Repeated acquisitions really muddy the water and make it even harder for analysts to figure out how well your core business is doing. Especially when growth in your core business is stalling it makes a lot of sense to obfuscate your finances while you purchase top line growth.
All the while the stock price stays high and the executives get to enjoy their option packages. Eventually the music stops, but clever executives jump ship before that happens.
By the time the music stops, they’ll have grown too big to fail, and it’ll also likely be a sector-wide downturn, so they’ll just get another bailout from Uncle Sam. Moral hazard is endemic in Sillycon Valley.
DO is just at 3.4B$ market cap; far from becoming too big to fail.
I love DO as a user and not an investor, but their main value to me is that they have public-facing IPs. I could easily host all my sites on a single AMD machine under my desk, if only I had a good way of routing from the internet to my desk.
I would be closer to nine fives than five nines, but that's good enough even for many commercial sites, including mine.
Just contact your ISP to get a public IP. You might not get a static IP, but you can configure a dhcp client to request your old IP when reconnecting after a power outage. Set DNS TTL reasonably low like 12 hours so that you can recover if you do get another IP.
Another way is to signup for a cheap VPS and use a tunnel to your home server. There's lots of really cheap VPS's with 128MB of memory that is plenty if you just want a tunnel.
It's not really a silver bullet nowadays, residential plan ISPs are very wary of allowing inbound connections in my experience
The problem is the lack of IPv4 addresses. IPv4 addresses are ridiculous expensive. And most people don't need a public address so ISP save a ton of money by using NAT. I don't know if they must give you one or not if you ask, but I think a public IP address should be a human right, or you should at least be able to change to an ISP that can provide one.
How can a public IPv4 address be a human right while at the same time "we ran out of them" and there aren't anywhere near enough for everybody?
One option you could try is using a CloudFlare tunnel.
I love this option. Doubles as a way to VPN-into your home network remotely (Warp Client) without opening any ports
Thanks to you both. I'll look into it.
You can buy a computer that is 1000x more powerful than a droplet for a fraction of the ownership cost, especially if you only get occasional visitors.
I'm excited by the idea of completely decentralized hosting; now we just need decentralized payments - that take USD.
Sorry if I'm not getting something, but wouldn't dynamic dns help in your instance?
You mean like No-IP? I used that to SSH into my own servers for a while, but I found it to not be 100% reliable.
So your IP changes and your DNS entries are all invalid across the www until they TTL. And then you're back online.
Doesn't sound very useful for hosting anything public.
Oh the SoftBank model.
PaperSpace product recently has been really bad. Gradient Notebooks are a worse version of Google Collab. Useless for any serious DL product building.
Their DL virtual servers, Core I think you call them is horrible. Very slow internet, takes forever to copy datasets into them. Most of the time, it's an uphill battle to get ssh access to them, they create some pointless virtual console instead and then a GUI to copy datasets, run trainings etc which is confusing and a hassle over simple ssh access. Programmers just want a simple ssh access to a server with a GPU, we are not looking for a WYSWYG like editor! I really don't know who the customer for this is? Marketing execs who want to do deep learning? I tried powering through the documentation, but it was outdated, and was plain wrong at points. It took me a couple of hours just to figure out how to copy a large dataset into my server and find the path to that dataset. Once I discovered, Lambda and Vast ai, I never looked back and forgot Paperspace for good.
Really as a cloud provider, all you need to do is create send a ssh tunnel to a system with a certain amount of compute and memory. Maybe like AWS you can create storage buckets but it's not absolutely neccesary. Don't add GUI, interfaces etc, your customers are engineers and they prefer simple systems that give them control.
One feature I would like in Lambda/ Vast is the opportunity to copy the dataset into the server before the GPU hours start billing. When you have TB's of datasets like me, you end up wasting 8-9 hours just copying the dataset and it feels annoying that I pay for the cloud hours during that time. Amazon kind of solves this, but it slows down data access in return. I would like a cloud provider who just lets me copy everything before starting to bill me.
People buying companies just to get their hands on some more Nvidia GPUs.
Ain't nothing wrong with buying revenue (potential or actual), or a multiple bump ("we do VMs"->"we enable AI too!"). Go where the margin and demand is.
That’s a pretty hysterical outlook.
What’s Nvidia supply chain like with their AI GPUs? Is it constrained or is this a joke :p
It is so constrained that companies are literally buying smaller GPU cloud companies.
So, if by “hysterical,” you mean it is pretty funny and a reflection of the hype cycle, then yes. If you mean that I am being overwrought, I can assure you I am not. Even the hyperscalers do not have enough GPUs
Ignorant question, but where is ATI in the AI/ML space? I only ever hear about NVidia and it's Cuda.
