- This is how Cloudflare went from a simple business plan to a $3.2 billion web infrastructure giant.
Cloudflare, a rapidly growing web infrastructure company, announced recently that it has filed an S-1 to go public this month. With over $400 million in funding, Cloudflare is valued at $3.2 billion.
Cloudflare CEO and co-founder Matthew Prince spent time as a ski instructor in the late 1990s and went on to get a law degree from the University of Chicago and an MBA from Harvard.
After launching Cloudflare, Prince inadvertently became a decision-maker around the freedom of speech as some of the most well-known websites — even ones that contain hate speech — are protected by Cloudflare.
Prince developed the idea for Cloudflare along with Chief Operating Officer Michelle Zatlyn based on a business plan that they wrote for a contest at Harvard Business School. As the business plan started being developed into a real product, Lee Holloway joined the company as a co-founder and lead engineer.
Prince and Holloway had previously launched a service called Project Honey Pot, which had tracked web spammers online as part of an open-source community project and they knew a lot about the challenges faced with protecting content online. And Prince had also worked with government agencies on anti-spam initiatives along with child protection registry laws.
Prince and Zatlyn ended up winning the class competition. And from there, they went on to raise $2.25 million in Series A funding in 2009. And that was followed by a $20 million Series B round two years later.
“We’ve made services that in the past were only available for the biggest Internet companies in the world. We’ve made those available to literally anyone online and as a result of that, we’re the market share leader, we have millions of customers, and built a really great business starting with that original principle of disruption,” said Prince in an interview with Nasdaq vice chairman Bruce Aust in 2016.
A couple of years ago, Prince decided to remove neo-Nazi website The Daily Stormer when hate speech spread on the site following the Unite the Right rally in Charlottesville, Virginia largely fueled by racial tensions following the election of President Trump. And more recently, Cloudflare removed 8chan after mass shootings in El Paso, Texas and Dayton, Ohio.
“The unresolved question is how should the law deal with platforms that ignore or actively thwart the Rule of Law? That’s closer to the situation we have seen with the Daily Stormer and 8chan,” wrote Prince in a blog post. “They are lawless platforms. In cases like these, where platforms have been designed to be lawless and unmoderated, and where the platforms have demonstrated their ability to cause real harm, the law may need additional remedies. We and other technology companies need to work with policy makers in order to help them understand the problem and define these remedies. And, in some cases, it may mean moving enforcement mechanisms further down the technical stack.”
The 10% of the top million, 17% of the top 100,000, and 19% of the top 10,000 Internet properties are using Cloudflare. And 10% of the Fortune 1,000 are paying Cloudflare customers. On a daily basis, Cloudflare blocks 44 billion cyber threats on behalf of 20 million Internet properties.
For 2018, Cloudflare saw its revenues grow 43% to $192.7 million. But its losses also went up from $10.7 million in 2017 to $87.2 million in 2018.
“We expect our general and administrative expenses to continue to increase in absolute dollars for the foreseeable future to support our growth as well as due to additional costs associated with legal, accounting, compliance, insurance, investor relations, and other costs as we become a public company,” said Cloudflare in its filing.
In terms of the IPO, Cloudflare wrote in a Securities and Exchange Commission filing that it is going to offer 35 million shares priced at $10 to $12 each. Cloudflare is planning to list on the New York Stock Exchange with the ticker symbol “NET.” Goldman Sachs, Morgan Stanley and JPMorgan are serving as the lead underwriters on the deal and another eight banks are acting as co-managers. The proceeds of the IPO will be used for general corporate purposes.
Based on these numbers Cloudflare chief financial officer Thomas Seifert will have a post-IPO stake of between $29 million and $36 million. Holloway — who left Cloudflare in 2015 due to the effects of a rare neurological disease — will have a post-IPO stake of between $82 million and $99 million. Zatlyn will have a post-IPO stake of between $143 million and $173 million. And Prince will have a post-IPO stake of between $378 million and $454 million.
