Cloudkick Founder Alex Polvi on the Experience of Getting Acquired by Rackspace in Startup Year One

Alex Polvi is on the tech world’s express elevator. Just a few years ago, the 25-year-old computer science graduate from Oregon State University was a system administrator at Open Source Lab, the home of Linux, Apache, Drupal, and other huge open-source software projects. It’s the place developers around the world depend on to maintain and distribute up-to-date code for these basic Web technologies.

After similar stints at Mozilla and Google, Polvi joined with his Oregon State classmates Dan Di Spaltro and Logan Welliver to see how they could turn their software chops into business gold. So they applied for the winter 2009 term at the Y Combinator venture incubator program, where the trio came up with an idea for cloud computing tools that help companies manage the growing number of applications they run on Amazon’s EC2, GoGrid, and other cloud hosting platforms. In January 2010, their San Francisco-based company, Cloudkick, introduced its paid commercial service. And just 11 months later, the startup was purchased for an undisclosed amount by Rackspace, the San Antonio, TX-based managed hosting and cloud provider.

Nominally, Polvi is still Cloudkick’s CEO, but in effect the startup is now Rackspace’s San Francisco/Silicon Valley outpost, and Polvi is its site leader. I caught up with the animated young entrepreneur Tuesday at the Web 2.0 Expo in San Francisco, and asked him what Cloudkick’s ascent has been like and how he thinks Cloudkick’s services can help Rackspace stand out. (The photo at upper right is from the Rackspace booth at the expo; Polvi is posing with Rackspace’s “fanataguy” logo, a reference to the company’s “fanatical support” tagline.)

Interestingly, Cloudkick wasn’t a fait accompli when Polvi, De Spaltro, and Welliver entered Y Combinator. As Polvi explained to me with self-deprecating humor, the team’s first idea was “ for scholarships” and had nothing to do with the cloud or infrastructure management. But Paul Graham and the other Y Combinator founders gently nudged the team to focus on something they actually knew how to build—which Cloudkick’s early investors, including La Jolla, CA-based Avalon Ventures, are probably very happy about, given that they were able to get a return on their investment in less than a year.

Xconomy: What makes Rackspace different from any other hosting or cloud company?

Alex Polvi: The quick answer to that is just service. Rackspace is fundamentally a service company, not just an infrastructure company. There are “rackers” who can help you run your infrastructure, and now with the Cloudkick acquisition, more and more we can help you with actual software services. The reason Rackspace is so well known and differentiated is that. And that results from getting a bunch of people who care about customers. That’s the biggest benefit of being part of Rackspace—the awesome people who are there. I don’t know how they managed to collect so many great people.

X: Just a couple of years ago, Cloudkick was an unknown startup going through the Y Combinator program. How did the company grow and get acquired so fast?

AP: When you do the Y Combinator thing, you have three months to build a product and put it out there. Our product was related to server management. The idea was that these tools haven’t really existed in the cloud. Our jobs before were running servers and managing infrastructure, so we just built the tools we would want to use in SaaS form. Y Combinator is really just a platform to help you get your first round of funding, and when we went out to raise our first round, that was when we first met Rackspace. So we have been talking to Rackspace for a long time now. But we ended up raising some money from investors, and continued the relationship with Rackspace—we put out joint blog posts, for example, which for an early stage startup was awesome.

We ended up raising $750,000, and in January 2010 we released our commercial product. We raised an additional $2 million in March 2010, all through Rich Levandov at Avalon Ventures. And we were working on figuring out a bigger relationship with Rackspace, and that’s when the acquisition happened. The product was doing well, customers seemed to really like it, and Rackspace was really interested, so from an entrepreneurship perspective, that’s good. Now, as part of Rackspace, we’re building products for the Rackspace Cloud.

But to go from a startup entrepreneur’s perspective, where you’re trying to get from zero to $50 million, and suddenly be in a company where you’re trying to go from $5 billion [in market cap] to $50 billion—that is the challenge now. Rackspace is extremely entrepreneur-friendly—it wasn’t “come in and kill the technology and take the team and call it a day.” This will be the Silicon Valley presence of Rackspace. We are going to build this out, and we are continuing to expand the team here just as if we had raised a big round of funding.

