January 4, 2022 – On today’s podcast we welcome special guest, the Founder and CEO of Brivo, Steve Van Till. Brivo is the global leader in cloud-based access control and smart building technologies.
On today’s show, Steve discusses:
- What attracted him to the tech industry and why he chose to focus on access and security
- Points from his book The Five Technological Forces Transforming Physical Security
- Insights into the changing nature of work and the resulting smart space revolution
- Details behind the recently announced merger with SPAC Crown PropTech Acquisitions
- And more
Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate financial technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.Com.
Julian Klymochko: I’m excited to have Steve Van Till, founder and CEO of Brivo on the show today. Now, Steve, I went through your extensive background in technology, spent decades in the tech industry, software, satellites. You worked for Geostar, Comsat, back in the eighties and nineties. So certainly, a veteran of the space, massively experienced. I was wondering if we could kick things off. What attracted you to the tech industry? Number one. And why did you choose to focus with Brivo specifically on access and security?
Steve Van Till: Sure. So, I wouldn’t necessarily say that I choose the tech industry, I would say maybe the tech industry chose me. I’ve been in technology since I was a kid, literally. When I was 10 years old, I had a big electronics workshop in my house. And so, this has been really a lifelong thing to be doing one thing or another with tech. And so, graduating into that for a career was just really, you know, very natural. And so, the specifics of getting started with Brivo, there’s a couple of different dimensions. One is just the timing, myself and others were talking about back in 1999 during the.com era. You know, if we don’t start a business, now we’re going to kick ourselves in the butt 10 years from now, because it was such a great time for raising money.
It was a great time for finding people who wanted to join you on that journey. So, the timing certainly had a lot to do with it, the specifics of Brivo. I think, you know, being in a company or starting a company that actually does save lives that actually is, you know, contributing this very demonstrable good to society is certainly one of the things that I think people are looking for more now than they were 20 years ago. It’s become a real theme. Everybody wants to have, you know, purpose driven companies and that’s certainly attractive to people who are joining today. The other thing though, going back to kind of the tech theme I had a number of opportunities at the time, including doing other startups and they weren’t that interesting to me.
A lot of them were in e-commerce and things like that, because I felt like even then in 1999, e-commerce already been solved to a large extent, right. It was shopping. It was shopping baskets. It was payments. And obviously those things have all progressed. I certainly don’t mean to, you know, slight e-commerce, but what really drew me about Brivo was this idea that were going to have all of these devices, all of these electronic controllers deployed all around the world. So, it’s this massively distributed network of computer intelligence, then all reporting back and being controlled by the central intelligence, which is to say the cloud applications. And so, to me, the scale of doing something like that, the complexity of doing something like that, the action at a distance, dimension of it, you know, being able to control something that’s very far away from you. Those are all the things that attracted me on the tech side, as far as the businesses is concerned. When we looked at the security space, the access control space, what we saw was everybody was still on PCs. Nobody had started doing anything in the cloud. So, we were really the first cloud company in this space. Having launched our first product in 2001 and we thought, or at least I thought having spent my whole life in technology, that this was a slam dunk that should be obvious to anyone who thought about it for five minutes, that all of these things that were happening in security, on PCs and on-premises servers really should move to the cloud. I think we all know with respect to any business; nothing is really a slam dunk. And so, we did spend a lot of years convincing a fairly conservative industry and fairly conservative end users, because a lot of them are in real estate, which isn’t particularly fast moving that this was a much better way. And of course, with the PropTech boom that we’re experiencing now, we’re seeing that everybody came around to our point of view in the brief span of 20 years.
Julian Klymochko: Overnight success, right. [Laugh] 21 years. So, prior to getting into Brivo and all the wonderful things that you’re up to there, you’re not just a leader and entrepreneur, but author as well. Can you quickly touch on your book? The Five Technological Forces Transforming Physical Security.
Steve Van Till: Yeah. I’ll tell you how it came about. I was doing a public speaking event and as usually happens, people come up to the stage afterwards and they kind of linger. And this one gentleman who came up said, hey, would you be interested writing a book on the things that you just talked about? And I said, well, sure. And you know, another part of my background is writing. I’ve been doing that for quite a few years and had always wanted to get around to a book and hadn’t done so yet. So, the opportunity to have a contract for a book land in my lap and do it on something that I’m very interested in was too good to pass up. So, the specifics, I spent a lot of time thinking about what kind of book it should be and there’s a lot of choices there.
