Robert Pera has just lost a game of Horse, and he wants to play again. He’s palming the basketball as he paces the court across the parking lot from the San Jose offices of Ubiquiti Networks, the wireless hardware company he founded and runs. Pera is in jeans, a brown polo shirt, and black mid-top Kobe Bryant Nikes. He stands 6-foot-3 with thick, freckled arms, a spiked, strawberry blond crew cut, and the beginnings of a mustache. As we start a new game, he dispenses with small talk. “Let me finish this off,” he says to a PR handler sitting at a courtside picnic table, as she prods him to talk more about his company.
Jason Levien, the chief executive officer of the Memphis Grizzlies, warned me about Pera. “I once beat him in a game of Horse,” he says. “You could tell it really bothered him.” Pera bought the Grizzlies last fall after the initial public offering of Ubiquiti made him, briefly, a billionaire. He wins our second game by one shot.
Pera is one of the most successful entrepreneurs in Silicon Valley. Since starting Ubiquiti eight years ago in a makeshift lab in his San Jose apartment, he has upended the wireless Internet industry. He and the company’s few dozen engineers have found ways to relay signals faster, farther, and cheaper, enabling tens of thousands of small Internet service providers to do business in corners of the globe where cables and wires haven’t reached. “It’s really kind of an insurrection,” says Matthew Robison, an analyst who tracks Ubiquiti for Wunderlich Securities. “Not only the company but the customers that they’re empowering. They’re a new force in the marketplace.”
In a glass-walled office that looks out on teams of engineers and developers, Pera, 35, tells the story of his rise as if it were a series of case studies. There’s the Apple employee just out of engineering school and feeling stymied by a slow-moving corporate culture; the one-man-band scrambling to fill his first order; the breakout success nearly ruined by a counterfeiter; the finance rookie rushed into a private equity deal and an IPO; and the young chief executive officer learning to give investors a story to go with their stock.
Last May, the company’s shares tumbled when the financial press picked up a rumor that Pera had enlisted Chinese mafia to squash competing manufacturers. The story, Ubiquiti now says, had been planted by the alleged ringleader of a counterfeiting operation dumping tens of thousands of knockoff products into the market. By the time Ubiquiti filed a lawsuit against the counterfeiters, its stock had lost almost half its value, falling from a May 1, 2012, price of 35 to less than 19 on May 21. By mid-August, despite Ubiquiti having won a preliminary injunction against the alleged counterfeiters and announcing a $100 million share repurchase, it was below 8.
“Looking back, we weren’t ready for an IPO,” says Pera. “If you’re not built like a fortress and you cannot control your own narrative, you shouldn’t be a public company.” He takes much of the blame. “I was an inexperienced CEO for public markets,” he says. “I didn’t necessarily know about the power of creating your narrative, marketing the story.”
In October, while Ubiquiti was still reeling, Pera became the youngest owner in the NBA when he led a group of more than 20 partners that bought the Grizzlies for $377 million, including assumed debt, from bankruptcy turnaround specialist Michael Heisley. Pera and the league did not disclose the exact structure of the deal, but according to the Memphis Flyer, he paid $45 million for a controlling 26 percent stake in the team. “Some people like to buy yachts,” he says. “This was No. 1 on my list.”
Pera has a weekly pickup basketball game with friends, and he trains with former San Jose State player Terry Cannon. “He can really jump,” says Grizzlies CEO Levien. “He can make shots. He’s technically very proficient.” In November, at Pera’s first press conference in Memphis, a beat reporter asked if the fans would get to see him dunk. Pera hesitated a few beats before he answered: “Yeah, sure.” Levien then intervened to say he would do it some other time.
Pera put Levien in charge of running the team, which is currently in a first-round playoff matchup with the Los Angeles Clippers. The two met in the summer of 2011 after an introduction from bankers who knew Pera was interested in an NBA team. They wound up talking hoops for hours at the Peninsula Hotel in New York. Levien, a former NBA agent, was nearly done assembling a group of partners to buy the Philadelphia 76ers, but he said he would keep his eyes open for future opportunities. Memphis came on the radar at the end of that year.
In December, the Grizzlies hired basketball statistician and ESPN analyst John Hollinger to be vice president of basketball operations. Pera compares Levien and Hollinger to the small teams of engineers that create Ubiquiti products.
“You hire a few guys and let them work,” he says. “You don’t need a big staff.” At the end of January, the Grizzlies traded Rudy Gay, one of the team’s stars, to the Toronto Raptors in a six-player deal that brought back no big names. The move, motivated in part by cost-cutting concerns, was controversial in Memphis and beyond. Pera, wrote Yahoo! Sports basketball columnist Adrian Wojnarowski, “hired a front office of novices … and began to unload genuine assets for pennies on the dollar.” The Grizzlies went 27-11 after the trade and finished the season with the best record in their 18-year history.