AMD released ROCm (its competitor to CUDA) in 2016, nearly 9 nears after NVidia released CUDA. They relied on OpenCL and failed to invest in "GPGPU", and as a result were so far behind NVidia they couldn't keep up. As a result, for about a decade most scientific GPU code was written in CUDA.
Today, AMD support in PyTorch is minimal. Actually getting anything running is very difficult, and random crashes are common. This is in contrast to NVidia, which spends a lot of money to ensure a full compiler stack and compatibility with AI libraries.
Today, the AMD hardware itself is pretty capable and has a good price/performance ratio. However, actually taking advantage of that performance is difficult because of the poor quality of drivers and software.
They're not really playing ball, NVIDIA did the right thing in pushing software support early on. CUDA really has a good strong hold and AMD isn't doing much by way of pushing code support for their CU's.
It's going to take a big long investment, which people have been arguing about for the past 6 years, and AMD really isn't jumping up take the mantle. It's really a shame too because we need a strong competitor if we ever expect more realistic pricing for the average users/company.
AMD exposed an OpenCL API for GPGPU and hoped the open source community would do the rest. That approach failed.
Essentially all Nvidia gpus support cuda, even cheap ones. The amd rocm supports only like 10 very specific models.
ATI was acquired by AMD in 2006. :)
Back when I was in college Paperspace was kind enough to give us a few thousand in compute credits for our research project around autonomous driving to help with training costs. Glad to see the success!
Paperspace gives free access to Graphcore IPU nodes (with 4 IPUs each), which is pretty neat. Theoretically that is way more throughput than a Colab T4 instance.
... But in practice, I tore my hair out trying to port an actual Stable Diffusion web UI, until I hit a wall. I needed to upgrade the "Poplar SDK" or something beyond the ancient Python 3.8 version to get things working, but the download was behind some kind of corporate login.
That left a bad taste in my mouth.
You can download their SDK without a login from their website here: https://www.graphcore.ai/downloads
Glad to read about your experience, because I just checked out their website and was about to bite on the free IPU access. But if it needs some special proprietary software to work in the first place, I probably won't bother.
It is free to use, the issue is upgrading the software past what ships on the ancient Ubuntu image. The IPU Python library is tied to a specific Pytorch and Python version.
... And this might be better now, I have not checked recently.
I don't think there is much point to using the big 3 cloud providers. In fact I would think it is a fools errand to use AWS for startups or even big companies given the sheer cost of bandwidth, storage and compute compared to Digital Ocean, Vultr etc.
I shake my head every time when I read startups using AWS and racking up expensive and unpredictable bills to use the same compute that can be had at a fraction of the cost when using Tier 1.5 cloud providers.
As for this acquisition, I think it was a matter of time before GPUs were added to the service offering for Digital Ocean and this would be the best way forward rather than implementing this infrastructure from scratch.
I use Stabile Diffusion with Paperspace's Pro tier ($9/mo) which gives you up to 6 hours of non per-usage GPU (meaning you don't have to worry about having a mortgage to pay for the cost) since I have an aging Vega at home and I worry about the electricity bill (EU). My worry is that plan will go away replaced by strict per usage costs.
The gaming community also used Paperspace sometimes for PC game streaming. It allowed users to install Steam or other clients to tap into existing libraries.
I found about it in the reddit /r/cloudygamer sub and used it temporarily on vacation to play Assassin's Creed Odyssey and it worked pretty well.
I used Paperspace to do daily quests in Age of Empires 2 on a holiday once, it worked great for that.
True, but i would say shadow.tech is way better valuable for money.
At the time I used Paperspace shadow was in some kind of limbo, not accepting new customers-- I'm not sure if pre-existing ones were still able to use the service.
Also Paperspace would let you choose how much GPU you needed, which seemed like a nice way to conserve costs if you were playing low-overhead games, some indies or older games, though I never used it as such.
Does anyone know of a service like this that only charges based on storage + how much you use it? I would like to use something like this to run some windows software so I don't need a local VM or dual booting but paying monthly for something I would only use a few hours a month would not work for me.
Paperspace?
I can't use Paperspace due to them blocking my phone number (https://news.ycombinator.com/item?id=36617551), plus I am interested in alternatives for the sake of comparing options.
I feel like shadow always had way more latency, and paper space was much more consistent
$111M exit on $35M. Seems meh for seven years effort. Were prospects cloudy? Better return over seven years for most employees (possibly even founders) working up through a FAANG. I’m sure YC did great, of course.
