Achieving the Exit with Conrad Clemson & BNI Video

Shareholder Representative Services has contributed the next installment of their Q&A series that highlights successful exits. Conrad Clemson is the former founder and CEO of BNI Video, which was acquired by Cisco; the transcript is below.

Q :  What factors led you to found BNI Video?

Before BNI, I worked at a company called Broadbus Technologies Inc., where we built video servers that were sold primarily into the cable space. We started the company in 2002, transitioned into revenue in 2004, and Motorola bought the company in 2006 for $180 million. I spent about 18 months at Motorola working through the acquisition and then joined CRV in the spring of 2008 as an entrepreneur in residence with the thought that there was great hardware in the big video service provider ecosystem, yet all it could do was deliver a basic television screen to a cable set top box.

Our view was that we were going to help the service providers create complete video offerings, while also helping them reach all the other devices in their ecosystems and bring value-added, revenue-generating services to their customers. It took about a year to get traction, but by the spring of 2009, we had really built consensus and had a high-value proposition. We did our A round of financing in June of 2009. CRV led that round, and Comcast and Cisco Systems joined in.

Q :  What steps did you take to attract strategic capital to BNI? 

I had been working really closely with Comcast and Time Warner Cable since the beginning of BNI. Comcast had been an investor in Broadbus, so I knew the Comcast Ventures team really well. I don’t think I would start a company in the video service provider ecosystem again without Comcast as an investor–they have great strategic insights.

I had also been talking to Time Warner Cable about investing in the A round, but the timing wasn’t quite right. A year later, in the summer of 2010, we did our second round of financing, which was co-led by Time Warner Cable and Castille Ventures. The team at Castille really understands the service provider space and was a great addition to the BNI board, along with Mike LeJoie from Time Warner Cable. It was an incredibly productive, supportive board.

Q :  Did you find there were a different set of challenges in managing the expectations of strategic investors and VC investors?

That’s a question that I hear from a number of CEOs who are considering a strategic investment. I didn’t find that to be the case. This may be in part because I knew all of my investors personally and professionally, having worked with most of them in some capacity before BNI. The board was aligned all along with what the management team was trying to do from a financial and strategic perspective.

Q :  How did you go about maximizing the input of your strategic investors? 

Our strategic investors really helped us with product validation and building customer support for the concepts that we were building. They also had a broad reach across the industry and were incredibly helpful with other cable customers.

The Cisco team was great in terms of engaging with us on our go-to-market strategy, but also at looking with a very critical eye on some of the key architectural decisions we were making. We spent a lot of time together talking about how to construct databases, build large web-scale transaction processing systems, and how we thought the video ecosystem was going to evolve. Those discussions may not have happened if they weren’t investors, and it certainly seems like our intentions were a lot more aligned by having them as a key participant in the company.

Q :  One of the things that people talk about when considering taking on financing from a strategic investor is whether it might limit their exit potential down the road. Was that a concern for you?

Any time you take on strategic money, whether from a customer or from a partner, or even a partner who might be a potential acquirer, that definitely creates some market perceptions around who you are and what you might be doing. In our case at BNI, a core part of our value proposition was being a very open software platform. That meant that we worked tightly with Cisco products, but we continued to operate beyond that system as a core part of our value proposition.

We thought carefully about the decision and, from my perspective, the benefits from working closely with Cisco outweighed the downside of having to explain to other partners why it made sense for us to take this money. In hindsight, I can just shrug my shoulders and say, “Gee, it seems to have worked out okay for us.”

One of our key goals from the beginning was to make sure that when we closed the books on BNI, we could look around at each other and at the employees and know that this was really a win for everyone. You see a lot of acquisitions happening where there is grumbling six months later from individuals who don’t feel like they got enough. We made a conscious decision early on to say that we didn’t want to be that kind of a company, and it was a good decision. I would advise any serial entrepreneur to distribute equity so that everybody in the company walks away thinking, “Wow, this was really great.”

Q :  How did you create barriers to entry to prevent companies from taking your ideas and developing their own competing products?

We had such a collaborative relationship with our customers and an engineering team with a very deep understanding of our products. To some degree, I would describe the team that we built as ‘Google meets a router.’ Half of our team was comprised of hardcore networking guys that go way deep inside the cable and telco networks. They understand what video looks like at a packet level and understand different complex protocols. The other half of our team came from Netflix, Yahoo, Oracle–guys who are building big enterprise and internet scale platforms. The ability to marry those teams together and actually create a cohesive product is not an easy thing to do. We protected our intellectual property by having a team that was hard to replicate and set of relationships across our industry and our partner ecosystem that really gave us a leg up and allowed us to operate in a pretty unique way.

Q :  How did you communicate the acquisition to your employees?

I have to compliment the style and the maturity of the Cisco acquisition and integration team. They had a very well thought out and disciplined process. We had the opportunity to sit down and talk to the employees of the BNI team, and at the same meeting we had the Cisco employees standing right outside, so we welcomed them in and let them talk about the acquisition.

Our employees were absolutely floored. It was an ecstatic day for all of them. I wish I could take a lot of credit for how the message was delivered, but I have to say that Cisco has a pretty storied reputation as an acquirer and, having experienced that firsthand, it is well earned.

Q :  What was the biggest challenge you faced in growing your company?

There are a couple of answers to that. The first is staying true to the mantra of capital efficiency. You look at yourself and think, “Is it time to hit the gas or time to cut down?” That was hard for me to manage and an area where the board was incredibly helpful. The other one was the challenge of what it meant to do business in the video service provider space. There are just a handful of companies that matter, and as we progressed through the life of the company, we faced technical risks, customer risks and market risks. Those were the things that kept me up at night, but it all worked out.

Q :  How did you manage risk at BNI?

We came back to the same issues from a risk perspective over and over again. At any startup, you have to figure out whether you are making the right product, whether you can make it work, and how you can get it into the customer’s lab and network. The CEO that I worked for at Broadbus had an excellent mantra. When you’ve got a pre-revenue company, it’s like having a patient in the emergency room–your goal is to stop the bleeding.

That blood is the investors’ capital, and to stop that bleeding, you have to get the revenue in and stay focused. That’s how you have to think about the business. I would credit the whole management team in staying focused and executing. They all made sure we got the job done.

Q :  Can you share any advice with other founders out there who are considering launching a new business?

Go for it. The key is to engage your customers early on and stick to your guns. If you’re building disruptive products, it takes a long time to refine the concept and a long time to get your customers on board. Stick with it and get it launched. Be capital efficient, work hard, stay focused, get the product done and get the revenue in the door.