20VC: Inside The Acquisition Decision-Making Process at Cisco, How To Measure True Success in M&A Evaluation & Why By Not Speaking To Corp Dev Teams You Are Closing The Door On The Biggest Potential Accelerator To Your Business with Rob Salvagno, VP of Co

Rob Salvagno is VP of Corporate Development and Cisco Investments at Cisco, where he is responsible for leading all M&A efforts as well as managing Cisco’s strategic venture capital which invests hundreds of millions of dollars annually. At Cisco, Rob led the $1.2 billion acquisition of Meraki, one of the most successful platform acquisitions in Cisco’s history, and the $3.7 billion acquisition of AppDynamics, cementing Cisco’s place in the business intelligence, analytics and IT operations market. Most recently, Rob engineered the $2.3 billion acquisition of Duo, the leading provider of unified access security and multi-factor authentication delivered through the cloud. Prior to the world of M&A, Rob was a technology investment banker at Donaldson, Lufkin & Jenrette. In Today’s Episode You Will Learn: 1.) How Rob made his way from investment banking to leading the M&A and venture activity for one of the world's largest tech players of the last decade? 2.) How do M&A teams like to get to know startups that they could invest in or acquire? How does Rob like to work with the venture ecosystem? How does Rob think on Paul Graham's comment of "do not talk to corp dev"? What are the nuances here? How does it differ for consumer vs enterprise? 3.) How does Rob define true success when it comes to M&A evaluation? Should corp dev be strategy first or transaction first? What have been Rob's biggest lessons on successful integration? Where do so many go wrong with integration post M&A? What questions can be asked ahead of time to know if integration and culture will be a fit? 4.) How does Rob reflect on his own price sensitivity today? How does Rob feel about the multiples enterprise companies are currently trading at? What have Rob's most successful acquisitions taught him about price and price sensitivity? How does Rob deal with the inherent conflict of investing and also acquiring companies? How does he communicate that to the companies he invests in? 5.) What does the acquisition-decision making process look like at Cisco? How does it differ on a deal by deal basis? What do Cisco do to allow them to move so much faster than any other M&A teams? What have been Rob's lessons on the importance of speed in winning the best transactions? Items Mentioned In Today’s Show: Rob’s Fave Book: The Poisonwood Bible Rob’s Most Recent Acquisitions: CloudCherry, Voicea As always you can follow Harry, The Twenty Minute VC and Rob on Twitter here! Likewise, you can follow Harry on Instagram here for mojito madness and all things 20VC.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Harry Stebbings?

  This is the 20 Minute VC with me, Harry Stebbings, and this is our last episode of 2019. As the year closes, I've been reading tons of predictions for 2020, and much of them discuss the exit environment, an area our ecosystem really doesn't cover that much, largely being M&A. And I'm looking forward to changing that in 2020, and I want to start that today. And so with that, I'm thrilled to welcome Rob Salvagno, VP of Corporate Development and Cisco Investments at Cisco, where he's responsible for leading all M&A efforts, as well as managing Cisco's strategic venture capital, which invests hundreds of millions of dollars annually. At Cisco, Rob led the 1.2 billion acquisition of Meraki, one of the most successful platform acquisitions in Cisco's history, and also the $3.7 billion acquisition of AppDynamics,

• 0:41Harry Stebbings?

  cementing Cisco's place in the business intelligence, analytics, and IT operations market. And if that wasn't enough, most recently, Rob engineered the $2.3 billion acquisition of Duo, the leading provider of unified access security and multi-factor authentication delivered through the cloud. I'd also want to say a huge thank you to David Ulovich at Andreessen, both for the fantastic intro and for the questions today. David, I so appreciate that, and mojitos on me to thank you. But before we dive into the show today, I'm sure you've heard me talk about it before, but my word, this is a product I love, Carter. Carter simplifies how startups and investors manage equity, track cap tables, and get valuations. Go to Carter.com/20vc to get 10% off. And with more than 800,000 employees and shareholders

• 1:25Harry Stebbings?

  using Carter to manage hundreds of billions of dollars in equity, and Carter now offers fund admin, so you can see real-time data in the Carter platform and work with Carter's team of experienced fund accountants. Go to Carter.com/20vc to get 10% off. And if Carter is the go-to there, what about product? Well, the team over at Pendo, the product plow company, just launched a free product performance benchmarks microsite, where you can see how your product stacks up against your peers. They gave me a sneak preview of it, and my reaction was, my word, I love it. I know so many founders who are desperate to compare their products to competitors, and that's what Pendo has done. They've analyzed more than 1,000 software products and created benchmarks for startups, scale-ups, and enterprises across five different categories. It's all presented with some pretty slick visualizations, and you should check them out today.

• 2:10Harry Stebbings?

  Pendo.io slash product dash benchmarks. That's Pendo.io slash product dash benchmarks. Finally, finding a quiet space for a phone call or a video conference. It's always a challenge. Conference rooms, while they're always taken up by one person. That's why I was excited to discover Room. Room helps businesses build a better workplace with their mobile soundproof phone booths, helping you tune out the noise of the open office. It's soundproofed using recycled plastic bottles and fully ventilated to keep you cool. I've personally used the Room booth before in our office and I love it. And with Room, you can create a quiet space for phone calls, video conferences and focus to work at a fraction of the cost of building a conference room. That's why companies like Nike, Google, NASA and Salesforce have already chosen Room to build a better workplace. And Room offers free shipping and the best price on the market.