X: What do Cloudkick’s tools actually do, in lay terms?

AP: Monitoring and management of cloud infrastructure. We took the core set of tools that every ops team would need—and by ops team I mean people running production Web infrastructure on Amazon EC2 or the Rackspace Cloud or GoGrid—and provide those as SaaS. It boils down to things like monitoring. You get an alert on your phone when CPU usage is too high, or graphics rendering performance is down.

X: So those are services that Amazon and GoGrid and Rackspace (before Cloudkick) don’t provide as part of their cloud hosting?

AP: The best analogy is that it’s like an ATM at a bank. A bank is about providing infrastructure to hold your money. But you still need the software interface to interact with your money. Amazon provides support, but that’s not the emphasis. Their emphasis is just on providing the raw infrastructure.

X: Back to your Y Combinator experience. Was it tough getting into the program? Most of the startups that go through YC are working on consumer-facing Web applications, not on heavy-duty IT infrastructure stuff.

AP: We didn’t actually start out with the Cloudkick idea. When we applied, they were like, “We like the team, but we don’t like the idea. Come up with a new idea.” The very first idea—the one we applied with—was sort of a for scholarships. It was pie-in-the-sky stuff. We were a bunch of infrastructure guys sitting around trying to come up with things that sounded entrepreneurial. It was obvious, once we had some third-party perspective, that we needed to work on infrastructure things. If you get into Y Combinator and you have domain experience in the area where you’re building, you are essentially unstoppable, because they will help you get funding and everything else. So we switched and iterated and Cloudkick is what popped out.

PG [Y Combinator co-founder Paul Graham] doesn’t have as much product experience with infrastructure things, so we didn’t get the full value there. But he has tons of experience with how to launch things and about customers, so that was extremely valuable. And one advantage of doing YC as an infrastructure company is that you have all these other YC companies to work with, because they all use infrastructure. So before we even launched, we had a lot of these companies on our system. And we still sell to a lot of YC companies. Heroku uses us.

X: Is Rackspace integrating Cloudkick’s management services into its own cloud offering? When customers sign up for the Rackspace Cloud, do they automatically get access to Cloudkick’s tools, or do they still have to go over to Cloudkick and sign up separately?

AP: Right now they have to go separately. The acquisition only happened three months ago and they were different products from different companies. As we go down the road, we are building products that take Cloudkick and apply it more directly to Rackspace customers. The next version of stuff that we release will be Rackspace-branded.

X: In the big picture, how do you think cloud computing is changing the environment for early-stage startups?

AP: They all use Amazon or Rackspace. Everyone uses Google Apps—there is no Exchange anywhere. They all use Salesforce or some startup version of Salesforce. Everything is SaaS. What happened is that you now have all these building blocks that you can base stuff off of. Pre-cloud, you have to go to a colocation facility and put a server in, or to somebody like Rackspace who could do it for you. That’s opened up an opportunity for Y Combinator, because the low-funding model actually is feasible; you can use so little money and get so much.

One of our advisors does this great presentation on “Building a Startup for $500.” Google Apps is free, you can get a logo on 99designs for $20, and so forth. All the plumbing is getting taken care of, and server infrastructure is a big part of that.

X: Do you have the entrepreneurial bug? And if so, do think Rackspace is a place where you can be entrepreneurial, or do you see yourself moving on to build the next thing?

AP: I’m an experience person. I was really interested in the experience of raising money and building a team and acquiring customers. And getting acquired is an amazing experience—I recommend going through that. Now I really want to see what it’s like at a bigger company. This is my first corporate job. To be able to be part of a company this size, with a strategic role, at this stage in my career, is phenomenal. We want to go from $5 billion to $50 billion, and it’s an amazing opportunity to be able to see that and be part of it. Another startup? We’ll see. It’s all about the experience for me.

Wade Roush is a freelance science and technology journalist and the producer and host of the podcast Soonish. Follow @soonishpodcast

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