When Rick Kimball and I learned that Network Equipment Technologies, Inc. (NET) was in the process of circling their Series C Preferred Stock, it was almost too late to participate. The deal was considered “hot” and if the firm we represented, Montgomery Securities (MS), wanted to get in on it, we knew we had better act quickly. NET was one of a growing number of T1 multiplexer companies that were responding to the recent decision by AT&T to tariff T1 circuits commercially. The compelling financial savings that T1 service made possible for corporations was creating both a windfall and a financial boom. Rick learned we needed to talk to Tom Rota, the CFO, and without delay arranged for a meeting. On arrival, Tom greeted Rick and me and took us through the financial documents and answered our brief questions – the presentation was both thorough and impressive. He next introduced us to Bruce Smith, the president and CEO. Before long, Rick and I glanced at each other and I knew he had concluded as I had that we had to be part of this investment. That meant we had to become the sellers, not the buyers, of ourselves and Montgomery Securities. In ten short minutes, “the deck chairs had been moved.” The more we interacted with Bruce, the more it became patently obvious why the deal was “hot.”
Bruce took us through the history of how and why he had become unhappy working at COMSAT, despite multiple promotions in his three years with the firm, and then his search for a leadership position in an entrepreneurial startup, preferably in Silicon Valley. Even all the impressive perks he enjoyed, such as a spacious office overlooking Washington D.C., a chauffeured town car service, and a hefty compensation, were not sufficient to keep him engaged. So when he met with the co-founders of NET and discovered their views matched his own, Bruce concluded he had found his new challenging opportunity.
Our conversation paused as Bruce deliberated whether to include MS in the financing. Fortunately, after we shared MS’s impressive public market trading performance, trading that would benefit NET once they went public, an advantage that venture capital partnerships could not offer, he agreed to take a $2 million investment from MS.
This interview in October 1988 was conducted more as two friends having a conversion than as an interviewer learning and confirming facts. Bruce proved to be an outstanding CEO who took NET public in 1987 for a post money valuation of close to $200 million. Throughout our friendship we met frequently, whether in his office, or mine, or having dinner with our spouses.
Keywords: Network Equipment Technologies (NET), T1 Multiplexer