$35M being meh is peak HN here. Me not being from US, getting $100k was golden cufs that took many years to break even when I did not enjoy my work.
$35 million is how much they raised. If they were purchased for $111 million that means that after the investors are paid off their principal there is $76 million left. There are 70 employees, the original investors probably made some profit on their initial investment, so split that remaining $76 million among everyone and none of the employees left super rich from this deal except maybe the founders.
If they raised $35million, you're not accounting that venture funding especially at this scale is preferred shares.
This means that the vc money requires 7-9% per year payback on liquidity event until any other equity gets any money.
This means you're likely subtracting 1-3 million per year from other equity holders based on $35mn raised
> none of the employees left super rich from this deal except maybe the founders
You could say that about 99.9(9?)% of startup exits.
It's kind of like going to vegas for a week and coming out with a lot of good stories and 90% of your money.
In terms of investor return, I think it's healthy to have some exits like this. A bunch of the money was only in for 2 years, and probably doubled their investment in that time. The rest of the investors got their money back, with something close to NASDAQ returns on top of it. If this was the baseline for the fund instead of going to zero, you wouldn't need unicorns and the questionable growth tactics that go with them.
If founders had 25%, they got "retirement with reasonable luxuries" or "gunpowder to play investor" money of double digit $millions.
If 20-25 employees split an option pool of 15%, it's close to replacing the FAANG opportunity cost.
So totally agree that it's a bit of a "meh" outcome in comparison to financial alternatives, and the pie splitting matters a lot. But it didn't go to zero, and everyone is within a stone's throw of their stock market / FAANG hurdle rates (and it's not like that FAANG career is guaranteed for people who thrive better at startups). And the stories and experiences are a hell of a lot better.
Without insider knowledge of the transaction, it is impossible to say what the returns were for various tranches of investment or for the founders or employees.
What is $35M here? Also, YC2015 would make it about 8 years run in 2023.
I think exit is timely because there's the dire possibility of fading AI/LLM hype that's where GPU demand would fall off the cliff not only on the server side but also that many devices might have better inference hardware.
35m is what Paperspace raised according to crunchbase. 12 of which was raised in 2021, before the AI hype. So unless their valuation was absurd I think all investors did OK here.
But all things considered their exit is solidly average, not the insane valuations top tier unicorns usually get.
The article calls paperspace "a leading provider of cloud infrastructure as a service".
Does that mean they have/had lots of hardware investment? Or do they "just" offer a management layer based on other clouds?
How much did Paperspace raise? Was the exit dilutive?
Seems it was a win all around. They raised 35M exited at 111M. Not. 10x win but not under water.
Roughly how much would the founders net
Hard to say from the outside. Most founding teams end up with around 20% of a company at IPO so you could use that as a reference point.
However, this company was a few stages before IPO so there could have been less dilution from investors - allowing the founders to get a bigger cut.
On the other hand, some investors have really aggressive terms that can screw founders in situations like this. For example, their contracts could stipulate that an investor gets the first $45m of any exit even if that investor only put $15m into the company.
My impression is that those kinds of preference terms have been unusual over the past decade in SV.
It's a private transaction, so it's unknown and unless it's leaked out we are unlikely to ever know. There was a startup I was co-founder of at one point, and seven years later (about the same age as Paperspace) we sold for a similar amount, and the net of my shares was a little over $100,000. The CEO got more, other early joiners less. And among my direct knowledge of individuals in the startup community, this is not an unusual case, but rather typical. Many times companies are sold but the money goes primarily to the venture capitalists. Even seed and early round investors can get minimal or no returns after later dilution after a sale.
The "20%" case is typically the best case that happens only in the 1/10,000 chance of extreme fast growth into a new behemoth, OR where the founders are already high net worth individuals or come from high net worth families, and can provide their own money in conjunction with VCs instead of relying on them for most capital.
Because this is all private and not discussed, we tend to only hear of the very exceptional cases, and ignore the vast majority of the non-lottery winners in the startup world.
If you want to share some more (approximate) numbers, I'm very curious. What equity percentage did you have at the start? And were your shares worth more at an earlier investment round than at the exit?
Starting equity was a little less than 10%. Valuations went up as several rounds were raised up to $30+m and share value went up until at one point it was north of $20m paper dollars. After market re-valuation an additional $60+m was raised and value went down a little but was still substantial. Then the IPO market all but disappeared. Final sale price was around $150m and common shareholders including myself initially received zero. Essentially the VCs converted their preferred to common and then voted to sell to a related party (another company the same VC firm had invested in).
