March 2009
Hitting the Ball Wherever It Was Pitched
Comcast Founding Partner Julian Brodsky Tells Wharton Entrepreneurship Conference Value of "Growth, Growth, Growth"
To launch the business, they borrowed $250,000 from family and friends, rented a small office in the suburbs, and hired a few employees. While this may sound fairly typical for a lot of start-ups, the path of this particular company has been anything but average.
Fast forward to the present and that small business is now a leader in its field with over 100,000 employees and annual revenue in excess of $30 billion. A common household name, Comcast provides television, Internet and telephone services to millions of customers and is involved in highly successful investments, maintaining its entrepreneurial spirit. It has a market capitalization around $50 billion, and when added to its debt, Comcast has an enterprise value of $80 billion.
How did this happen? Julian Brodsky, a founding partner, director, and former vice chairman of Comcast Corporation, discussed Comcast's remarkable journey in a keynote address at the recent Wharton Entrepreneurship Conference. The short answer was, "Growth, growth, growth."
A 1956 Wharton undergraduate alumnus, Brodsky explained that in the early days of Comcast, "we were deal junkies and acquisitions were a way of life. We maintained high visibility in industrial and financial circles in a way beyond our size and beyond our importance. In other words, we played bigger than we were."
He also credited the company's willingness to take on debt and the ability to leverage its model of equity. "We were evangelists in the 1970s and 80s preaching the importance of cash flow as compared to conventional earnings," said Brodsky. "The junk bond market was the rocket booster that made it all happen. The easy money environment of the '80s made it a great time to expand. ... We had to be opportunistic and hit the ball wherever it was pitched."
For example, Brodsky recalled that by the mid 1970s just about all of America had been wired for cable television and the company appeared to be nearing a dead end. However, when HBO launched a satellite with national coverage in 1975 it also provided Comcast with a simple product to sell to the country: movies without commercials. That product changed cable TV from an antenna service to an entertainment media.
A few years later, Comcast was up to bat facing another challenge. This time it was satellites that beamed high-quality signals directly to consumers. Brodsky told how Comcast adopted an aggressive offensive strategy to get as much digital TV into play as soon as possible. Despite the capital expenditures this required, it turned out to be a huge success. "Comcast was standing strong as a new products company offering digital channels, high definition, Internet services and telephony and we were more than able to compete with the satellite guys and more than ready to take on the telephone companies," he said.
It wasn't only market challenges that provided opportunities for growth and expansion, it also was the availability of new technology. When the Internet first appeared on his radar in the 1990s, Brodsky didn't see much potential for its commercial use. However, after Mosaic in a Box appeared -- a browser allowing easy and practical use of the World Wide Web -- he became convinced that the world would never be the same.
"I shared my excitement with a Comcast colleague and the two of us took off for California with a bag of money determined to make a series of small investments in different types of companies that were trying to exploit this phenomenon," recalled Brodsky. "At about the same time, Peter Musser (founder and former chairman and CEO of Safeguard Scientifics, Inc.) came to visit along with two younger associates who were interested in starting a combination VC fund-incubator-operating company that would focus on Internet business-to-business aggregations and tools. Comcast agreed to invest and I would serve on the board of the Internet Capital Group to learn more about the Internet and provide adult supervision to a bright group of twenty-somethings," he said.
A condition to Comcast's agreement in the investment was that Comcast would have the option, but not the obligation to take 25% of any investment that the Internet Capital Group made. It turned out that the group had a great run. Even after the bubble burst in 2000, Comcast was able to make a partial exit to the tune of $500 million based on its original $20-million investment.
After the success of the Internet Capital Group, Brodsky was eager for Comcast to pursue additional Internet opportunities. Following an offsite meeting to educate top executives about the Internet, Comcast Interactive Capital was formed with Brodsky as the leader who structured it as a typical Silicon Valley VC fund. "The fund was expected to make money, but it was also to be a source for intelligence, research, and development about the Internet and other technologies," he said.
The fund, which now has 10 professionals, succeeded on all counts. Brodsky noted that prior to his stepping down from managing the fund, it had an annual rate of return over 60% even after it wrote off 20 investments when the Internet bubble burst. To maintain its entrepreneurial spirit, Comcast has continued investing in early stage companies such as Half.com, which was ultimately sold to eBay for about $500 million.
"Almost anything can be done in almost any environment by talented, hard working, visionary and courageous entrepreneurs even in difficult times," concluded Brodsky. "Comcast did it in the '60s and '70s and continues growing to this day."
An afternoon full of exhibits, pitch sessions, panels, and speakers provided plenty of opportunities for "hunting" at the student-run conference, which is in its 12th year. Topics included clean tech, the US healthcare system, and entrepreneurship in times of economic crisis. Over 500 professionals, entrepreneurs, students and academics attended the conference, which was sponsored by the law firm of Morgan Lewis.
The pitch sessions provided unique opportunities for selected entrepreneurs to refine their elevator pitches as well as for the audience to experience the pressure of a pitch session and gain understanding about what investors look for in a good pitch.
At a session dedicated to IP pitches, students had two minutes to present their businesses to experienced investors such as Anand Daniel, senior associate at Flybridge Capital, and Jim O'Connell, a Wharton alum and senior associate and Kauffman Fellow in Safeguard's Life Sciences Group. The businesses ranged from a spray-on antimicrobial for thin surfaces such as plastics to a window insolating solar generator. After the pitches and tough questions from the investors delving into how the technology works, the composition of business teams, and identity of customers, the experts agreed that they liked the antimicrobial spray pitch the best. That company, Innova Materials, had already received validation for their venture by winning 2nd Place at the 2008 Wharton Business Plan Competition Venture Finals.
O'Connell explained, "We liked that they put a team together, they already have traction with customer adoption and we can do due diligence with the customers to find out more about it. It's a very capital efficient company and they won't need a large amount of cash to get to the point where they control their own destiny."
Daniel also offered some general advice to everyone at the session, "We back people and teams so it's really important to talk about who is part of your team to make sure you have the right people. Also, what is the exact problem you are trying to solve and how big is that critical problem? How will you get to discover the customer base and make money off it? And lastly, how much capital do you need and what milestones will you achieve with the capital you are raising?"
Advice, inspiration and networking were the Conference's big draws. As one VC quipped in a blog: "I spent Friday in Philadelphia at the Wharton Entrepreneurship Conference. It was a worthwhile trip although my networking circuits were fried afterwards."
Posted March 2009