Entrepreneur Rakesh Agrawal has continued to grow and diversify his software company. He’s shifting his business model, growing his revenue and now is investing in startups.
Russ: Hi I’m Russ Capper and this is HXTV, championing Houston’s innovators and entrepreneurs. Brought to you by PKF Texas CPAs and Advisors, featuring Houston’s innovators for over 15 years. I’m very pleased to have as my guest today the Founder and CEO of SnapStream, who happens also to be a very active startup investor, Rakesh Agrawal. Rakesh, welcome to the show.
Rakesh: Awesome to be here.
Russ: You bet. Tell us about SnapStream first.
Rakesh: We’re a software company, we’re located here in Houston. And what we do – we make a product at SnapStream that lets people record TV and search inside those shows. SO if you’ve ever seen The Daily Show – now with Trevor Noah, used to be John Stewart – they’re one of our customers and I’ll kind of like use them as an example of how our product is used. SnapStream is – think of it like a DVR on steroids. A lot of people have these TV recording devices at home that record TV on hard discs. We make a product like that that can record not just 2 or 4 shows but 30, 40, 50 TV shows at a time.
Once these recordings have been made – and you can store months and maybe years of recordings – we make it so you can find a needle in a haystack on those recordings. So the recordings build the haystack and our search technology allows you to find the needle that you’re looking for. So let’s say that you’re looking for all the mentions of President Bush; you can go and do that search and it’ll immediately pull up all the mentions, kind of like Google search results but they’re for TV. Maybe there was a mention in the 6:00 morning news on KHOU or maybe there was a mention on Bloomberg at 6:03 and 45 seconds; you can click on the mention, read the text and it’ll take you to that moment inside the television.
Russ: So my familiarity with video and recording, you can’t search it unless there’s associated text right?
Russ: And today there is because of closed captioning, is that right?
Rakesh: That’s right. The FCC mandates that almost every broadcast be accompanied by closed captioning and we apply algorithms to that. It’s a classic computer science known as NLP – if I was trying to be trendy I would call it Artificial Intelligence.
Rakesh: Natural Language Processing is a bunch of language algorithms. When you type a search into Google and you misspell a word – I’ve misspelled Capper as C – A – P – E – R…
Russ: Happens all the time.
Rakesh: Happens all the time – it says did you mean? Well that’s an example of an NLP algorithm. So we apply a bunch of algorithms to clean up the transcript and ultimately we marry that to the program guide data – so the name of the program, the actors and actresses, description of the show – and then all of that comes together to perform the basis for our search.
Russ: Okay. But today most of your customers are still TV shows?
Rakesh: No, TV shows are one bucket or one kind of category that we’ve done really well in and it’s a significant segment of our business. I was mentioning this earlier, we had a dinner in New York with a bunch of our customers and one of my sales guys said it was a meeting of the 5 families of late night comedy. So we have most of the late night comedy shows starting with The Daily Show, Colbert, Samantha Bee, John Oliver and so on and so forth.
Russ: Kimmel too?
Rakesh: Kimmel uses the product over on the West Coast. But we also sell in government. For example, the Public Information Officer at the City of Houston, at the City of Austin will use us to keep track of what’s being said on television about their organization. In fact our very first customer was a government customer in Houston, the Harris County Sheriff’s Office. So their PIO, when they have like a car chase on the freeways, they want to follow that. They want to track how the media covers it. When their spokesperson goes on TV and makes a comment, they want to learn from that. They want to make sure that they’re getting the right message out and use that in training and as a feedback loop to how they interact with the media.
Russ: It sounds like a smart way to act in that case for sure. But so like if I’m watching CBS This Morning, and particularly like after the Academy Awards or something, they have all these clips, are they like a customer too?
Rakesh: In fact specifically CBS This Morning is a customer – and I didn’t prompt you with that.
Russ: No you didn’t.
Rakesh: But in fact if you look carefully when they shoot the newsroom in the back of CBS This Morning you’ll see SnapStream up on some of their screens. My sales guys have screenshotted that off of SnapStream and said “Hey look, there we are! Look, we’re in the background.”
Russ: That’s cool, so how old is the company?
Rakesh: We’ve been around for a long time, 18 years is how old the company is. We’re kind of in our second life as a company though. We started out making a consumer product. I started the company with a friend of mine, he left the company and we bought him out and at that time we also shifted our business model from being a consumer product to this B to B product. So we decided to – interesting, we had customers that used our product in businesses but we were always very focused on the market of consumers so we by design ignored all these customers.