• 2:55Harry Stebbings?

  So go to room.com slash two zero VC to learn more. That's room.com slash two zero VC. But that's quite enough for me. So now I'm very excited to delve into our last episode of 2019, delving into the world of Cisco.

• 3:13Speaker 01

  You have now arrived at your destination.

• 3:16Harry Stebbings?

  Rob, it is such a pleasure to have you on the show today. I've heard so many great things from David Ulovich at Andreessen. So thank you so much for joining me today, Rob.

• 3:23Speaker 02

  Harry, very excited to be here and I've been drinking coffee all day just to keep up with your energy level, so.

• 3:29Harry Stebbings?

  Oh, trust me, mine's espresso martinis, which will have to be a round two for us. But I would love to start today with a little bit on you. So did you grow up knowing that you wanted to lead corp dev practices for the world's leading tech companies? And how did you make your way into the world of corp dev with Cisco?

• 3:43Speaker 02

  It's a great question. You know, my story goes back to my undergrad days at Stanford. You know, I came out of a small town and in the community that I grew up in, the medical profession was very well respected. So when I went to Stanford, I actually thought I wanted to be a doctor. Now, what happened is early in my days at Stanford, the internet boom happened and Netscape actually went public when I was in my early years at the school. And so what I realized is technology is really where I wanted to be. And I was at the heart of it, being in Silicon Valley. So I wanted to figure out my way into technology. I knew I wanted to do that from a business perspective. Not an engineering one. So the past at that time, that kind of leads you down to either investment banking or consulting.

• 4:26Speaker 02

  I chose to go into investment banking. So that was my entry into the tech world. I was in investment banking in the Bay Area. First in San Francisco, then at Sand Hill. I was working as an analyst at DLJ. I was actually Safra Katz's first analyst. She is now the president over at Oracle. And what I saw from banking was it really cemented my love for technology. But at the same time, bankers, they're very transactional and you don't really play any role in the strategy of the company. You don't share any ownership in terms of the results and that left me wanting. That left me sort of unsettled. So I figured the best thing to do was let's go find a technology company that is very acquisitive.

• 5:10Speaker 02

  And perhaps I can marry those two things up. So I actually ended up sending my resume into [email protected].

• 5:18Harry Stebbings?

  And that, I absolutely love that for the [email protected]. I mean, my word, I'm glad they checked it and I'm sure they're thrilled they checked it too. I do have to ask though, because it was a long time ago. It was over two decades ago. So in terms of your mindset, having seen the financial markets go through the dot com 2008, I'm fascinated to hear your thoughts. Josh at First Round said seeing the bust made him more conservative. How does seeing the booms and busts impact your investing mindset, do you think today, Rob?

• 5:45Speaker 02

  Yes. You know, whether it's about investments or M and A, it's really about bringing, I think, that perspective to bear. So today, everybody assumes the world is what we've seen for the past decade and it's been a boom over the past decade. You know, what investor really hasn't done well over this time? But we lived through the 2000, 2001 period. We've gone through the 2008 period. And so, you know, when I tend to think about an opportunity, whether it's an investment, whether it's an acquisition, I ask myself the types of questions of, you know, how's this business model going to stand up when capital perhaps doesn't flow so freely? How is a CEO who may be great in rah rah times gonna perform?

• 6:30Speaker 02

  During really challenging times. And look, if you look at the multiples that are going on today, these growth companies are trading at twenty, thirty times sales. And those used to be PE multiples in our business. So I think you have to have the perspective, which is, you know, I think a great company today may still be a great company over the long term. But if it requires a quick payback, if it's something that you just don't have the runway to get to during the tough times, then things can get ugly pretty fast. And I think we're seeing headlines today in the markets of some big companies, some big unicorns, that are facing those challenges right now.

• 7:09Harry Stebbings?

  I'm really interested to double click on that. How much of a role does capital efficiency play for you in your investment or acquisition mindset when evaluating potential opportunities to engage with?

• 7:19Speaker 02

  Well, when we think of capital efficiency, I think that just points to the attractiveness of a particular business model. And it plays into one of our key tenets, which is, on one side, we are going to look at valuations. And as we mentioned, valuations are very high today. But the real question that Cisco asks itself is, can we actually create additional value in the business? And so what are those levers? That could be being a great distribution channel. That could be making the product much more attractive by making it part of our architecture. That essentially takes whatever existing model a company may have and say, we can improve the operating model in these ways. So you know, someone that may be on the cusp of profitability,

• 8:04Speaker 02

  maybe it accelerates that within Cisco because we can get there much more efficiently. A company that is maybe growing at thirty percent a year, maybe we have an opportunity to double that because we can get every Cisco salesperson to turn that on. So for us, the capital efficiency piece, I would say that's an input because it informs what the business model is operating at today. And that leads to the questions of, what may Cisco be able to do with it if it's inside our business?

• 8:31Harry Stebbings?

