Everyone wondered what would happen to San Antonio’s tech scene after Rackspace’s decline. Scaleworks is looking to help

Many years ago, I spent a couple of years creating a large vendor-neutral educational program about the cloud. This was, I must hasten to add, in the days before “cloud” was a common term. Back when a significant number of IT professionals really needed help to understand what the cloud meant for them and the opportunities and threats that cloud computing can bring. The program, which eventually had tens of thousands of IT professionals become certified, was supported by Rackspace.

The reason that Rackspace jumped on board with a program that had no bias towards its own products and services makes total sense. Rackspace was, at that time, working hard to pivot from being a regular managed hosting provider. In doing so it sought to become a compelling public cloud vendor, up against the hugest name in the game, Amazon Web Services (AWS). Rackspace made a logical bet that by increasing the size of the public cloud pie generally, it would, albeit indirectly, benefit itself.

Move forward to today and much has changed. The public cloud space is now utterly dominated by three players – AWS, Microsoft with Azure and Google with its Cloud Platform. While Rackspace arguably did a better job of transitioning to the cloud than its hosting competitors, the move was, in the end, futile. Rackspace, formerly a publicly listed company, was bought out by private equity players and many doubt how much of a future the company has.

Which has some pretty interesting regional impacts. You see Rackspace essentially created a technology industry in San Antonio. While running the CloudU program, I visited Rackspace’s San Antonio headquarters often and was impressed by just how important the company was to San Antonio. Rackspace’s founder, Graham Weston, had a stated intention to create a sustainable technology industry in San Antonio off the back of Rackspace’s success.

Which begs the question, what of San Antonio today given Rackspace’s loss of momentum? After all, there is a history of tech companies ick-staring an industry. Dell did it for Austin and Microsoft did it for Seattle. What of San Antonio now?

It was a question I came to recently when chatting with Lew Moorman. Moorman was formerly an executive at Rackspace, where he spent a bunch of time, among other things, hearing Weston’s vision for San Antonio. Post Rackspace, Moorman has put that into practice by founding Scaleworks, a venture equity team that has quietly gone about scooping up existing cloud companies, in order to fuel their accelerate growth. Filestack, Assembla, Chargify and most recently Mailgun, have come into the Scaleworks fold (ironically, or not, Mailgun was acquired by Scaleworks when it was spun out of Rackspace).

Scaleworks suggests that it has developed a new approach towards investing in tech. its model combines the direct ownership model of private equity, alongside the invest to grow model that venture capital follows. Scaleworks modus operandi is to actively acquire companies and then move them to San Antonio. failing that, it incrementally hires San Antonio employees for future hires in acquired companies. Moorman suggests that San Antonio is a goldmine for business to business go to market talent. Not only did Rackspace train a massive number of these individuals, but the economics of San Antonio means that pay rates are affordable. Of the seven current Scaleworks companies, six are located in San Antonio and five were moved there from other locations.

Moorman believes that the Scaleworks model “cheats time” for the San Antonio ecosystem. As he knows only too well, startups are hard and require many attempts to get one winner. Scaleworks companies all come into the family with existing teams and revenue streams, thus de-risking both the investment for Scaleworks and the involvement for San Antonio.

Scaleworks’ role is to accelerate the individual growth of the acquired companies, and in doing so, to increase the size and scope of the San Antonio technology sector. Moorman is adamant that Scaleworks is working and is deploying capital at a faster rate than anticipated – all the acquired companies are, according to Moorman, growing faster than when they were acquired.

MyPOV

Silicon Valley watchers would be excused for thinking that the orthodox Sand Hill Road venture funding model is the only way to go. What we have seen, at least with larger companies, in recent years is the emergence of private equity taking formerly public companies private. The idea being that these companies get the room to change things to succeed in the brave new technology world.

What Scaleworks is doing is an interesting twist on private equity – applying it to small businesses. In a similar way, Scaleworks is taking the pressure of these startups to head for only one outcome (acquisition by a large player in short order) and gives the companies more room to go after other options.

The Scaleworks model is interesting, and something that other emerging technology regions should look to emulate.

Ben Kepes

Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

1 Comment
  • Neil Anderson |

    Really useful thanks, Ben! Nice to read your post and I am going to share tis on my social media page to see my friends and followers. Keep it up!

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