According to a lawyer who setup our initial investments, this was actually illegal so common investors including myself sued, but was this bankrolled by one of the big early investors as it's incredibly expensive to try and do a shareholder lawsuit against a major VC firm and investment bank. It ended up being settled out of court and that's where my $100,000 came from. The CEO came out a little better, but people who sweated years (and I mean frequent all nighters, weekends, true dedication) ended up with even less than me. And the only reason we even received anything at all was because we had a HNWI common investor who also got screwed and backed the lawsuit, they ended up getting their money back and a small return on investment from what I remember of the settlement terms.
Just a word of caution to founders and early employees of startups to know what they are getting in to and the typical case of what happens (a small or non existent exit is the typical case in a tech startup), even when you see those big number raises and a big sale and you just assume that everyone is making bank.
Common getting zero makes sense if pref holders had liquidation multiples ("we get 3x our investment back first"), but not if they converted to common, unless their conversion to common had some weird mechanic attached to it that massively diluted the remaining common down to effectively zero % (which sounds sue-able). I'm really curious about the mechanics of how your common holding netted out to zero if prefs also converted to common?
Yes so what happened is they converted, then had majority common, then voted to recapitalize and sell, after which recapitalization they made out with a profit but common got nothing. The problem with this legally was they didn't have the right to convert without a common vote beforehand, essentially they did it in reverse order. Their leverage was the company was not cash flow positive (in no small part because of the massive management fees the VC loaded on as part of funding), and so needed funding to continue. They also offered the existing board members a $1m bonus as part of post-sale consulting (essentially a legal bribe) as part of agreeing to the sale. It's all not technically legal, but you know the golden rule, he who has the gold makes the rules.
Because of the settlement terms I'm not able to name the VC, but I can tell you this kind of behavior is by no means unique to this VC, in fact it's rather de rigueur for the VC and PE worlds. It's even defensible in a way, they owe fiduciary duty to their limited partners, NOT to the common shareholders of the company they invest in.
I currently advise startups seeking financing to either a) only go the VC route if you think you're in megagrowth into the next dropbox et. all or b) you have enough self/family wealth to take VC investment on favorable terms ala stripe.
Ah makes (mechanical) sense now. Thanks for the reply.
That's nuts. I'm thinking about selling my business but we'd probably only get $200k or so. I'm 50% owner, no VCs so I reckon I'd get the full 50% minus taxes but I'm also about 8 years in and haven't taken a penny out so $100k would make me real sad. Sorry dude.
That VC deserves to be named.
Name any of them, they all work this way, more or less. This is standard practice
agree
I recall this was one of the plots from the HBO show Silicon Valley
Thanks for providing insight to the process, very fascinating.
Hard to watch, not only because it rang so true, but also because I've known people personally who gave their all to the company and when it didn't work out in the end, commit suicide. It's a cautionary tale of putting your entire self concept into your startup / employer.
To calculate that you'd need to know what they raised at.
Oh, fun memories - locked me out of my account (froze it or whatnot) but happily charged me. Didn’t notice for a while as I didn’t really use it. Support just ignored my questions.
too vague!
who locked you out? why did you get the hammer?
I have no idea tbh. Never got an email abt it. Saw the charges after a while (my miss) wanted to log back into my account to cancel - couldn’t because account was locked.
The thing that annoyed me most is: they knew the account was locked and I could not used it and still charged me.
1. which company, DO or PS?
2. what kind of project were you running there?
3. CC chargebacks are a thing, do you have receipts.
Paperspace; just tinkering around… Yeah, CC chargebacks work for 3 months or so here in Europe
tinkering around got your account locked?
could that have been triggered by content moderation?
No, I don’t think so. It’s been like a few years since I tried them (2019?). I think it was running some example notebooks - but again, too long ago…
Back to the important questions: 1) Why no user support and explanation? 2) Why lock out users and keep charging them? 3) Why not give them the full refund for the period that Paperspace KNEW I could not access my account but just the 3 months I could do myself by CC chargebacks?
Why do I need to justify myself here? What part of this “we lock you out and charge you” is proper behavior? @mewmew07?
locking and still charging is not proper; if you read my previous replies you'll notice they're focused on why the lockout happened
1) locking out for TOS breach very often happens without feedback, as does automatic flagging systems - no feedback on TOS breach is sometimes done when the effort to provide an explanation would expose the systems internals or considered unnecessary effort, think spam, system resource abuse, content 2) can only come up with technical reasons for that, neither serve as justification 3) see point 2
> Why do I need to justify myself here?
you don't need to
I also never got an explanation or like any feedback from customer support. They randomly charged back a number of charges and deleted my account (!) so I could never find out what happened. Weirdest customer/service experience I had in a VERY long time