Rackspace Inc. doesn't fit the profile of a company that needs taxpayer money.

The San Antonio-based Internet hosting and data services company has received more than $30 million in venture capital backing and enjoys solid profits and rapidly growing sales. And it just filed for an initial public offering that could raise $400 million.

But in August, the State of Texas' Enterprise Fund agreed to pay $22 million to Rackspace over five years, provided the company meets hiring targets. The state fund has paid $5 million of that total so far.

Critics of the enterprise fund say the Rackspace deal is evidence that the state awards unnecessary grants to corporations.

"The original intent of the enterprise fund seems to be getting distorted," said Don Baylor, a senior policy analyst with the Center for Public Policy Priorities in Austin, which is an advocate for low-income Texans. "It was set up to seed job creation that otherwise might not have existed."

In the case of Rackspace, a fast-growing company in strong financial shape, Baylor said, "it seems its expansion plans would have proceeded with or without assistance from the state."

Rackspace officials declined to comment Monday, citing the regulatory "quiet period" that follows the filing of an IPO. In August, the company said the enterprise fund money was "the key factor in Rackspace's decision to keep its headquarters" in the area and build a new campus on the site of an abandoned mall in Windcrest, a suburb northeast of San Antonio.

Rackspace's financial picture was disclosed to the public for the first time Monday in its IPO filing.

The company earned $17.8 million last year on sales of $362 million. Over the past five years, the company reported total sales of $868 million and profit of $56.6 million. Sales have increased 540 percent since 2002.

Texas Secretary of State Phil Wilson, the governor's point person on economic development, said the issue is not whether a particular company needs state money, but whether the money is needed to keep a company from moving to another state.

Wilson said that North Carolina put together an "aggressive package to get Rackspace" to move there and that Texas had to counter with its own incentives to persuade the company to expand in San Antonio, where it was founded.

"The threshold question is: 'Is this a competitive deal?' " Wilson said.

Wilson said the state knew that Rackspace was profitable and growing fast when it made the deal, factors that worked in the company's favor.

"There's a benefit if it's a profitable, successful company," he said, because such a company stands a better chance of adding and keeping jobs.

Rackspace, which under the state contract is obligated to create 4,000 jobs, "was the biggest project we've done in at least a couple of years," Wilson said. "It's a project we're very proud of."

State lawmakers created the enterprise fund in 2003 at Perry's urging. So far, the fund has handed out more than $350 million in grants to corporations and state medical and research institutions.

Rackspace is an unusual fund recipient in that it is a relatively young company.

Some of the enterprise fund's biggest commitments have gone to projects such as an advanced semiconductor manufacturing project between Sematech and the University of Texas at Austin ($40 million), a proposed new Texas Instruments plant in North Texas that hasn't yet been built ($50 million), and a combined $35 million to lenders Countrywide Financial Corp. and Washington Mutual Inc.

Of the 42 companies that have received enterprise fund money, six have laid off workers. Most of the companies have not been required to pay back the state because their contracts allow them to add jobs over a number of years.

Another critic of state subsidies, Bernard Weinstein, director of the Center for Economic Development and Research at the University of North Texas, said he would "like to see a lot more discretion and targeting in the use of these grants, and subsidies and abatements generally."

"I just have a real problem with the state subsidizing large, profitable companies," he said.