Building an Open Source Software Company Around Cassandra, Seed-Funded by RackSpace: Jonathan Ellis and Matt Pfeil, Founders of DataStax (Part 2)

Sramana Mitra: I am going to probe you on a couple of different points. Did you start DataStax while you were still inside of Rackspace?

Jonathan Ellis: No. We were working on Cassandra at Rackspace but we started DataStax, originally called Riptano, after leaving Rackspace.

Sramana Mitra: So, by the time you left Rackspace and started this company did you know precisely what DataStax was going to do?

Matt Pfeil: One of the really nice things about open source is that it is a hard business model. Jonathan was actually building the core database and because it was open source, there were other companies already using that database. So unlike a traditional company where you would have to go build the products and then find a way to take it to market, major companies such as Twitter, Digg, and Netflix were using Cassandra because of its open source aspect. And they were talking about it.

Sramana Mitra: So, did you have a sense of what was the problem that you were going to try to solve?
Jonathan Ellis: Basically, we wanted to make Cassandra more successful and help people solve their technology problems using Cassandra as a foundation. With respect to that aspect, DataStax has grown according to plan.

Sramana Mitra: You have also said that you had customers right out of the gate. Can you elaborate on that?

Matt Pfeil: Since Cassandra is an open source project and it has been used at various organizations, there were companies saying, “We would like to purchase either something like support from you or professional services.” But I believe it was Cloudkick that said on day one, “We want to be a paying customer of yours”. And they signed up for one of our support packages. Rackspace ended up buying Cloudkick. So again, one of the benefits of having an open source company is that there’s adoption of the open source offering and you can obviously charge directly for the additional support. There are complementary offerings that people want to buy.

Sramana Mitra: Yes. We have done a lot of case studies where the entrepreneur started working on an open source project while inside a company. And then, once they go out into the entrepreneurship world, they already have a customer community to work with. So it’s a very common way of getting customers very quickly in the cycle. Non-open source products have to go through a much longer cycle of customer validation and development.

So tell us what happened after you left Rackspace? You had this customer community that you were catering to. What did you do next?

Matt Pfeil: Rackspace was actually extremely nice to us and gave us a little bit of seed money. We immediately hired two or three other developers that Jonathan and I knew to start working on either open source Cassandra or OpsCenter. Then, we went out and raised $2.7 million from Lightspeed, which is our series A lead investor. At the end of the year, we had about 20 people.

Sramana Mitra: How much money did Rackspace give you in the seed investment? What were you able to accomplish with that money and in what time frame?

Matt Pfeil: They gave us just under $100,000. Lew Moorman at that time was the Chief Strategy Officer and is the President of Rackspace now. I’ll never forget his words. He said, “You guys are going to go raise serious money. This is just to pay the bills between day one and when you raise that money”. From company formation to raising the $2.7 million, it was only about 85 days. So, it was literally just to get by and make sure we could feed ourselves.

Sramana Mitra: Was it a convertible note?

Matt Pfeil: Yes. It was a note.

Sramana Mitra: You don’t have to answer this if you don’t feel like it but always details are useful for people who are trying to learn. What kind of terms did you negotiate with Rackspace?

Matt Pfeil: It was really extremely friendly. I don’t remember the exact details but it was not complicated.

Jonathan Ellis: The big thing they wanted was a “no poaching agreement” for a year. We would have to do that because we didn’t want Rackspace to feel burned by us leaving and after having funded Cassandra Development for 18 months. So we really wanted to keep things a win-win for everyone and I think it worked out that way. With DataStax driving Cassandra much more than Rackspace could ever if I had stayed there, Rackspace has benefited from that as well in being able to use Cassandra internally on their projects.

Sramana Mitra: Interesting. What year are we talking? When did you start this?

Jonathan Ellis: This was April 2010.

Sramana Mitra: To some extent, this model of corporate venture capital, corporate incubation, and convertible note from corporations has really taken off. Right now, there are a lot of companies that are doing corporate incubation programs all through the technology industry. It’s good to see some serious success in that domain. 

You said that within 85 days, you already raised your $2.7 million. Can you describe what you pitched to the investors? And you are based now in Silicon Valley. But where were you based? 

Jonathan Ellis: At the time we were based in Austin. Our corporate headquarter is now in San Mateo.

Sramana Mitra: So to raise money from Silicon Valley did you have to commit to moving to Silicon Valley right away?

Jonathan Ellis: We actually did.

This segment is part 2 in the series : Building an Open Source Software Company Around Cassandra, Seed-Funded by RackSpace: Jonathan Ellis and Matt Pfeil, Founders of DataStax
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