People like Saturday Night Live would call us and say what if you added these products that businesses wanted? And we were like leave us alone, stop bugging us Saturday Night Live. The Harris County Sherriff’s Office was one of these customers. And so when we got to this point where we were like what are we going to be when we grow up we said why don’t we go talk to some of these customers. We also tried some other things. We built a social network for people that watch TV called Couchville, which had some success but we couldn’t figure out how to really make money off of it.
But we went and spent time with the Sheriff’s office and SNL and we developed an insight. With kind of looking over their shoulders at how they work we said if we built – and search was really the anchor – we said if we built TV search into our product we could have a nice, defensible business. And customers would pay us not $100, which is what they paid for the consumer product, but they could pay us $50,000 or $100,000 for this business to business product. It was valuable to these enterprises that really cared about TV.
Russ: That sounds like a significant pivot, Rakesh.
Rakesh: We were ready for it as a company. As a team we were ready to make the shift and the underlying technology around television was there were a lot of commonalities. And we kind of did it progressively, we weren’t trying to boil the ocean. We’ve always taken kind of a lean approach to how we’ve built the product. So we built the minimum viable product and we went out there and we sold it. And we just kept building it up and building it up over time until we looked back and the product had completely changed to be technology for enterprise for a B to B application.
Russ: Wow, impressive. And so where do you see the company 5 years from now?
Rakesh: Business model-wise in the last year we’ve really focused on shifting our business model to recurring revenue. The good news is it’s working. So we probably will end this year having grown recurring revenue over 2017 by about 60%, maybe more, which is great.
Russ: And that means you moved it from a purchase transaction to almost a rent/lease transaction?
Rakesh: Yeah, essentially. We still – we sell a Cloud version of our product. You still have to have some hardware locally to get the TV streams up to the Cloud product, but it’s like 10% of the hardware footprint locally, and so that’s mostly a recurring revenue product. It’s like zero dollars up front and we’re selling more of that than anything else. It’s our best experience. It lets you access your recordings anywhere, you don’t actually have to be in that same office. So that’s the big thing, business model-wise we’ve really shifted towards recurring revenue.
Russ: All right, well it’s a very impressive business in my opinion. That’s cool. But I also know that you are real interested in the whole startup scene and have become quite an active investor. Describe what all you’ve done and what motivated that.
Rakesh: In 2012 I decided that I had been reading about startups forever and I decided I wanted to start writing some checks into startups. There’s a bit of like – what’s the expression – ready, fire, aim; so more fake it till you make it. So I got myself invited to Y Combinator’s Demo Day in Mountain View. I went out for my first Demo Day in 2012 and told myself I was going to pick two companies and write $25,000 checks into those companies. And so I narrowed the list down to probably six companies and invested in two companies and that got me started in it. Really looking for Founders and ideas that I was convinced could be successful.
Rakesh: And actually quite a few in Houston I want to mention.
Russ: Thank you.
Rakesh: Well it’s not charity. There are some really great deals to be had here in Houston, so I’ve built a nice network here of people that I enjoy evaluating companies with. It’s good to have other people you look at deals with and you can try to talk each other out of investing in companies and often through that process develop conviction about investing in companies.
Russ: So you’ve done business here. You were actually born here, you’ve lived here in Houston, Texas. How important is this community, is Houston, to you and your success?
Rakesh: I mean I’ve chosen to live in Houston and that’s for a reason. I think it’s an awesome community. I’ve gone out and found people that I enjoy investing with; entrepreneurs that I enjoy hanging out with, that I think are going to be very successful, some of whom have already been successful. Yeah, I kind of see what I do as closely intertwined with Houston. I went to Rice, I am a part of that community now as an alum and I think one thing that I now have learned to look for are these great communities. Rice for me has been one of those communities, my kids have all gone to this one Montessori school here in town that is another community that’s been a vital part of who I am. And the Houston investor and entrepreneur community is another community that is a vibrant one and it’s part and parcel of what defines me.
Russ: And I might add to all of what we talked about you’re also an original board member with Houston Exponential, we thank you for that. Rakesh, thank you so much for sharing some time with us and your story.
Rakesh: Thank you Russ, I’m glad you’re doing this.
Russ: You bet. And that wraps up my discussion with Rakesh Agrawal, Founder and CEO of SnapStream. And this is HXTV.
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