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The coming relocation of five growing software companies into the renovated Savoy building signals far more than just the latest step in the revitalization of San Antonio’s urban core. Tech leaders say the move, led by Lew Moorman and Ed Byrne of Scaleworks, represents an evolution of the city’s growing tech industry.
The venture equity firm has leased all but the ground retail level of the three-story Savoy, located on the corner of Houston and Soledad streets. Scaleworks employs 200 people, with 75 of those jobs based in San Antonio. Currently, employees work out of a hodgepodge of offices in the World Trade Building on Broadway.
Scaleworks’ move is the latest in a sudden flurry of activity along the Houston Street corridor Tech District, following the Thursday announcement of health technology company CaptureRx’s planned relocation to the Kress building and the current redevelopment of the Burns building.
“It’s a leap,” said David Heard of Tech Bloc. “There have been some steps, some half-steps, but every once in a while, you get something that is a non-linear jump and that’s what this is. They [Scaleworks] are a technology business-to-business, SaaS [software-as-a-service] aggregator, investor and accelerator. What they’re doing is pretty unique.”
Because each company in the portfolio has its own CEO, distinct company culture and set of values, the new quarters Scaleworks leased from Weston Urban is not a co-working space. It’s being designed to provide not only plenty of “peer space” for learning, but also private offices. The move into the Savoy is expected to occur when construction is complete sometime this summer, company officials said.
Moorman, the former Rackspace president, and Byrne, a serial entrepreneur who hails from Dublin, started Scaleworks just over a year ago. Since then, they have built a $60 million fund and acquired a total of seven tech companies, with plans to add one more.
“We’re cheating time a little bit for the city,” Moorman said. “All these companies already have revenue, they already have customers, and they need talent and they can self-sustain it because they have revenue and they have the ability to pay people and to grow.”
Companies in the Scaleworks portfolio include Filestack, Assembla, Chargify, Twist and Mailgun. Four of the five are based in San Antonio. Only Mailgun, a Rackspace spinoff, started here. But all fit the Scaleworks profile of being B2B, SaaS companies that are growing, albeit slowly, and have potential for growth of 50% to 100% — with the right strategy and support.
“We see that they’re doing some things wrong,” Moorman said. “We bring a new team in. Usually the teams are tired and want out, so it’s not hostile at all. And we put in new leadership, and we start to grow them.”
Scaleworks does that by providing the companies with basic resources they don’t yet have the scale to manage themselves, like office and meeting space, and centralized accounting, finance, and recruiting services. A public relations function is being added soon as well.
More importantly, Moorman and Byrne serve as executive chairmen, providing leadership and strategic direction, which is the hallmark of the partners’ unusual model.
They describe Scaleworks as a cross between a private equity and venture capital firm.
“Like private equity, we buy controlling stake of companies. But unlike private equity and more like venture capital, we really want to invest and grow the companies,” Moorman said. “Most private equity firms want to milk the cash out of them. It can be very lucrative. But that’s not what we want to do.”
The biggest limited partner of the 34 investors in the fund, Moorman departed Rackspace three years ago and met Byrne, who then was working with another associate on a venture similar to Scaleworks. Seeking a role more fulfilling than that of angel investor, the two joined forces to raise a $50 million fund, and recently added another $10 million.
As a venture equity firm, Scaleworks might be in a class by itself. The closest Moorman and Byrne have come to finding another firm like it is Turn/River Capital, which is based in Silicon Valley and shares ownership with Scaleworks in Mailgun.
“It’s not like Geekdom Fund [which is] classic venture capital — investing in small companies that don’t have a lot of revenue, have ideas, need capital to get going [and] they’re going to lose money for a long time, and they’re either going to be big hits or not,” Moorman said.
“We think about these as companies that have good foundational revenues and customers that we can take to the next level.”
In that way, both said, these companies are not startups — newly established businesses in need of angel investors to get off the ground, for instance. And also why Scaleworks represents an evolution of sorts for San Antonio’s tech industry.
“Startups don’t have a lot of people. It takes a lot of startups to create a lot of jobs,” Byrne said. “It’s hard to go from startup to big revenue. It’s rare.”
Instead, these are all high-growth companies, adds Moorman. “So I think it’s a tremendous thing for San Antonio, and it’s certainly going to add to the ecosystem.”
“You want to have an environment for startups. But what they are doing is allowing our tech industry to cheat time, like a time machine,” he said. “These are established companies, many with mature technology that’s been in the field for years. When these companies matriculate and you monetize them, the story will evolve. I’m excited to see what they do.”
Scaleworks is actively recruiting, having recently hired people locally and from as far away as San Francisco, Las Vegas, and Ireland.
“We’re obviously super-biased, because we bought these companies,” Byrne said. “And we’re pretty excited about our portfolio. It’s only a year old. But we didn’t start last year saying we’d buy seven companies over a 14-month period — that wasn’t the plan.
“But they were great opportunities and great companies and the founders and us, we gelled, and we got great deals.”