DreamHost's $30M financing deal. Great for them but what about you!

Mon, 13th January 2014, 13:41

If you followed the hosting world through 2013, you've probably noticed a common theme cropping up again and again: consolidation, consolidation, and more consolidation. Endurance International Group(EIG)Host Europe GroupIBM acquiring Softlayer, and in general the market moved towards the ever-growing giants and away from the small-team start ups that have characterized a lot of the industry for years.

DH Capital, an investment banking firm serving companies in the Internet infrastructure, communications, and SaaS sectors, is pleased to announce it served as exclusive financial advisor to DreamHost, LLC, (“DreamHost”), a global leader in Web hosting and cloud services, on its recently completed $30,000,000 credit facilities from Goldman Sachs Bank USA.

The new financing, which is structured as a $25 million term loan and $5 million revolver, will go towards buying back the stake of one of the Company’s founders, paying down equipment financing, and making cash available for growth and working capital. 

Well, the end of 2013 was no exception, and in December, investment banking firm DH Capital announced the completion of a $30M financing deal between Goldman Sachs and DreamHost LLC, notable for being one of the few remaining small-scale firms to retain a focus on developers, instead of merely serving as a budget alternative for lightweight consumers. The money secured by the deal "will go towards buying back the stake of one of the Company’s founders, paying down equipment financing, and making cash available for growth and working capital," according to a press release, and it's that first bit that we'll focus on first.

HostJury has always been skeptical of consolidation, not least because of the often precipitous dip in service after brands with stellar reputations are acquired by larger conglomerates, but it's always been hard to put into words just exactly how this process works. One can assume that the infrastructure of these operations are still intact, and will only grow with the influx of working capital and big brand support. But perhaps the reason is as simple as the first sentence of the quote: the stake of the company founder.

DreamHost, for example, has grown organically towards the end of development oriented services, their service suite reflects this. In a sense, this is what differentiates them from their competitors, not market share or profit margin. But while a influential stake from Goldman Sachs will no doubt leverage this reputation in the future, it seems unlikely that its interests are solidly within the realm of experimentation and principled purpose. Goldman Sachs makes money. Bottom line.

DreamHost, which is headquartered in Los Angeles, offers a full suite of hosting and cloud services including Shared Hosting, Virtual Private Servers (VPS), Dedicated Server Hosting, Domain Name Registration, the cloud storage service DreamObjects, the cloud computing service DreamCompute, and the managed WordPress service DreamPress. 

So, here we start to get a better picture of the problems of consolidation: the exchange of purpose for profit. This is not unique to hosting, of course, it's practically a law of business, but it affects hosting uniquely. DreamHost's suite of products is mentioned in the press release: an impressive list of content that will be 'expanded upon' with the new capital, but to what end? To our knowledge, no DreamHost customers have been clamoring for an influx of new features or services- it seems unlikely that the new interests at play will work towards serving the loyal niche that DreamHost has worked so well for.

Consolidation, of course, doesn't have to be a bad thing, and there's nothing inherently wrong with casting a wider net with a service that's already proven successful in serving those it appeals to. There are a lot of ways this financing deal could utterly disprove our generalized unease with consolidation as it relates to DreamHost- but it really is a singular battle in a much larger war. How small operations will continue to thrive and compete in a deepening pond of big brands is something we'll continue to cover as 2014 unfolds.