The thing that became obvious to me when I was kind of canvasing the book industry is that there was nothing about the security industry that was a business book. Nobody treat it as a business, and nobody really looked at it in the context of all the other technologies that were transforming the whole of society. And so, I thought the industry deserved one, I thought it would be another first. An opportunity to comment on this space and bring some things to light that perhaps people didn’t understand. And so, I looked at the five big forces that are still with us today. Cloud, mobile, social, IOT and big data, which really now I think is a little bit more subsumed under machine learning conversations as much as anything else and thought, what if I intersected those five forces with the security industry and that’s exactly what the book is about. And so this has been an interesting exercise, but what I found in thinking about it was that the security industry has actually been a leader in a lot of these fields. So not necessarily the same technologies every time, but if you look at internet of things. At the heart of it, it’s electronics all over the place that are controlled by some central thing. The security industry was doing that with telephone wires long before the internet was a round. So, I would put a checkbox next to the security industry for having that basic system architecture at some level. On the business side, you know, software as a service, recurring revenue. Security industry was doing that 50 years ago with alarm systems and things like that, recurring revenue models. So, I’d give them a check mark for that in terms of having stumbled on the business model, which is now driving really every SaaS company today. So, there are a couple of those historical gems that are right in the middle of the topic, but then there’s a lot of transformation and a lot of forward movement. And as we were saying, a few minutes ago, everybody’s come around to our point of view on this.
Julian Klymochko: So, with the respect to Brivo, can you talk about the business model behind Brivo and how that has evolved since its founding back in 1999?
Steve Van Till: Sure. So, we’ve always had a hybrid business model and what I mean by that is, I guess if you think of Brivo as a IOT company, there is physical devices because we’re in the security business, it’s irreducibly physical and you need to connect to buildings. And so, there’s that hardware piece. So, we sell the electronics that connects buildings back up to the cloud and it touches a lot of other things inside the buildings, of course. And then of course we develop the cloud piece as a recurring revenue. So, we had a hybrid business model of both initial sales of electronics which was nice because that provides a lot of margins up front and then an ongoing revenue stream that’s anchored in a physical device, which is incredibly sticky. And so those two things together have shown up in a lot of other businesses since then.
But that core part of our business model really hasn’t changed in 20 years. And it’s been great because we still have customers that have been with us 15, 16, 17 years, really the whole life of the company. And so that stickiness is a very important thing. If you look at churn rates in different industries, if you look at most SaaS companies, I think the average is up around 12 or 13% right now, if you look at cable, it’s even higher than that. If you look at cellular, it’s also in double digits, if you look at our business, it’s about 5%. And so, the stickiness translates to customer longevity, which translates to much higher lifetime value of customers than what you see in a typical SaaS business.
Julian Klymochko: It’s a good point with respect to the hybrid model becoming popular. Because if you look at Apple, Google, Amazon, they’re certainly following that same playbook where they make the initial sale and then have this recurring revenue stream. I was wondering, could you give an example with respect to how a customer would utilize Brivo technology specifically in your investor materials? You mentioned customer such as Whole Foods, DocuSign and others like that.
Steve Van Till: Yeah. I’ll talk about those two, because they are both included in the investor materials. At one level, they’re both using it exactly the same way. They’re using it to control access to buildings, but the application is very different. So, for example, in the case of DocuSign, they are largely using it the way that any commercial office tenant would use it, which is to manage space that is populated by information workers, kind of a classic office environment. And then of course the other parts of a building that that one takes care of, loading docks and things like that. If you switch and go, we and look at Whole Foods, they’re really using it more as part of a supply chain solution than a retail solution or an office solution because it’s allowing people to get into the store to make things or deliver things or do their job.
And so, it’s the same core technology. It’s the same parts that go into it. But they’re used very differently in those two cases and the fair amount of difference between DocuSign and Whole Foods in this instance is actually illustrative of a broader point, which is the very broad product market fit that we have. We’re in virtually every kind of building you can imagine and every kind of business you can imagine. And what we did not that long ago was we took a look at the industrial codes for all of our customers and what that distribution looked like. And then we compared it to the industrial codes and the distribution for all U.S. businesses, which is something that the U.S. census bureau maintains. And we had a 90% correlation coefficient between those two distributions. And so that really says this kind of technology, the way that we’ve developed it is a fit for virtually every kind of building and every kind of business in the United States.
