Rackspace applies for a $400 million IPO

Managed-hosting service Rackspace has filed with the New York Stock Exchange to raise $400 million in an initial public offering. Investors Norwest Venture Partners, Sequoia Capital and company chairman Graham Weston stand to profit from the exit. Rackspace reported $18 million in 2007 profits on $362 million revenues. We called the IPO in January, but we're not sold on its merits.

Last fall, Rackspace went through a major outage that released many of its customers from their long-term contracts. Then, earlier this year, Tumblr founder David Karp publicly voiced his discontent with Rackspace and the company cut its prices by 80 percent in order to keep his business. Karp didn't take the offer, telling us its cheaper for startups to load up on redundant servers than to depend on Rackspace's 100 percent up-time promise.