  You mentioned there about what it means to be inside the Cisco business and kind of how you think about that as a practice in itself. How do you think this is maybe similar to others? Around you and then on the flip side, how's it maybe different to others?

• 8:43Speaker 02

  I think when you look at Cisco and it really starts with the motto that I talked to my team about and really the bar that we set relative to our ultimate impact. And that comes down to the question, which is, I think the best measure for success for corp dev is have we been able to get the company to accomplish something that left to its own wouldn't have been possible? So that's a high level mission statement, but how does that actually break down? And I think there are probably three components of that to speak about. You know, first, one of the things that I think makes Cisco unique, it starts with a cultural mindset. You find a lot of companies are very insular, which is they think they can do everything themselves.

• 9:26Speaker 02

  And one of the things that I think has made Cisco so different, and this goes back 30 years ago, is that we've recognized that the broader market, the VC ecosystem, it's really a great source of innovation. And so our choice has been, let's not hide from it. Let's not pretend that we can do everything ourselves. Let's figure out how we can leverage what's happening on the outside to actually accelerate our business. And the first step towards that is by investing in that ecosystem, because that's really the first way that we show up in the outside market. The second piece I would call out is when we think about corporate development, it's a strategy first mindset and deal second. So a lot of corp dev groups, I think they're all about the transaction.

• 10:11Speaker 02

  They get a call, I want to buy this company, and that's what they do. For Cisco, it really starts with the strategy. So we're working hand in hand with the business unit, bringing that perspective that we get from being outside investors with a close collaboration with the teams inside Cisco. And with that different perspective, help try to shift their points of view in terms of where we may want to go. And then, of course, you've got these very strong tools with acquisitions in order to get us there. Now, the last piece I would land on is where the magic happens is how does that push and pull go with the business units inside Cisco? You know, on one hand, if we're just doing deals that a business unit wants to do,

• 10:54Speaker 02

  then we're probably not stretching into new opportunities. We're probably not challenging the status quo. And that's not a good place to be. On the other hand, if my group's just a total renegade and out there, you know, doing deals that we think are exciting, but that don't fit our existing business model, well, then they're going to completely break when we bring them inside of Cisco. And that's not going to work either. So it's a balance. It's about having both a collaborative relationship with the business and what they can do, but also a view informed by the outside world and bringing those two together to really drive difference.

• 11:31Harry Stebbings?

  My word, Rob, I have to admit, I do hate balances. It's always so much tougher when it's a balance. But I do have to ask, in terms of kind of investing in the ecosystem there, let's start with that because I do want to dive into the process itself. How do you like to really get to know startups that you could potentially acquire or work with? And how do you know to do that from maybe the grassroots from a starting point in terms of sourcing?

• 11:50Speaker 02

  Sure. When we get involved in a particular situation, you know, our initial motivation is really about the relationship. When we are calling on a company, our motivation, if it's an investment, is not driven by our desire to eventually acquire the company. And I know that's often a fear of corporate development. In general, I would say our team, we're very intellectually curious. We want to stay on top of the market. We want to make our portfolio companies successful and find ways that that can help accelerate the businesses that Cisco's in. And what you realize is that those goals are actually not mutually exclusive. It can certainly play out on different levels. So when we invest in a company,

• 12:35Speaker 02

  we do that because we believe we have an opportunity to invest in a best-in-class company in a market that we find interesting. And perhaps there's an opportunity for a tight partnership with Cisco. That may play out over the next two quarters. That may play out over the next three years. I think going in with the right set of shared expectations between us and our founders and entrepreneurs is where it starts. And recognizing that Those relationships and those partnerships can take a lot of different directions over the course of that time.

• 13:05Harry Stebbings?

  So I do love that relationship first mindset. I think it's so important to be human-centric, really, and non-transactional. I guess my question there is, obviously heard Paul Graham before say, "Don't talk to corp dev." How do you respond and think about that? And then what advice would you give to founders on building that relationship with potential corp dev teams?

• 13:23Speaker 02

  It's interesting. You know, Paul has been wildly successful over at Y C. And certainly, you know, I can't read a lot behind his statement. And a lot of what he's done, I think, has been focused on some of these wildly successful consumer startups. What I can offer is a perspective in being in the business, really from an enterprise point of view. And in all the years I've spent here at Cisco, working with startups, investing in startups, making them successful within Cisco. I think what you find is what is often key, it has to start with a great product. So if you don't have a great product, you don't have a great technology, it doesn't matter. But one of the hardest things to do is to get scale distribution or scale to go to market.

• 14:07Speaker 02

  So that really becomes a key driver. And so if you ignore that because you don't see a Cisco as a potential partner or investor or potentially a future acquirer, what you're doing is you're really prematurely closing the door on what may be the biggest potential accelerator for your business. And I've seen it on many occasions. So when I look at just the partnerships or investments or acquisitions that I've been involved with. Meraki, Open DNS, AppDynamics, investments like Cohesity, Turbonomic. All of those relationships, they actually began with corporate development.

• 14:48Speaker 02

  And when those relationships began, those companies often were doing tens of millions of business on their own. And today, if you looked at those same companies, they're doing hundreds of millions or even billions of dollars with Cisco. So it makes a big difference. So that's why I don't think you can ignore what a partner like Cisco can represent.