And so that’s not only an example of how widely this can be used. It’s also an example of differentiation. Thinking about this some more really led me to think of access control as what I now call the fourth utility. So, if you think of the things that you need to make use of a commercial space versus you have to have electricity, you need to have HVAC, you need to have water and you need to have access control. I think everybody understands the first three pretty well, but access control may not be so obvious to everybody, but the default state of a building is going to be either completely open, which obviously is not a good idea or completely closed. And to go between those two states, you need access control. In the old days, that was a key, a physical key. Nobody likes that solution anymore. It leaves a lot to be desired. So now the answer is access control is really an enabling technology for the rest of your real estate assets.
Michael Kesslering: I’m always very interested in the unit economics of different business models. And especially as you mentioned, you do have the hardware that you’re selling up front plus the subscription. Can you add a little bit of context on how value each of those customer relationships are to you as a company? And as well, I think the other interesting aspect is the longevity of your company allows you to have such a wide array of cohort analysis that many other companies just don’t have. They’re more working with models on their expectations of the future. I think it’s really interesting that you’re able to work with true cohorts that you’ve evolved over the years.
Steve Van Till: Yeah, we have. And that makes the analysis a lot of fun because we do have so much data and it is so widespread. So, to kind of run back through your questions. I think the first part had to do with unit economic mix. So, the unit economics in a hybrid model, at least if you’re pricing accordingly can be really dynamic because every business ever has a customer acquisition cost. We all understand that piece. In our case, the unit economics work out that on average, the gross margin we realize from the hardware part of the model exceeds the customer acquisition cost. So, we start out on day, one of our relationships with a customer with a fully paid-up payback period. And then everything from that point, onward is the subscription fees with the gross margin that they carry.
So, the ability to have a zero-cap payback period is something that comes along with the hybrid model, assuming that you’re doing it right. So that’s a very unique aspect of the unit economics compared to certainly most SaaS companies, which have to make an investment and wait some period of time before they’re back to even. And of course, it’s very different than if your hardware sale where you don’t get any of the ongoing revenues. So, it really is the best of both worlds. The thing in terms of customer value. Today again, speaking in averages, the average revenue that we see per customer, and we do have a wholesale retail relationship with our channel partners is about $60 per month per account. So, you can do the math on that. That’s an average. When we look at enterprise accounts with thousands of doors and hundreds or thousands of locations, that of course is a much more valuable customer. When we look at somebody that’s in a small business category and they’ve got two or three doors and just trying to manage, you know, 50 people coming and going, that’s probably more down at the end of that spectrum.
Julian Klymochko: You previously mentioned how the PropTech segment is exploding in popularity. I’m sure you have new competitors coming onto the scene every day. And that being said, what’s, Brivo competitive advantage in the market, aside from, you know, being in the market for over two decades, what specifically differentiates your company from some of these newer competitors?
Steve Van Till: Sure. So being in the market for two decades, obviously you get a lot of name recognition out of that. I think people give you certain level of credit for being a first move in a space. And so that’s something that for me, seems to be something you live with your whole life, if you’re a category creator, as we have been. The specifics, first thing I would say, you know, access control, like every other business there’s a lot more to it than meets the eye. And so, once you’ve start scratching beneath the surface, there’s incredible complexity in access control. And so, we’ve had 20 years to develop a deeper, richer, more comprehensive feature set than anybody else who’s on the market right now. And that just takes time. So, there’s a time factor there in terms of competitive advantage, which puts us way ahead of anybody else who’s in the market right now.
The second one that I would talk about is scale. So, we’re much, much bigger than anybody else that’s in the market for the commercial market or the enterprise market. And that gives us a certain advantage with enterprise customers because what they’re looking for is somebody that quote unquote, looks like them, meaning certain longevity, financial stability, cyber security audits, all those kinds of things that come along with having been in the market and having scaled up. But, you know, we’re in 42 different countries already, and we’ve got 72,000 different customer locations. We have tens of millions of people carrying access cards or our newer mobile credential platform going through those doors every day. And there’s nobody else that’s anywhere near that scale. So particularly for enterprise customers, when they come looking, we’ve got all the [Inaudible 00:18:13] that they’re looking for in a solution, if they’re of any size whatsoever.
