Upstack Private Equity Investment ‘Largest in Agent Channel History’

… master agent partners, in addition to running some direct agreements with suppliers.

“The master agents are very talented at managing the relationships with suppliers. The agents are very talented at managing the relationships with the customers. We’re focused on that. It would be dilutive to our value proposition if we tried to be great at both of those today. So we’re going to continue leveraging those masters going forward,” he said.

Upstack takes a “Switzerland” approach to the master agents, using the contracts that offer it the best value, and it will continue to harness master agents like Intelisys, Telarus, PlanetOne and Avant.

Upstack developed a technology platform to automate the manual components of designing and ordering telecom infrastructure. Agents told Trapp that if his team built the platform, they would happily join forces with them. Upstack built the platform, got its biggest colocation and data center provider partners to adopt it, and then re-approached the agents.

“We found out that if we could find ways to extract a lot of the non-production related activities on their plate, those agents in turn could be focusing much more of their effort in actually driving product and growing their businesses more rapidly with a much more comprehensive infrastructure behind them,” Trapp said.

Consolidation

Last summer, Upstack embarked on a series of acquisitions. As of this month, the company has acquired nine agencies, with the number close to reaching 12.

The purchased companies differ. In some cases, they are firms whose owners are retiring. Forrester predicted in 2017 that 40% of channel business owners would retire by 2024. However, other agents plan to work for 20 or more years and are looking for a larger opportunity.

These agents also differ in terms of branding. Some agents will take on the Upstack brand in order to move into larger customer accounts and compete against consultancies like Accenture. However, Trapp said Upstack is flexible with agents that want to maintain their own branding. The transactions may feature a 100% acquisition from Upstack or a minority growth investment.

Trapp said about 38% of Upstack’s residual revenue stems from colocation. That differs from the rest of the channel, where partners often start with telecom and learn how to advise customers about colocation.

For example, a 12-year-old Southern California agency exclusively sold colocation; however, its customers often requested help with the network. This banking customer wanted consultation around SD-WAN adoption, but the agent had never sold circuits or advised how to design them.

This agency teamed up with Upstack, which in turn paired it with an SD-WAN-focused agency. Now both companies are generating commissions.

“If you’re an agent that doesn’t have colocation experience and you have a customer that needs colocation services, we’re able to partner them with other agents within our ecosystem to build a partnership together and drive that sale,” Trapp said.

Trapp said this sort of collaboration often falls flat in the wrong ecosystem. For instance, he said when a distributor acquires a master agent, it often hopes that VARs and agents will collaborate with each other — VARs providing hardware expertise and agents providing service expertise. But without a relationship mediator, it’s difficult to prevent distrust and conflict.

“You’ve got two groups of sales professionals that are very wary of introducing any of their clients to any potential competitor, and it creates this natural friction that makes those referrals less likely.”

Upstack based its name on the idea of moving “up the stack” from physical data center infrastructure to connectivity solutions. In addition, Upstack plans to expand its portfolio to include unified communications and security.