• 15:10Speaker 02

  The way that CorpDebt fits in there is CorpDebt is often one of the avenues into the broader organisation. You know, going back to our motivation for calling on these companies, I'm not necessarily calling because there's an investment opportunity or I think I want to drive an acquisition. I'm calling because we find the company interesting. We want to start a dialogue and see whether there's an opportunity to do something together. That could be today and that could be two years down the road, who knows? But if you don't open the door, you'll never know.

• 15:40Harry Stebbings?

  Totally agree in terms of that opening the door. And I think that, you know, you should choose the select few that you would like to potentially work with and really kind of work those relationships over time. I'd love to hear your thoughts there. You mentioned distribution there and it's one of my nerdy passion points. I'm terrified by the scaling customer acquisition costs that we're seeing today. Henry Ward from Carter said on the show recently that you have to own your own lines of distribution and all the best companies do. How important do you think it is to own your own lines of distribution fundamentally?

• 16:06Speaker 02

  I think it's important so that the corollary to what I just mentioned in being open to working with a large partner like a Cisco is I think you fundamentally need to control your own destiny to begin with. And so don't view a partner like Cisco as one that your execution depends on, but view it as something that can enhance what you're doing. And again, all of our best companies that we've either invested in or acquired, they had built very successful go-to-markets on their own. Some of those were inside sales-driven, some of those were direct, some of those had large channel components. Those are all things that Cisco also has that are focused on a certain scale, certain buying center.

• 16:48Speaker 02

  And so it's really an enhancement as opposed to the foundation that Cisco represents. And yes, a company needs to own its own distribution and I consider that sort of fundamental to what you need to build as a founder or CEO.

• 17:03Harry Stebbings?

  Okay, Rob, so me and you, we've built the relationship. You've realised that, you know, the 20-minute VC owns its own lines of distribution and we're getting into a negotiation for Cisco to buy us. Totally realistic opportunity here, you should be very excited for this one. But pricing is the next question. And as you said earlier, we're seeing these massively inflated Prices for everything with the influx of capital that we've seen. Super user, given your 20 year history with Cisco, how do you assess your own price sensitivities today? And how much of a role does that actually play in the decision?

• 17:30Speaker 02

  Yeah, that's a great topic. Multiples today are the highest I've ever seen. And as we talked about at the beginning, you know, I've been around for a while. So I've seen a lot of different markets. But when you see these companies trading at 20 and 30 times sales, it's really unprecedented. And so I think that really raises the bar relative to the conviction that you have to have from an M and A perspective. You know, for us, a valuation is an input. And so, you know, we are mindful and believe today that, you know, valuations are extremely frothy. But the way that we view things is regardless of the absolute value, it's really about seeing a path that Cisco can create value.

• 18:12Speaker 02

  And so if you're in a position that you can see an opportunity to add value, the share multiple is actually less relevant. In fact, if I look at some of our most strategic or financially successful acquisitions, moves like AppDynamics, moves like Meraki, they in fact were some of our highest multiple deals. And so the idea that a high multiple transaction should be avoided, you know, that itself sort of loses the point. It's really about the opportunity to create value.

• 18:44Harry Stebbings?

  Now, before you mentioned some of the incredible acquisitions that you've been a part of there, Rob. Before we move into the stories behind some of them in particular, final question is the actual decision making process itself. For me, and I think probably for a lot of the ecosystem, it's quite opaque in terms of what it takes to actually get a deal over the line. So I'm interested, how does your acquisition decision making process look for you and the team today?

• 19:04Speaker 02

  Happy to help provide some transparency behind that. And it really comes down to two topics. Think about it as the strategy part of the decision, which is we feel that this is the right bit. And then there's the governance side of things, which is depending on the amount of risk that we need to take, depending on the amount of resources we need to put behind it. You know, who needs to sign off on that for us all to feel good about that move? Let's talk about the strategy. If you go back to what Corp Dev does, you know, one of those things that we do is we have a very tight partnership with the business units within Cisco. And when you look at these business units, these are often multi-billion dollar businesses. You know, security is a multi-billion dollar business within Cisco.

• 19:48Speaker 02

  And so if you're the GM of the security business, David Ulovich was the GM of Cisco's security business at one point. If you're the GM, you actually have a degree of flexibility behind how you can accelerate your business. And going back to one of the things that makes Cisco unique, this idea of outside innovation being part of the strategy, it's fundamental to how we think about things. So it really starts with the GM. If the GM feels strongly that an acquisition can accelerate their business and they have conviction around it, that is going to be really the first and the most important step on the strategy side to getting support for a deal. Now, the bar for that may be different if it's a $3 billion deal

• 20:32Speaker 02

  versus a $300 million deal. But in both cases, it really starts with the general manager and they are encouraged to use M and A to accelerate their business. So that's the strategy side of things. The governance side of things are, okay, let's say that we've decided that a particular acquisition makes sense. We also want to make sure that from a financial perspective, from an operational, an OpEx perspective, from a funding perspective, that we're positioning this deal for success when it comes inside Cisco. And we want to be very mindful that we're doing the right thing from a shareholder perspective. So for a certain level of acquisition, that can be approved by our CEO and CFO. And then if that acquisition begins to get into the billions,

• 21:15Speaker 02

  that's something that we'll want to involve our board directly on. So depending on the scale, you may have different levels of approval. We're really proud about, and I think you saw this play out with AppDynamics. In AppDynamics case, we acquired the company a day before it went public. And I think what that showcased is when Cisco decides to do something, we can move faster than anybody else. And the reason being, wasn't that We went after F Dynamics in three days. It was that we had spent a long time on the strategy. And so that piece was baked. And when it came down to the governance process or the approval process, because we had worked on the strategy, the approval process was something that we could get through rather quickly. And I think that makes it very powerful for us

• 21:58Speaker 02

  when we approach other companies and talk about the speed and the level of confidence they can have.