Julian Klymochko: I notice in the investor presentation, the notion of a smart space revolution, how is this changing nature of work with some people, you know, hybrid in the office, at home, or perhaps some fully now working from a home, how does that changing nature of work impact Brivo business?
Steve Van Till: Yeah, let’s start with defining what the revolution is. It’s a little bit of a catch raise, right? So, to me, the revolution is the digital control and instrumentation of physical space. That’s what it is at the bedrock. And so obviously that’s something that we’ve been doing for a long time. The PropTech boom has convinced everybody of the value of doing that in a way that, you know, many years of ourselves and other people attempting to do similar things just couldn’t do. There’s something about, you know, the wave of financing, the attention, the journalistic coverage, all those things. And so, the revolution starts with people understanding the value of connecting their space. The other part of it is, you know, even before COVID, there was already a shift towards shared workspaces, coworking and that sort of thing, obviously WeWork is a name that’s been in the press for the last five plus years as being, you know, the leading example of going in that direction.
But COVID has pushed that even further with more people saying, you know, maybe I’m going to go real estate light. I don’t need to have all the space that I used to, even with my own employee base, I’m going to shift over to more of a flex type arrangement, hoteling that sort of thing. And the effect that this has had on access control is that as spaces are divided into smaller and smaller usable units, you need access control over smaller and smaller units as well. And so, what that does is it increases the density of access control. So where let’s say a 10,000-foot space might have had 5 or 10 doors controlled in the past, the new work style, the new normal is going to make every conference room controlled. It’s going to make any amenity space controlled. And so, it’s actually increasing the density as opposed to being something that is used less often.
Michael Kesslering: And so, you really recently announced going public transaction with the SPAC Crown PropTech Acquisitions. What made them stand out in comparison to the other SPACs that you may have looked at? Was it their commercial real estate expertise? What was driving the transaction with them?
Steve Van Till: So, the first thing would be that they are and were a PropTech focused SPAC. And so that was very important to us because that means that we had a shared vision for the market. We had a shared vision for the role of technology in the real estate market. That bit of alignment is the first thing you need, I think, in any business relationship. And we certainly found that with Crown. The second thing that Crown brought to the relationship is a long history in owning and operating real estate. So, in effect, looking at things from our customers point of view, and being there to provide a lot of knowledge and guidance about ways that we could improve the service, ways that we could improve the product. And also of course, ways that we could get deeper into the real estate community and make ourselves known. So that was really a second dimension to the synergies that we saw with Crow PropTech.
Julian Klymochko: And I’m sure going through this process, you picked up a lot of learnings, a lot of tips and tricks. What are your thoughts on the process of going public via a SPAC and any advice for private company CEOs considering a potential SPAC merger?
Steve Van Till: Well, it’s been very interesting being on the inside of it, as opposed to just reading about it, and of course.
Julian Klymochko: Right.
Steve Van Till: We were all reading about SPACs for the last several years as they became much more popular. And we had looked at private equity of course. And once we were out doing that, we attracted a lot of SPAC interest. And so, we did see multiple opportunities out there. And the thing that we heard particularly in the second half of this year is that the successful SPACs were going to make a flight to quality is the phrase that I kept hearing and what the investors meant by that was there had been, you know, particularly during the early part of the year during the exuberant phase of SPAC investing, there had been a lot of companies with little or no revenue.
Julian Klymochko: Right?
Steve Van Till: Little or no operating history.
Julian Klymochko: Yeah.
Steve Van Till: Coming into the market with extremely high valuations. And of course, after everybody kind of came down to earth a lot changed in terms of what people were looking for and the market was certainly slower over the summer than it was in the first two quarters of the year. So, the flight to quality is something that I think ended up working in our benefit because we’ve got, you know, the 20-year history, we’ve been profitable. We have a working business model; we have 45,000 end user accounts. We have relationships with 1500 of the largest systems integrators in the United States that are our channel partners. And so when investors looked at all of those things, we end up looking very different than a lot of the other companies that were out there as potential targets. And so my advice to CEOs who are considering this is, you know, be that kind of quality company that investors are going to be interested if you’re doing this right now, obviously much easier said than done, but maybe the flip side of it is, you’ll be more successful at this even if you have a few years of an operating history that shows those same characteristics of revenue growth, good unit economics. And not to forget the value of having a very strong manage because that’s at the end of the day, what people are investing in.
