Thought Leaders in Cloud Computing: Sash Sunkara, CEO of Rackware (Part 5)

Sramana Mitra: Tell me a little bit about your company. You’ve raised three rounds of financing. What’s the genesis of the company? What’s the story?

Sash Sunkara: We started the company in 2009. It was myself and Todd Matters. Our focus was on building a cloud management suite for the enterprises and building that bridge. We’d just gotten through 2008. Investments weren’t happening in a big way. A lot of VCs were just holding on and trying to make sure that they had enough funds for their current portfolio. We found a strategic partner that wanted the product for a different use. They put a couple of million dollars in.

We used the fund to focus on the product and build a small team. We came out and were ready with the product in 2010. We were ready to launch it in 2011. At that point, our strategic partner was acquired by another vendor in that space. We wrote that contract in a way that if either party got acquired, the other party could terminate the contract. We ended up terminating the contract. The good news was we didn’t give up any equity in that transaction. We didn’t have to pay the money back. The bad news was we weren’t going not get any more funds from that partner.

We found ourselves in 2011 with a product, a small team, and a little bit of money in the bank. We weren’t quite ready to raise venture capital yet, so we took it on the road. We found some early clients. We landed a DoD contract and found success. We used the revenue to continue to operate the company. We introduced a second-generation product, which was around cloud bursting, auto-scaling leveraging the benefits of the cloud. We said, “We have some good proof points. It’s time to go raise money.”

We started fundraising at the end of 2012. We got a term sheet in early 2013. Todd and I both come from other startups where we had founded and raised large sums of money. We decided that’s not the route we wanted to go. We wanted to raise a small round of capital to give us some runway, hire a small team, and be able to execute on the roadmap and not live paycheck-to-paycheck.

We raised $3 million in early 2013. That was a big boost for us. It got us to develop a small team and execute on the roadmap. It allowed us to accumulate a good set of customers. We sold licenses to Coca-Cola. We did migration for folks like Procter & Gamble. Our Board said, “You’re getting some good traction. You probably need to scale the team.” We did an inside round in 2014. It was a small one – $2.3 million. Then in 2014, we were approached by IBM. They had some internal products that did what we did. They said, “We really like the approach of this cloud management suite. It’s not a point product. To get what you guys deliver, we have to go to three or four vendors. However, you’re going to have to beat our incumbents.”

We did a head-to-head with about six or seven vendors in 2014. We ended up winning in the fall of 2014. We signed an OEM agreement with IBM at the end of that year. It really helped. It elevated us as far as the kind of accounts we were seeing. In 2015, VMWare approached us. They had an internal product that competed with us, but they didn’t fill-in all the gaps. They came to us. They were interested in cloud-to-cloud DR. We ended up winning a pretty big deal with them and closing a reseller relationship at the end of that year. That increased our customer set. We ended up closing St. John’s University with them.

We had IBM. We had VMWare and we had started a relationship with Oracle at the beginning of 2016. In 2016, we were chugging along. We sat around the table and said, “What do we want for ourselves? Do we just want to continue to chug along or do we want to take advantage of this market that seems to be accelerating?” We decided to raise another round of financing at the beginning of 2016. I started in earnest in late spring. We ended up closing a $10 million round Series B in August of 2016.

That has been great. We’ve been able to scale marketing and sales. It was to increase our profile in the market. We haven’t spent as much money as our competitors. We were continuing to chug along in 2016. We closed several large clients. We’ve doubled revenue year-over-year from 2013 to 2016. What’s important about the story is that when we started off, it was mostly one-time migration revenue. Though that’s good, it’s something you have to earn everyday.

What we started to grow late in 2014 was our DR revenue, which was subscription-based. When we started, our recurring revenue was probably less than 10%. It was around a little less than 20% in 2015. Our goal this year is about 60%. We’re on track with that. That’s the direction we’re going in. Our sixth-generation product is all about the hybrid cloud management portal. That’s also going to be subscription-based again.

Sramana Mitra: Very interesting. Thank you for your time.

This segment is part 5 in the series : Thought Leaders in Cloud Computing: Sash Sunkara, CEO of Rackware
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