• 22:04Harry Stebbings?

  Final question before story time, I promise you. But we've also seen some large PE entrants into heavy tech acquisitions where they didn't normally play. How do you see this new entrant into the market? And how do you kind of evaluate that? Maybe from a competitive landscape perspective.

• 22:18Speaker 02

  Great question. I think we're in the middle of it. So it's an evolving picture. If I thought about it from the perspective of founders, entrepreneurs, investors, it's a good thing because I think it provides more potential exit options for technology companies. And I think that's good for the business. And I'm supportive of that. Because anything that's good for the business is going to drive more innovation. That's great for us. That's great for our customers. If I think about it from the competitive point of view, we are seeing PE firms get more and more involved in technology companies that had profiles that they normally wouldn't go after. And because of the sheer amount of capital that's out there, being willing to pay multiples and valuations

• 23:02Speaker 02

  that also are unprecedented from a PE perspective. So I do see them more often. I would say it's still the minority of situations that Cisco is involved with. And again, Cisco, when we look at an opportunity, have some very powerful levers that we can bring to the table from a go-to-market perspective, from a product portfolio perspective. In reality, those are things that a financial investor, a PE, they can't match. And so if it's something that really hits those levers, I think Cisco is always going to be able to create more value in the opportunity than a financial PE may. Pay more than us is a different story. And I think the capital infusion is really encouraging them to bid up multiples.

• 23:47Speaker 02

  And so we're going to be smart about what we chase ourselves.

• 23:50Harry Stebbings?

  Totally agree with you there. I mean, in terms of a value add perspective and asset perspective, totally aligned. I do want to move into the stories, though, behind some of the great acquisitions and great opportunities that you've worked with. If we start with the first, when we spoke before, Rob, you said to me, in the world of corp dev, things often play out differently than first intended. Very kindly, you left me on that cliffhanger. So talking about what someone's told me about being the Vittela acquisition story, and how this aligns to your statement on playing out differently to how intended.

• 24:18Speaker 02

  It's a great story and one of many that we can talk about. So, you know, it goes back to this idea that when you start this relationship with a Cisco, or you start this relationship with Corp Dev, you may not know what door you're opening. And I think the message that I want to give is be open to opening that door because it could lead to a lot of different things. And I think that the Vittela example shows how all of these things can come together in very different ways. So if we rewind almost 10 years ago, there was a transition that was starting in the market that was called SD-WAN, so software-defined WAN. And it was the evolution of what you were seeing in the branch routing business, which was a business that Cisco's been in for a long time.

• 25:00Speaker 02

  It's a business that Cisco's a leader in. It's a multi-billion dollar market opportunity. Well, we had plans to build our own next-generation product, call that I-WAN. So we had plans to say, well, we also believe that there needs to be a new architecture for this market transition. But the venture community also saw it as a big opportunity as well. And you saw probably 10, 12 startups get funded to go after the space because it was such a big market and the transition that was happening was perceived to be very disruptive to the current players. Well, Cisco, going back to this idea that it's not just about what we can do internally, Cisco saw that we also should be willing to invest in one of those startups,

• 25:44Speaker 02

  despite the fact that we were also trying to build something ourselves. And so in addition to our internal program, we went out and invested in one of those startups. That company was called VeloCloud. And we were very transparent with them. They knew that we were building our Own SD-WAN product. They had a different approach and in general, we felt that we could be compliments to what we were trying to achieve together. So we made the investment in VeloCloud. My team was involved directly in that investment, in that ongoing relationship. And through that lens, over the preceding years, we got to see how the market was evolving. Now, we have the view from the Cisco perspective of how the market's evolving.

• 26:24Speaker 02

  The investment in VeloCloud allowed us to see how the market was evolving through a different lens. And that was very critical. So, fast forward a couple of years later, the market's taking off. And Cisco realized that we needed to accelerate our position in the market. And we wanted to get there faster than we were on a path to with our own internal development. So we said, this is the right time to actually look at M and A. And you would think that you would go and acquire the company that you invested in. But that was actually not the case. So, when we did our scan of the industry, we looked at all the different players. And obviously knew VeloCloud very well already because of our investment. But when we made the decision on who we were going to make part of Cisco,

• 27:08Speaker 02

  we acquired a company that was not a Cisco investment. We acquired a company called Vip Tele. And since that time, Vip Tele has come on to Cisco. It has become our lead SD-WAN offering. And if you look at third-party research reports today, it would say that Cisco is the early leader in the SD-WAN market. And so you can see how all these things come together. We were building our own product. We invested in one company. And we ended up in a path that was completely different from those first two. And so you never know how things are going to turn out. You know, the Tele people put themselves in a position to open a door because though we hadn't had an investment in the company, you know, we had an ongoing dialogue with them and everyone else in the space because it was strategically interesting to us.

