To Spin Out of Rackspace Means New Life and, In One Case, Mark Cuban
San Antonio—It’s getting hard to keep track of the number of new startups that have spun out of Rackspace to make a go of it as private companies in the city’s downtown tech corridor, from Mailgun earlier this week and HelpSocial in 2014, to many others in the years between.
But HelpSocial, which provides software that aims to help call center employees respond to users on social media, can thank Rackspace for one other thing that other recent spinouts can’t: an investment from Mark Cuban, the outspoken entrepreneur, investor, and owner of the Dallas Mavericks.
The connection to Cuban is in part thanks to Robert Collazo, HelpSocial’s co-founder and chief technology officer. Before leaving Rackspace for HelpSocial, Collazo gained a reputation at the cloud computing giant as the type of employee to call when you needed help with a tough problem, according to HelpSocial co-founder and CEO Matt Wilbanks.
One Rackspace client indeed did that: Cuban’s investment company, which has at times hired Rackspace to provide the server space for the websites of companies Cuban invested in on the reality TV show “Shark Tank,” since they’d expect a big uptick in hits after a broadcast. After Cuban struck a deal, his team would work with Collazo, who oversaw the efforts to bolster Rackspace’s servers for the potential onslaught of Web traffic.
That connection to Cuban gave Collazo and Wilbanks the idea of calling him when they decided to raise an angel round after spinning HelpSocial out in 2014. But the product that became HelpSocial is technical, and was, like many other products at Rackspace that later became spinouts, built to solve an internal problem at Rackspace.
“We’re not going to go on Shark Tank. We’re not a consumer product,” Wilbanks said hesitantly at the time. When they did eventually call, on a Wednesday, Cuban had made the commitment the by Thursday evening, Collazo says. HelpSocial didn’t go on “Shark Tank,” but Cuban invested in the startup as part of a $1 million round raised in in 2014. (More on that in a minute.)
Indeed, HelpSocial is by no means a consumer product, despite consumers being its focus. The company sells software for managing complaints and comments on social media to corporate call centers and other large businesses. The software can be incorporated via an application programming interface (API) into a company’s existing tech for responding to complaints and comments received from phone calls and e-mails. HelpSocial also sells a standalone platform for businesses that need one.
The wonky industry term for those software systems is CRM, or customer relationship management software, and large companies like Microsoft, Amazon, Salesforce, and Oracle have long sold platforms for use by both customer service employees and sales representatives.
HelpSocial is just one of many Rackspace spinouts that have successfully found funding during the last few years, especially after Rackspace sold to private equity funds associated with Apollo Global Management for $4.3 billion late last year. Earlier this week, automated e-mail provider Mailgun announced it would become a private company, raising $50 million in venture funding to push the sales of its API product for software developers.
Jungle Disk, a data backup and cybersecurity company, spun out of Rackspace in early 2015 with an $11 million seed round, which it added to last month. Another API product-focused company, Filestack, was or spun out of Rackspace by a private equity firm, and local investment firm Scaleworks (also a Mailgun investor) led a new funding round last year. Filestack’s API allows users to attach things like photos stored in cloud services to an app, rather than just attaching files located on the computer. Finally, Rackspace sold Web hosting company Cloud Sites to Lansing, MI-based Liquid Web last year, and the company has remained in San Antonio.
San Antonio’s tech companies aren’t typically like those in the Silicon Valley or even Austin, located 80 miles to the north. Many tech startups in San Antonio are like Rackspace itself, described most commonly by those in the local tech community as focusing on the “plumbing of the Internet.”
That HelpSocial is a bit more niche than many of his Shark Tank investments—say, an obstacle course maker or a beverage company—appears to not have concerned Cuban, who provided Xconomy with a little insight into his reason for investing. “I think it’s a service that can be valuable to any company,” Cuban wrote in an e-mail this week. And HelpSocial isn’t the only business software company he has invested in; others include Datanyze, Netra, and VidIQ.
For HelpSocial, Cuban’s investment brought clout. “With a name like Mark Cuban, everybody jumps on,” Wilbanks said this month during an interview at his office in the Geekdom co-working space in downtown San Antonio.
HelpSocial closed the $1 million convertible note round with Cuban other investors in 2014, including Geekdom Fund (which was interested before Cuban joined), and then participated in the 2016 Techstars Cloud program. The startup raised another $2.4 million in seed funding last year, in which Cuban didn’t participate, to convert the first round.
“It was a great feeling knowing that someone like Mark Cuban believed in us and was willing to back up that belief with an investment,” Collazo, the CTO, wrote in an e-mail.
The company still has plenty of competition to deal with. In addition to the older customer management tools, there are startups specifically focused on managing relationships with customers via social media. For example, New York-based Sprinklr, San Francisco-based Lithium, and Austin-based Spredfast all offer platforms with varying degrees of similarity.
Wilbanks contends that HelpSocial stands out among the group because its API lets users pick and choose different ways to interact with customers on social media—Facebook comments or Twitter direct messages, for example—depending on the expertise of the company or the focus of the customer service rep. That’s partly because it was built that way to help employees of Rackspace, which offers cloud computing customer service in a wide range of industries, he says.
Rackspace is different from most companies, Wilbanks says, in that it operates like a startup, despite being a company with thousands of employees. Company managers encourage employees to build products that might solve problems they have. If it turns out those products aren’t necessary for Rackspace’s operations, don’t fit, or might be better elsewhere, there’s the option of spinning out.
“When it came to the point of us talking about spinning this out, there wasn’t any thought [from Rackspace executives] of, ‘Should we hold this and turn it into a product ourselves?’” Wilbanks says. “They were never going to be in the business of selling a social media tool alongside cloud servers.”
Even if HelpSocial wasn’t for Rackspace to own, it was for Cuban—part of it, at least. And Cuban has apparently maintained his connections to Rackspace. His Mark Cuban Companies website still notes that it’s “powered by Rackspace.”