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Ed Byrne misses friends and family back in his native Dublin, but not the weather or the commute.

It takes him about 10 minutes to get to Scaleworks, a so-called venture equity firm Byrne co-founded in San Antonio.

“It’s great over here,” he said. “Now and then, I send a snap of Broadway Street to my buddies at home. I’m like, ‘Look, how’s your traffic today?’ There’s rain and cars everywhere (in Dublin).”

Byrne, 38, moved to the U.S. four years ago and has a background in managing and launching tech businesses. He ran Hosting 365, a hosting and cloud-computing company that was acquired by SunGard. He also founded software company CloudVertical, which suffered as competition in the cloud-computing market intensified and “Amazon won everything,” Byrne said.

It’s the only business for which he raised venture capital, and the experience contributed to his skepticism about VC firms. Byrne later bought CloudVertical back from investors through Copper Cloud, a venture he co-founded that purchased a bunch of small developer tools. Copper Cloud was eventually acquired.

Byrne said he saw a business opportunity in buying companies strongly focused on their products and making them more customer-centric. He joined private equity firm Xenon Ventures to do just that.

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Ed Byrne is co-founder of Scaleworks, a venture equity firm, which currently has six companies in its portfolio.
Video: San Antonio Express-News

That’s how he met Lew Moorman, a former Rackspace executive and co-founder of Scaleworks who was also an investor and partner at Xenon. The pair spent a year working together before deciding they wanted to raise a fund to focus on larger businesses. They launched Scaleworks in 2015, with a focus on business-to-business software companies.

Quick facts on Ed Byrne

Morning routine: I get up whenever my kids wake me up, which is generally pretty early, and get them ready for school. A couple mornings a week, I go to the gym. Otherwise, come to Scaleworks and start my day around 8.

Favorite restaurants: Soluna, Chez Vatel, Bohanan’s

Book you’re reading now or read recently: “Turn the Ship Around!: A True Story of Turning Followers into Leaders” by L. David Marquet

If you had to pick a different career in a different industry: Farmer

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Last year, they moved into the Savoy Building on East Houston. Two of the companies Scaleworks has bought have been acquired, including Assembla, a platform that developers use to store code securely, earlier this year. The firm currently has six companies in its portfolio.

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Byrne sat down with the San Antonio Express-News at Scaleworks earlier this year to discuss its approach, why he’s leery of venture capital, what he looks for in a new CEO and what growth opportunities there are for San Antonio’s tech community. Here is an edited transcript of the interview.

Q: What does “venture equity” mean?

A: Private equity typically buys companies and leverages debt, loads them for cash flow, extracts the cash flow to pay off the debt and runs it very lean. Private equity firms are known for leaning businesses down, as opposed to growing. Venture capital typically builds and says, “Grow, grow, grow. Shoot for the stars, and if you miss, well, we’ve got lots of other portfolio companies.”

We don’t think that’s a brilliant approach, because there’s lots of good (companies) that aren’t going to be billion-dollar businesses. Not every software company needs to be, but if you raise venture capital, you’re on this mega-growth path and you’re going to lose loads of money trying to scale too early. We’re in the middle, where we’re laser-focused on growth. We don’t leverage our businesses for debt, and we don’t try to run them for cash or for profitability. We want every dollar we make to go back into growth. A successful Scaleworks company is one where, over its life here, you see growth and ramping up.

Q: What do you look for when you’re hunting for a new CEO?

A: We look for people who align with our six principles. Every company should have its own culture and values, but the CEO should be aligned with those. Generally, it’s CEOs who have a kind of revenue-facing background, be it marketing or sales — people who understand how to bring products to customers.

Personality-wise, we’re trying to build a culture of intense curiosity. We’re trying to figure out what to do with these businesses, new ways to grow and new tactics, and so I guess we naturally fit with people who love reading and exploring new things.

Q: What’s an instance where you made a mistake or failed at something?

A: I set up CloudVertical with the idea that the economics of moving to the cloud was actually going to be a thing because it was pay-as-you-go, not fixed contract. My thesis was that the hybrid cloud, where you do a little bit of both, was going to win. My thesis was wrong. It turns out Amazon won everything.

But that’s the only business I ever raised any venture capital for and the only business so far that hasn’t worked, and some of my skepticism that venture capital is right for software companies came from that. I did all the wrong stuff, like overfocusing on product and engineering at the expense of making noise in the market and developing relationships with customers. I look back, and there was a team of engineers and me. We did no sales, which was exactly what you shouldn’t do: Only focus on product.

Q: Why are you skeptical of venture capital?

A: Ten years ago, if you were starting a software company, you had to buy servers, build the software, then hire a salesperson to bring it to market. That costs millions of dollars. Now, you get your servers for free basically or you pay pennies to Amazon, as you need them. There are so many frameworks and tools. You can build a product very quickly, and you can launch it online. You don’t need a salesperson to walk you to a customer’s office, and you can do online marketing actually very cheaply. Probably with money from friends and family, you can bring a product to market. And then, all these things in software are 80 percent plus gross margin, so you should have money as you grow to invest.

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If all those costs are gone, why are people raising more venture capital now, not less? If the average venture capital round is going up, and it seems to be, but the cost of building businesses has gone down dramatically, that makes no sense to me. It’s probably because there’s just lots of money out there.

There’s this culture of, if you’re a software company, you raise venture capital. If you’re a biotech or energy company, you need venture capital for that. It is supposed to be for research and development. It’s high-risk. It’s not really supposed to be for if you can’t get a software company up and running, and most of it goes to sales and marketing. That’s not what venture capital originally was, but I think that’s what it’s become now.

I think it doesn’t give you any discipline when you have lots of money in the bank.

Q: You also said there’s too much of an emphasis on metrics in tech. Scaleworks has a one-page metrics sheet for all of its companies. Why?

A: It seems to me that in the tech world, every interview you hear now is, ‘Well, what tactics did you use for this? How do you compensate your salespeople? What percent did you do that?’ If you have a great strategy and you create something people really want, the business is probably going to do well. And if you’ve got the best tactics and metrics, you’ll do a little bit better. But if you’ve got a terrible strategy and product, the best tactician still is not going to succeed. Metrics are important, but I think the tech world might have moved too far into metrics and tactics. What really matters is whether there’s a good, solid business and customers actually want what you make.

Q: What are the biggest opportunities and challenges for San Antonio’s technology community?

A: I think the best way to grow a tech community is to not really worry about the community too much and just focus on the businesses. There’s obviously a huge tech scene in Dublin, but it wasn’t formed through startups — it was through Ireland’s development authority, which courted and brought Google, Facebook, Intel and others.

If you can get midmarket companies — obviously that’s self-serving, since that’s what we bring here —with 50 to 500 people to San Antonio, that creates lots of employment. Those people in time will then come back into the community. You need more than one or two Rackspaces. You need lots of smaller ones.

Many people in their 30s and 40s want to be entrepreneurial, but they’ve got kids and a mortgage, and it’s hard to go set up a company. The best thing for them is to join a small up-and-coming company, so they can still be entrepreneurial but get a salary.

People don’t know what San Antonio is. I was at a talk last week, and everyone was saying to heavily attract millennials, and I’m not sure. Everyone’s trying to attract millennials. But there’s a lot of workers here, and San Antonio has low traffic, great weather and great schools and houses. The cost of living is relatively low. If you’re at the stage of your life where you’re married and having kids, San Antonio is an awesome place to be. That’s the story I would tell. | @madisoniszler