• 27:53Speaker 02

  You don't know how things are going to play out, but it's important, I think, to leave those doors open.

• 27:57Harry Stebbings?

  Can I ask, how do you protect that relationship with VeloCloud when you acquire an alternative provider? Is there an upset from them in terms of a lack of loyalty maybe? Or is there also kind of conflicts of interest problems in terms of investing in one and acquiring another?

• 28:10Speaker 02

  It's a great question. I think this all comes down to how you handle things. People realise that things change, strategies change, startups have to pivot, markets change. How you show up, how you handle the relationship when those occur is what is key. And I think it's one of the things that's been one of Cisco's biggest strengths is, you know, we've been out there doing investments and acquisitions for three decades now. And so people have got to see us in every type of situation, in negotiations, in acquisitions that haven't worked, in investments that have done well, in handling situations like the one with VeloCloud. And so how you handle things is really important.

• 28:51Speaker 02

  And I think if you treat people fairly, then that is really the reputation that you live off of. And I believe that's what has made OrbDev successful within Cisco, is that we've been able to rely on that reputation from a very positive perspective to continue to engage entrepreneurs and founders because I do think we have a trusted view in that community. And that's something that we want to maintain.

• 29:14Harry Stebbings?

  In terms of the trust that you have and the relationship building skills that you place at the core, you also said how an entrepreneur is embraced is often what matters most to them. What taught me from the 20 years of experience and many kind of integration processes that you've been through, what was the right way and process to embrace and integrate entrepreneurs themselves?

• 29:33Speaker 02

  Great question. When we look at what has made our acquisitions successful, I think the first part has been, did we pick the right company? But the second half of that is, did we do the right thing for the business once it was in Cisco? And so that's so critical to acquisition success. And there's a couple of different elements on it. First, I would say it starts with the people. When we think about acquisitions, it's all about the people. And people can walk in and out of the door at any point in time. And so how do you create an environment that people are motivated, excited to actually push everything to the Next level and to stay with Cisco in order to do that. That discussion really starts at the founder, CEO, the entrepreneur level. And this idea of having a shared vision.

• 30:18Speaker 02

  So if a founder sees Cisco as a platform to accelerate their vision, we can actually take what they're trying to do and turbocharge it. And that becomes one of our biggest strengths as an acquirer is I want to see an entrepreneur pursue its vision. I just want to get there three, four, five times, 10 times faster than maybe they would have been able to do on their own. And that's an extremely exciting, extremely compelling view for the entrepreneur. So that's where it starts with. And the second piece is, okay, what do you do with the company itself when you bring it inside of Cisco? And I think what we have learned is it's not a one size fits all model. You have to be willing to do things differently depending on the situation.

• 31:02Speaker 02

  There may be an acquisition that we go after. Let's say it's a ASIC technology, silicon technology. And that technology is being integrated into one of our products. Well, it may make sense for that engineering team that comes over to be fully integrated with our product group. And so they get merged in fully and that happens fairly quickly. On the other hand, you may find a company like a Meraki that has a very different business model, a very different culture. And you may want to actually not only embrace and maintain that culture or model, you may actually want to learn from it yourself. And so being willing not to force Meraki into your model, but actually recognize the things that make Meraki successful,

• 31:45Speaker 02

  allow those to be maintained and perhaps even learn from their model in terms of changing parts of Cisco. It's that type of mentality that is required to be a successful integrator of these acquisitions.

• 31:58Harry Stebbings?

  You mentioned that kind of having that plasticity. It's really interesting because it correlates to something that you've also said, which is you have to be willing to reinvent yourself. Again, relating back to that plasticity of not all situations being equal and that kind of corollary. What did you mean by this, you have to be willing to reinvent yourself, specifically with regards to the M&A process?

• 32:16Speaker 02

  So on the M&A side, I think it's constantly reevaluating how you do things. And the Maraki example is a great one. So if you double click on that, when we approached Maraki, what we found very quickly is they had a very unique culture. And part of that culture was having a significant talent and recruiting base in San Francisco. And to put that into perspective, Maraki had several years before that actually relocated. They were based in the South Bay of the Bay Area and they moved their entire headquarters up to San Francisco. So they felt it was important. Now, let me paint the other picture, which is what was happening from a Cisco point of view. At the time that we were looking to acquire Maraki, Cisco had just removed itself out

• 33:01Speaker 02

  of the consumer business. And as a result, we had actually shut down most of our San Francisco sites. So you can imagine the conversations we were having internally when we said, if we want to do Maraki, we have to commit to San Francisco for the long term, within a few quarters of us completely getting out of San Francisco. But people recognized that that was required in order to enter this part of the market. People recognized that cloud talent was really centered around San Francisco. And so we made that commitment. And so if you fast forward to today, you know, what was a few hundred people that came in as a result of Maraki has now grown to several thousand people in San Francisco

• 33:43Speaker 02

  from Maraki, from Cisco's other acquisitions and Cisco's own internal development efforts. So it's really become a talent hub for us around software, around cloud. So that's one instance around how Maraki changed Cisco. And I think that's pretty helpful.