Born in St. Louis, Pera grew up in Redwood City, halfway between San Francisco and San Jose. His father worked as a consultant and is now CEO at Armanino Foods, an Italian frozen food maker. His mother works in public relations. As a kid, he loved video games and would seek out Japanese versions because they came out a year earlier than they did in the U.S. (“That was classic. That was just awesome,” he says of the 1996 Nintendo release Super Mario 64.) He played basketball in high school, though a heart infection kept him home for a year; the condition is now stable.
In 1997 he followed his older sister to college at the University of California, San Diego, where he double-majored in electrical engineering and Japanese, and stayed to complete a master’s in engineering. During his junior year, he went to Tokyo and noticed that mobile phones were way ahead of the U.S. market. He decided he wanted to work in cellular networks.
After graduation in 2002, he got a job at Apple. “I wanted to build products,” he says. “I idolized Steve Jobs.” He was assigned to test the company’s Wi-Fi routers to make sure they met Federal Communications Commission standards for electromagnetic emissions. The work was dull, but Pera showed up early, stayed late, and did his best to impress. He wanted to be assigned to a design group, and he shared this ambition with anyone who would listen. At his first annual review, his manager, who had been at the company for decades, told him to slow down. He got a 2-out-of-5 performance rating, and his pay stayed at $65,000 a year.
During his testing work, Pera noticed an easy way to improve Apple’s routers. The power sources they used to throw signals were far below FCC limits. Boosting would help increase their range. When his bosses at Apple ignored his idea, Pera decided he could build his own Wi-Fi module. Searching online, he found that people in remote areas were already rigging Wi-Fi routers with external amplifiers to send signals over dozens of miles. It was a cheap way to get Internet access where telephone and cable companies didn’t reach. “This was a big market that was just starting, but nobody knew about it,” he says. For the next year, Pera did the bare minimum at work and spent his nights and weekends in his apartment testing prototypes. By early 2005 he was ready to start his own business. Just before leaving Apple, he got a raise and a 4-out-of-5 rating at his annual review. “You’re finally finding your stride,” his boss told him.
Ubiquiti took its first orders in the summer of 2005, selling 4,000 high-powered radio cards to a handful of U.S. wireless Internet service providers. Using a Taiwanese contract manufacturer, Ubiquiti could make a card for $30 and sell it for $80. But it wouldn’t last, and Pera knew it. Once word got around, he would be copied and undercut.
Unsure of his next step, Pera looked to the model of his former employer. Instead of making a hardware component that the providers used in their systems, he would build the whole system. After a flubbed first attempt in 2007, Ubiquiti came out with the Nano Station in early 2008, an all-in-one unit that providers could install at customers’ homes to get them online. It was an instant hit.
Ubiquiti sold hundreds of thousands to distributors for $60 each. The company grossed $50 million that year. “We were flying,” says Pera, “but I was super scared.” Now he would also attract bigger competitors such as Cisco Systems and Motorola Mobility. He still needed a way to make Ubiquiti irreplaceable.
That year the Institute of Electrical & Electronics Engineers (IEEE) was updating its Wi-Fi protocol, the rules of the road for routers. The new protocol was built to work over short distances indoors. Pera and his engineers figured out a way to make it work over long distances. They stretched the signals by focusing them in narrow bands and wrote their own protocol so the signals would take turns arriving at antenna towers. Using the same cheap hardware that usually gets the Internet from the closet to the living room, Ubiquiti could send a signal for miles. And with the proprietary scheduling software, their equipment was not interchangeable. “Once people build out using our equipment,” says Pera, “they’re locked to our stuff.”
The new system, dubbed AirMAX and released in August 2009, was fast, reliable, and cheap enough to be attractive even in well-served U.S. cities. MonkeyBrains, a provider in San Francisco’s Mission District, uses it to serve about 2,000 customers with wireless high-speed Internet for $35 a month. It costs about $200 to get a home system up and running, says systems administrator Anders Finn. And it works great as long as there is a line of sight between antennas. “With competitors, if you want to call them competitors,” Finn says, “you’re looking at $5,000 to $10,000 for a pair of antennas.”
By 2011, Ubiquiti was bringing in hundreds of millions a year in revenue with operating profit margins of more than 30 percent. It had about 50 employees and tens of thousands of small Internet providers locked into its products. Pera had already dodged a pair of existential threats to his business. He didn’t see the next one coming.
In March of that year, a Chinese distributor told Ubiquiti about a factory making counterfeit versions of its products. An employee at one of Ubiquiti’s contract manufacturers in Shenzhen, the company claims in a lawsuit filed in May 2012, had walked out of the factory with assembly designs, plans, and software and delivered them to a nearby plant run by a company called Hoky Technology. Hoky, the suit alleges, began churning out identical antennas and accessories, right down to the packaging and user guides, and shipping them as Ubiquiti product.
Pera couldn’t believe it. “I was like, wow, somebody is crazy, right?” he says. “They somehow managed to get all our source work. And they recruited production engineers from the factory, we found out, to work on their lines.” The ringleader, Ubiquiti alleges, was a former distributor in Miami named William Hsu Wu. (Hsu and his lawyers did not respond to e-mails and phone calls seeking comment. Hsu and his company, Kozumi USA, have filed a countersuit against Ubiquiti. The case is in the discovery phase in federal court in San Francisco.)
