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Blue Jeans raises $50 million to revolutionize videoconferencing

September 18, 2013: 7:30 AM ET

Blue JeansBattery Ventures investor explains why Blue Jeans is poised to battle both Cisco and Skype.

FORTUNE -- Blue Jeans Networks this morning announced that it has raised a whopping $50 million in VC funding, to help expand its cloud-based, system-agnostic videoconferencing business. In other words, one videoconference participant could be using a Cisco telepresence system while another uses Skype while another uses just a basic browser.

Battery Ventures led the round, and was joined by existing shareholders Accel Partners, New Enterprise Associates and Norwest Venture Partners.

So we spent some time on the phone with Battery partner Roger Lee, who led the firm's investment. What follows is an edited transcript of our conversation.

FORTUNE: There are a number of cloud-based videoconferencing startups that have raised VC funding. Why are you backing Blue Jeans?

Lee: The reality is that we've become enchanted with Blue Jeans as a user of the product. We use a Cisco videoconferencing system in our offices, but every couple of weeks we were having breakdowns. If we were just using our room-based system, it was fine. Or if everyone was in one of our three offices it was fine. But if someone came in remotely via an iPad, or on Skype from a hotel room, we had trouble.

We tested a few different options and found Blue Jeans worked the best. So we began rolling it out more and more through different use cases within Battery. So we began to really know the company as a customer which led to the investment, and my passion for the business is borne out of my own pain and suffering using other systems.

Why won't a large incumbent like Cisco (CSCO) or Polycom (PLCM) just begin offering a similar, cloud-based service?

I think it's a different business model. Those companies do a very good job selling very high-end equipment for room-based systems. If a Fortune 500 company is looking to outfit a conference or presentation room, telepresence apps will do a nice job. But if you need to outfit that room to handle hundreds of concurrent sessions or multiple conference rooms in various locations, then the existing telepresence solutions either break down or become prohibitively expensive. After all, you can't put that type of hardware in every room without burning lots of money.

Blue Jeans is offering cloud economics here. It's the same rationale businesses use when deploying servers or storage via Amazon (AMZN) Web Services. I can buy everything and do it myself, but it doesn't make financial sense.

But isn't the AWS user more like the Skype or Google (GOOG) Hangouts user, basically opting for the cheapest solution?

Some are, so perhaps it's not a perfect analogy. But the reality with videoconferencing is that today's businesses have multiple people on multiple platforms. Kind of similar to the voice world. Could you imagine a conference call where only people using Androids could participate, while people with iPhones were unable to connect? For videoconferencing, Blue Jeans removes that complexity. The hardware being used at the endpoint becomes irrelevant to participation and collaboration. And you're only paying per usage.

This is the company's fourth round of outside funding. Why didn't Battery invest earlier?

We knew about it, but didn't get the chance to look at it.

Do you view this as a "pre-IPO" round?

Yeah, I think so. These situations can certainly change, but the purchase of this round is to be the last one before going public.

What are most of the proceeds earmarked for?

Two things. One is to dramatically ramp up the engineering organization to keep improving product. Second is to significantly expand the sales and marketing footprint of the company. This includes international, where we need more resources overseas to expand the markets we sell into. The company is drowning in opportunities right now, and it's a matter of getting the right salespeople in place. So this is an upfront investment to fund that, because this is a company whose salesforce historically has very high efficiency.

Outside of not executing on plan, what's the largest challenge Blue Jeans faces?

I wish I had a more interesting answer, but it really is execution. This is a big market with obvious pain that has been artificially constrained because of how crappy the existing systems have been. All indications are that this is a really transformative business growing at an extraordinarily rapid rate with market receptiveness, so it's really more about execution than outside factors.

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Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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