• 33:58Harry Stebbings?

  Can I ask, you've seen so many different M&A processes, both internally at Cisco and externally in the market itself. Whether it be the integration side that we mentioned, whether it be the willingness to be mentally plastic or reinvent oneself, where do you see quite a few M&A practices maybe execute on transactions, integrations? Where do they execute wrong often in your mind?

• 34:19Speaker 02

  I think going back to the idea of having flexibility, I do think the reason that a number of acquisitions fail with other acquirers is taking a one-size-fits-all type of approach. And we've had the benefit of just learning from our mistakes. Cisco's done over 200 acquisitions. And we haven't done all of those correctly, but I believe that we've learned from those mistakes so that we don't do it on the next one. So one of the things that I think also makes us unique is we've had so many at-bats. We've had so many attempts to do things. And so if we're off doing our 211th acquisition, we probably bring a level of knowledge and experience into that that may be different from another acquirer

• 35:03Speaker 02

  that's doing its second or third acquisition. So learning from your mistakes is a big one. The last thing I would call out, and we mentioned this earlier, is in addition to us being seen as a platform to accelerate an entrepreneur's vision, we also look to embrace the entrepreneur themselves once inside Cisco. And you mentioned David Ulovich at the beginning of our session here. For those that don't know about David, David Ulovich was the founder of Open DNS. It was a cloud security company. Cisco had a partnership and an investment in the company very early on. That led to Cisco acquiring Open DNS a few years later. And Open DNS was a relatively small company.

• 35:47Speaker 02

  It was less than $100 million when it came inside Cisco. But we wanted to embrace that philosophy that David had for security. And so shortly thereafter, David Ulovich actually became the GM of Cisco's overall security business, which is a multi-billion dollar business. And so in addition to accelerating the Open DNS platform, David was handed the reins from Cisco's overall security business. And I think that's just a great example of how we embrace that entrepreneur and founder mindset, not only for the acquisition, but also to steer bigger parts of Cisco's strategy overall.

• 36:25Harry Stebbings?

  To be fair, I spoke to David before the episode, and he said that actually It was Rob that made my integration and my experience with Cisco so wonderful. So, gratitude for that one. And he said you were a true hero, I think were his words. But I do want to move into my favorite, Rob, being the quickfire round. So I say a short statement and you hit me with your immediate thoughts. Are you ready to rock and roll?

• 36:44Speaker 02

  Let's do it.

• 36:45Harry Stebbings?

  Okay, so the favorite book and why? What must we be reading?

• 36:48Speaker 02

  Favorite book, you know, I think everybody throws out business books, so I'm not going to do that. I've got two kids, two years old and nine weeks old, so my pastime is usually sleep versus reading, but I've had managed to read a few things. The book I've enjoyed most this year, called The Poisonwood Bible by Barbara Kingsolver. And what I love about it, it's about a minister that relocates his family from the US into the Belgian Congo in the 1960s. So, completely crazy. What it reminds me of is, first to do that, you have to have a ton of conviction. And you see that conviction through the minister and his dedication to what he is trying to achieve. But what's interesting is, let's go back to the perspective comment. The perspective of how things played out were different.

• 37:32Speaker 02

  And the story is told through the lens of his wife and his four daughters. And each of them view the challenge that they went through in a different way. And I think that that brings together what we see, which is this idea of having conviction, entrepreneur having conviction, but also having perspective around different opportunities. And this all played out in a very fascinating story in the Belgian Congo.

• 37:55Harry Stebbings?

  What is the most challenging element of your role with Cisco today, Rob?

• 37:58Speaker 02

  I think the most challenging role is really what Cisco is in the middle of a transformation on itself, which is, we're moving from an on-premise hardware company to one that's about embracing the cloud and embracing software. And if you look at companies that have been able to make that transition, most people have failed. However, we believe and we're confident that Cisco is actually going to make that transition. And I think M&A is going to be a big part of it, because when you think of acquisitions like in AppDynamics... It really helps bring that capability, bring and accelerate that software, that subscription, that cloud focus.

• 38:39Speaker 02

  It allows us to go to our customer and be even more relevant as they think about this journey to the cloud. And so I'm proud to be part of that journey and I think M&A is going to continue to be a big role relative to helping us achieve it.

• 38:54Harry Stebbings?

  Tell me, what would you most like to change about the world of tech investing and our ecosystem may be, Rob?

• 38:59Speaker 02

  You know, when I think about changing the world of tech investing, I would probably say I would love to see entrepreneurs get the best advice when it matters. And I think the way that boards are structured today, entrepreneurs are often surrounded by venture investors, perhaps very successful venture investors, that may have motivations that somewhat differ from that of the entrepreneur. But the entrepreneur may be going through it for the first time. The VC may have done this 10, 20, 30 times before. And so while a venture capitalist may say, look, it's worth pushing all boundaries in order to get that billion dollar outcome at some point down the road.

