When Pat Condon and Pat Matthews met as 20-somethings in 2004, they had more in common than their first names. They were kindred spirits in entrepreneurship.
The two Pats formed a partnership that started with Matthews’ first startup venture and has now produced a tech-focused venture capital firm. Founded earlier this year, Active Capital is the latest chapter in that partnership.
Now, years after the two Pats left executive-level positions at Rackspace, they are aiming to foster early-stage software startups with an eye toward helping companies like Rackspace come of age in nontraditional markets.
Access to venture capital can be a challenge for companies not located on the coasts – with the vast amount of funding coming from firms in New York City or Silicon Valley.
“You can build a very interesting company outside of Silicon Valley,” said Bill Boebel, who cofounded Matthews’ original startup, Webmail. “It’s nice to not get caught up in all the madness around valuations and … chasing deals. … I’m a big fan of companies that are outside of Silicon Valley. I think you can build more sustainable companies as opposed to just a rocket ship that either gets to the moon or crashes.”
Started in April, Active Capital aims to invest in business-to-business software-as-a-service companies as the lead investor in their seed round, or the first round of fundraising with institutional capital. Matthews said Active Capital will invest nationwide in companies that demonstrate revenue and growth and offer a product Matthews and Condon like.
The two Pats have become active members of the San Antonio investor community. Matthews was a lead investor in the early stages of Favor, an on-demand delivery app now owned by H-E-B.
Matthews connected with Favor’s founders at Austin’s Capital Factory, a technology startup incubator. Zac Maurais, a Favor co-founder who now presides over Austin startup Sunroom Rentals, said having investors who have been in a founder’s shoes was critical to the early success and eventual acquisition of Favor.
“You have to find the right type of person who’s going to align with you before taking on a big investment,” Maurais said. “What you want to have in that early stage is someone who’s going to give their time if you want to talk through complicated strategies and decisions … and give you space if you need it.”
Getting the business model right before advancing to series funding is paramount to pulling off a successful startup, he said.
“If you’re building a house [and] you don’t get the foundation right, everything you build on top of it is not going to work,” Maurais said.
But the two Pats might never have teamed up in the first place were it not for an unsuccessful pitch in the Rackspace boardroom, Matthews said.
Matthews, then a resident of Blacksburg, Virginia, flew to San Antonio in 2004 to pitch Rackspace executives on investing in his startup: an email hosting firm called Webmail. The startup hosted email in the cloud before the cloud was a thing.
Webmail had just secured $350,000 in capital from Blacksburg investors and looked to build on that momentum. Rackspace, with five servers hosting Webmail, took notice.
Matthews was invited to make a pitch to the Rackspace board. Getting the board to invest in Webmail’s Series A fund was the goal.
The meeting did not go well.
Webmail’s account team at Rackspace took a deflated Matthews out to lunch at Taco Tote, where Matthews met Condon, and the two hit it off immediately. Condon, one of Rackspace’s founders, decided to personally invest in Webmail, contributing $150,000 in capital and joining its board. He flew to Blacksburg five times a year and become a mentor to Matthews, who had endured a volatile first few years after the dot-com bust of the early 2000s.
“That was the beginning of an awesome relationship between me and Pat,” Matthews said. He said Condon brought the knowledge and skills needed to grow a company. Condon introduced a more methodical approach to Webmail, which had been operating largely on instinct, Matthews said.
Rackspace acquired Webmail three years later. (Condon, who sat on the Rackspace board, recused himself from the vote). As Rackspace was gearing up to go public in 2008, the company offered Matthews a senior vice president position and lured him away from Virginia.
Not only did Condon’s and Matthews’ proven track record of building and mentoring software firms draw the attention of startup founder Dan Sincavage but he said their personalities complement one another. Sincavage’s startup Tenfold aims to relieve customer service professionals from the task of manually entering data. Matthews is more direct and assertive, while Condon is a deep listener who makes keen observations, said Sincavage, Tenfold’s co-founder and Chief Strategy Officer.
“They have a unique way of thinking about the approach to each situation,” he said. “And the combination of the two is much more valuable than each of them by themselves.”