Hsu had been a licensed Ubiquiti distributor in South America until 2009, when Ubiquiti ended their agreement. Ubiquiti alleges that he then decided to create a Ubiquiti clone. Hsu obtained a trademark for Ubiquiti in Argentina, arranged to steal product designs and deliver them to Hoky, and—knowing the sales channels—began selling the counterfeits.
When the Shenzhen Public Security Bureau raided the Hoky factory in November 2011, according to the Ubiquiti suit, they found more than 1,200 counterfeit products and shut it down. A month later, however, they released the factory’s operator from prison when he produced Hsu’s Argentinian trademark registration. In early 2012, the suit alleges, Hoky started making Ubiquiti knockoffs again.
On April 26, 2012, Hsu, according to the suit, posted a message in Ubiquiti’s online users’ forum under the heading, “Public listed Ubiquiti Networks CEO Robert Pera under investigation by China authorities for using mafia ties to stop its competitors in China?” He e-mailed the same message to Ubiquiti’s distributors and a couple of days later, the story showed up on the popular Chinese Web forum Tianya.cn. On May 2, Yahoo Finance picked it up. Ubiquiti’s stock began to slide, losing $800 million in market value in three days. (In his countersuit, Hsu denies these allegations and claims that Ubiquiti has damaged him by breaching its distributor agreement, organizing a boycott against Kozumi among Ubiquiti vendors, and “falsely claiming” that Hsu is the “mastermind of a global counterfeiting scheme.”)
At the same time that he learned about the counterfeiting ring, Pera was taking Ubiquiti public. In October 2011, the company raised $105.6 million in its IPO. The sale valued the company at $1.45 billion and Pera’s stake at nearly $1 billion. It was the Silicon Valley equivalent of a knighthood, but Pera speaks ruefully of it now. He says he was rushed into it by Summit Partners, the private equity group that persuaded him and three of the earliest employees to sell about $100 million in preferred stock in March 2010.
“I didn’t know anything about private equity. I didn’t know anything about financial valuations,” Pera says. “As soon as they made that investment, they wanted a path toward liquidity.” Summit told Pera they had taken companies public hundreds of times, that they would protect him with a strong board of directors. ” ‘We’re going to get this company to be this huge story,’ ” he says they told him. ” ‘It will take it to the next level.’ ” (Summit didn’t respond to calls for comment.)
Ubiquiti stock rose steadily until May, when the same lean infrastructure that had made the company profitable made it vulnerable. Pera lacked the legal staff to handle the trademark piracy in South America. The online forum that Ubiquiti uses instead of a sales team to communicate with its customers became a platform for slander. “Some things that probably shouldn’t have been overlooked got overlooked,” says Wunderlich’s Robison.
By that point, Pera was preparing a bid for the Memphis Grizzlies. “The timing was terrible,” says Craig Foster, who was lead banker for UBS on the Ubiquiti IPO and is now Ubiquiti’s chief financial officer. The scandal and the pursuit of a basketball team made investors nervous, and the spooked investors made the NBA nervous. Pera went ahead, says Foster, because “he was already in pretty deep.” And he wasn’t sure he’d get another chance.
Back on the court in San Jose, Pera takes a run at the far hoop and dunks the ball one-handed. “That one’s a little low,” he says of the rim, though he doesn’t seem to need the extra inches. We play one-on-one, keepers, to seven. I miss a jumper to open the game, and it’s downhill from there. He drives right, spins left, and backs me down again and again. Even when I can disrupt the shot, he grabs the rebound and goes right back up. He wins 7-0, then immediately offers me a second chance. He wins again, 9-1. Afterward we sit slumped at the picnic table. “I didn’t go easy on you,” he says.
As we start shooting again to cool down, he finally obliges the PR rep and talks about his company and plans. Ubiquiti appears to be on the rebound. In July 2012 it won a preliminary injunction to halt Kozumi’s sales of Ubiquiti-branded products. Hoky’s owner, the company says, is once again in custody in China. Ubiquiti has added encryption firmware that makes its products harder to duplicate. After a sharp drop in the first quarter of 2013, due partly to uncertainty among distributors about what they were buying, sales began to recover in the second. The stock price is back to its IPO level.
Pera’s project, he says, is to turn Ubiquiti’s botched entry into the public markets into a positive. Before the company was public, he focused exclusively on “serving customers, killing competitors, and making money.” Now he plans to sell investors on Ubiquiti as a misunderstood company with a big future. He sounds like a typical CEO talking about opportunities in emerging markets, the promise of new products like wireless hubs for office buildings and Web-enabled surveillance systems, and a $1 billion revenue target. But he also sounds like a teenager boasting about his next dunk.
“You can be the first to call it,” he says. “I’m going to do it this year. I’ll show you.”