• 39:42Speaker 02

  Maybe for the entrepreneur, it's his or her first company and maybe that person owns 30, 40, 50% of that business today. And maybe it can be a life-changing experience for that entrepreneur to have a hundred million dollar outcome today versus see how things play out three, four, or five years down the road. And so I'm not suggesting that they're getting bad advice. I'm just suggesting that I think it's important to, again, have that perspective from all constituents, from your investors, from your independent board members, and perhaps other entrepreneurs that have been through that journey. And the decision of what you do needs to be a very personal one and that is where only your perspective is going to actually determine what course you take.

• 40:23Harry Stebbings?

  Absolutely. They're not getting bad advice. As a VC, I can just promise you, they're just getting biased advice. Penultimate question here, Rob. What do you know now that you wish you'd known at the start of your career with Cisco back in 1999?

• 40:35Speaker 02

  Oh, gosh. You know, I think what it comes down to is having conviction and confidence at an earlier point in my career. And so when I think about most hard things... It requires you to be able to break some glass. It requires you to overcome a lot of objections. And what I've found over the years is it's not about necessarily having the knowledge because I think from what you learn, I think from the people around you, you can get that knowledge pretty quickly. But actually having the confidence to stand up, to push for something that is maybe controversial, that's hard. And I think I'm still learning, but I think I'm only getting it through experience.

• 41:17Speaker 02

  And so if I found a way to rewind 20 years ago and have the experience that I have today, that's what I wish I would be able to do more so.

• 41:25Harry Stebbings?

  And I'm super sad for you, Rob. I've absolutely loved this episode. But final question, what's the most recently publicly announced investment or acquisition? And why did you say yes and get so excited, Rob?

• 41:36Speaker 02

  So the two most recent deals on our side have been on the acquisition front and they're both in collaboration. So there's a bit of a corollary there. The collaboration space, it's going through so much change and that's both how we deal with customers, the whole customer journey, but also what you and I experience in the workplace and what the future of work looks like. So the two latest acquisitions we made, one was a company called Cloud Cherry. They provide predictive analytics on top of the traditional contact center. So what you used to view as sort of a customer support experience, that is moved to really the key touch point, how you deal with customers, not only from a support perspective, but

• 42:19Speaker 02

  how you may be able to sell to them, what journey brought them to that point to call the contact center. And Cloud Cherry provides all of those analytics. The second company we acquired was called Voceia, also in the collaboration space. And this one brings AI and machine learning on top of the Cisco portfolio. So if we were doing this podcast over WebEx, what Voceia would be able to do is it would actually transcribe in real time our entire conversation. It would send out meeting notes, it would flag action items that any of us agreed to, and it would integrate that into any workflow systems that you or I may be involved with. So it's designed to make these interactions, make these meetings, make these conference

• 43:04Speaker 02

  calls much more productive. I think that's something that we're all looking for.

• 43:08Harry Stebbings?

  Rob, I've absolutely loved having you on the show. As I said when we first spoke, I really wanted to shine a light on this kind of segment of the industry. You've been phenomenal to have on, so thank you so much for joining me today. Harry, it's been fantastic and I'm looking forward to the next interaction.

• 43:23Harry Stebbings?

  What a fantastic guest Rob was to have on the show. And if you'd like to see more from Rob, you can find him on Twitter at Salvagno. Likewise, it'd be great to welcome you behind the scenes here. You can do so on Instagram at H Stabbings 1996 with two Bs. However, before we leave you to celebrate the new year today, I'm sure you've heard me talk about it before, but my word, this is a product I love. Carter. Carter simplifies how startups and investors manage equity, track cap tables and get valuations. Go to Carter.com/20vc to get 10% off. And with more than 800,000 employees and shareholders using Carter to manage hundreds of billions of dollars in equity. And Carter now offers fund admin, so you can see real time data in the Carter platform and work with Carter's team of experienced

• 44:04Harry Stebbings?

  fund accountants. Go to Carter.com/20vc to get 10% off. And if Carter is the go to there, what about product? Well, the team over at Pendo, the product plow company, just launched a free product performance benchmarks microsite where you can see how your product status up against your peers. They gave me a sneak preview of it and my reaction was my word, I love it. I know so many founders who are desperate to compare their products to competitors and that's what Pendo has done. They've analyzed more than 1,000 software products and created benchmarks for startups, scale ups and enterprises across five different categories. It's all presented with some pretty sleek visualizations and you should check them out today at Pendo.io/products-benchmarks. That's Pendo.io/products-benchmarks. Finally, finding a quiet space for a phone call or a video conference, it's always a

• 44:49Harry Stebbings?

  challenge. Conference rooms, while they're always taken up by one person, that's why I was excited to discover Room. Room helps businesses build a better workplace with their mobile soundproof phone booths, helping you tune out the noise of the open office. It's soundproofed using recycled plastic bottles and fully ventilated to keep you cool. I've personally used the Room booth before in our office and I love it. And with Room, you can create a quiet space for phone calls, video conferences and focused work at a fraction of the cost of building a conference room. That's why companies like Nike, Google, NASA and Salesforce have already chosen Room to build a better workplace. And Room offers free shipping and the best price on the market. So go to room.com/20vc to learn more. That's room.com/20vc. I cannot thank you enough for your support this year in 2019.

• 45:34Harry Stebbings?

  And I can't wait to bring you some more fantastic episodes in 2020. Have a great new year.