Julian Klymochko: And one of the key aspects of this SPAC merger is it comes with a capital injection as well. Going through your investor materials, one growth lever is going to be product expansion. Can you discuss some of the products that you guys are working on to the extent they’re public and not the top-secret ones?
Steve Van Till: Sure, I’ll give a couple of examples. And some of this is premised on a big release that we did in November of last year. So, we’ve been in the market with the product for 20 years. Technology changes a lot over that amount of time. And so roughly every five years or so, we’ve kind of, replat formed a lot of what we do. We’ve taken advantage of new technologies that are out there, both at the software level and you know, starting seven or eight years ago at the infrastructure level. And so that was a point where we had migrated everything over to Amazon web services with some other services running out of Azure and a bit out of Google and the replat forming that we did in the fall of last year after a couple years of work was both a massive overhaul of front end with lots of features, modernizing UI, which was, you know, something that people were looking for.
But the part of it that nobody could see directly was that we’d also rebuilt the data infrastructure and the strategic reason for doing that was so that we could have a platform that would support AI and machine learning and other kinds of analytics going forward. And so, the strategy there was develop that, then you’ve got an opportunity to add things onto that at a fairly even cadence. So, the first time when we did that release, it came with a feature that we call Data Explorer. That’s part of the enterprise package. And it’s an open business intelligence tool that lets our customers go in and interact directly with their own data, do their own visualizations, get their own insights, develop their own metrics. And this is something that doesn’t exist anywhere else in the access control world. So that was something that came at out at inception. In the first quarter of this past year we also built a second feature on top of this new infrastructure, which was called Snapshot, which is a way of ingesting video surveillance and finding just the frames that are of interest to somebody that’s doing access control.
And we use artificial intelligence to do that extraction. And then the one that we did just this past week is called anomaly detection. And what we’re doing there for each customer is running a neural network on top of all of the data that’s passing through their account. And as it gets trained, it begins to understand what the normal patterns of behavior are for the people in their buildings, for each door in their building, for a campus in one place versus a campus in another place. And the value of that is that it then is much more effective at telling you when something abnormal has happened. And so, if you’ve ever spent any time in front of any kind of computer system, that’s monitoring something else, whether it’s network activity or physical security, you know, there’s a lot of wasted time, you know, there’s a lot of fatigue.
And so anything that you can put in there that saves you time, that just tells you the things you need to know, as opposed to a bunch of things you don’t need to know, that’s a high value item, and it’s in the same spirit as the Snapshot feature, which is all about saving time for users and not having them consume their time taking care of their security system. So those are a couple of examples of the kinds of things that we’re working on. And you can expect that same trend of what I call data security is going to be a big part of how we look at the market and look at the customer needs out there going forward.
Julian Klymochko: Now prior to letting you go; Steve had a quick fun question for you. What is the coolest potential product that has not been invented yet?
Steve Van Till: That’s a tough one. I guess that’s an open question in space whatsoever.
Julian Klymochko: Yeah. In your industry specifically, is that say you could have, I don’t know, some sort of time warp portal or something.
Steve Van Till: That would definitely be cool, no question about that. You know, I think the thing that I would look for and that we’re pushing toward is everybody’s got mobile apps for everything. Now we actually have four different mobile apps for different constituencies in our customer base commercial tenants, multifamily tenants, people administer security systems. So, think of property managers and the like, and then another one just for our systems integrators that helps them install things more quickly and more accurately. In all of these applications and in a field as complex as security. I think inherently frustrated to some extent by the amount of information that you can put on a single screen. So, I think the cool invention and I’ve seen this in a couple of science fiction movies would be something that was able to create a virtual screen that’s much bigger than your phones. Would show you a full array of everything that you’re looking into and then disappear when you’re done using it.
Julian Klymochko: Right. And I think a good one was Tom Cruise in Minority Report a while back. So, the concept has been there for a long time, but I guess no one has cracked it yet. Something to look forward too. Another thing to look forward too. So, you announced the SPAC merger with Crown PropTech Acquisitions that is currently trading under the tick symbol CPTK. The business combination is expected to close in the first half of 2022. Once that happens, the new tickers symbol, which Brivo will trade under is BRBS. So, Steve, thanks for coming on the podcast today and sharing your experience and insight. We wish you the best of luck in the future.
Steve Van Till: My pleasure. Thank you for having me.
Julian Klymochko: All right. Bye everybody.
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