Chet Kanojia, Chief Executive Officer and Founder of Aereo Inc.
Adam Jefferies | CNBC
In this weekly series, CNBC takes a look at companies that made the first Disruptor 50 list 10 years later.
It’s one of my favorite moments in the history of the Disruptor 50 list.
Tuesday 17 June 2014.
Aereo, a start-up offering a web-based TV subscription service, was added to the list for the second time. It’s No. 7 on the reclassified list, but it faced an existential crisis with the Supreme Court about to decide a copyright infringement case on the other hand, exerted by the major broadcasters.
Chet Kanojia, Founder and CEO of Aereo, Appeared on CNBC’s “Squawk Box” and Julia Boorstin asked, “What happens if (the case) doesn’t go in your favor?”
Kanojia replied, “I don’t know.”
A stunned Andrew Ross Sorkin intervened. “Is that a negotiating stance?” he asked. “That said, it’s one thing to tell the world we don’t have a plan B. … If you say it’s good, we could do it this way, and if the judges say no, we could do it differently. Are you saying there is no way? to do it differently?”
“The whole point of Aereo was to create a free, open platform,” Kanojia replied. “And if we can’t do that, we can’t do that.”
Less than two weeks later, we learn that Kanojia was 100% honest. The Supreme Court Rules against Aereoand by October 2014, the start-up, which had raised $97 million from investors, most notably IAC Chairman Barry Diller, had filed for bankruptcy and sold the scrap for less than $2 million.
However, less than seven years later, Kanojia is on the verge of bringing his next act to the public markets. Turns out he had some sort of back-up plan for himself and his team should Aereo go down. He started a new company called Starry that offers a more affordable wireless internet service to consumers. Had Aereo lived, Starry would have been a companion product to the Aereo platform.
“It’s basically the same group of people continuing the journey,” Kanojia told me in an interview this week. He seemed relaxed, confident in the new venture and extremely thoughtful about the lessons he’s taking from the Aereo experience.
We often hear from Silicon Valley luminaries that failure is a key ingredient in innovation, but we rarely see failure as publicly displayed as we have seen at Aereo. But this was a different kind of failure, one that wasn’t the fault of a rogue founder, or a product that didn’t perform as promised, or overspending, or a lack of customer demand.
“We went in [to Aereo investor meetings] say it’s a binary risk,” says Kanojia. “It’s like, for example, a drug discovery company that says if I get FDA approval, it’s going to be very successful. And if not, don’t. And there is a 50% chance that it will get FDA approval. I had a tradition, we signed the documents, waited a day and called the investor again to say, “Are you okay? Are you sure you want to do this?’ before we cashed the check. Because the binary risk was still there.”
There were a few things, Kanojia admits, that Aereo might have done differently to save himself.
“We didn’t expect how quickly it would come to the Supreme Court. I wanted a quick backup, quick yes/no, go/no, but I still figured it was going to take three to four years, not a fucking 18 months. “
Kanojia believes that with more time, he would have had a chance to build a larger base of loyal customers. And he says it’s “a big mistake” not to start in Washington DC before the case reaches the Supreme Court.
“If we started in DC and all these court clerks and people who are part of the machine had access to the product, they would have developed a certain affinity for it. because [the Supreme Court decision] was completely unfounded in any legal battle, it was basically “we don’t like Aereo.” There was no factual basis for that.”
Kanojia says he looks back on Aereo’s successes even more than its missteps, and says the overall experience has allowed it to maintain a level of confidence with its investors and bounce back quickly.
“The fact that we had made Aereo and people had seen the execution of this team, 18 months from start to finish we had 600,000 users, 120,000 customers while we were litigating. We had a beautiful product that worked, I think all of that helped establish the phase that the team can execute.”
In October, Starry announced plans to go public via a reverse merger Firstmark Horizon Acquisition Corp., a Firstmark Capital-backed SPAC that was the lead investor in Aereo’s seed round and reunited with Kanojia in 2016 to lead Starry’s Series B funding round. The deal, which reportedly values Starry at $1.6 billion, is expected to close by the end of this quarter.
Unlike Aereo, Starry’s future success is not based on a binary set of risks. Instead, it will depend on building a loyal customer base while surviving stiff competition, not just for customers but also for radio spectrum, against rivals with much deeper pockets.
Kanojia doesn’t seem to mind. “They weren’t competitors at the time of Aereo,” he smiles. “You were just the enemy.”
CNBC is now accepting nominations for the 2022 Disruptor 50 list, our annual look at private innovators who are using disruptive technology to transform industries and become the next generation of large public companies. Submit your nomination through Friday, February 4 at 3 p.m. Eastern Time.