All-In with Chamath, Jason, Sacks & Friedberg - Luca Ferrari, Bending Spoons CEO: The $40K Origin Story, Buying Product-Market Fit & Why Private Equity Can't Compete

Starting point is 00:00:00 You are the reason that NASDAQ exists. They went from zero to $1 billion in revenue in just 10 years. Bending Spoon CEO Luca Ferrari. We have never lost a bid before. Well, AOL has a new parent again. Milan-based tech company Bending Spoons announced it will buy ticketing platform event bright. Bending Spoons is stirring up the market. They go from fixing one zombie app to reviving 20 of them.

Starting point is 00:00:24 Half a billion people use our products. We're trying to build a generational company. Please welcome Luca Ferrari. Hey, here he is. Nice to see you. Ciao, Luca. You got fans. All right.

Starting point is 00:00:49 Luca. You have a great company. Don't make fun of Luca Ferrari. I'm not. I'm just... This is a great Italian entrepreneur, so shut the fuck up. Absolutely. Absolutely.

Starting point is 00:01:00 Luca, I asked... No, I got somebody yelling like his Super Mario, brother. others in the audience. We could have another presidential moment here at the Allend podcast. So if she picks it, if she calls you, then just run the phone over. Got my phone here. Okay, just the case. Yeah, it's ready.

Starting point is 00:01:14 I mean, there's a lot of us that have actually been tracking you for a while. I originally heard about you because you were in Milano, where, you know, my wife's family is from. And you had this incredibly progressive, methodical approach to growth. You did this fantastic podcast with Patrick O'Shaughnessy, which was great. I encourage all of you to listen to it. And you explained the arc of bending spoons. And I'd love for you to explain to folks the first few years and just all the misery and failure, the nadir of the company, and then the beginning of the ascent.

Starting point is 00:01:55 Yeah. So, you know, most of the, I mean, the pain, there's been plenty of pain throughout, as for most entrepreneurs, I think, but the biggest failures were in the previous startup. So with my co-founders, we launched an AI company in 2010, very early, too early, clearly, crashed and burned. Three years later, we're left with about $40,000 in capital we had raised from the VC. And clearly, there wasn't a lot to salvage other than our relationship being stronger and that money that the VC pretty much gifted to us

Starting point is 00:02:37 as they didn't want to go through the liquidation process to much in legal fees and too many headaches. They had seen us work pretty hard. And so they told us, you guys, keep it. We'll sell our shares to you for $1, like nominal value, and you go and get a nice vacation. We're clearly a little bit sick in the head, and so we took the money and enthusiastically turned it

Starting point is 00:02:58 into seed financing for Benin's funds. And we came up with this. You started with $40,000. $40,000, exactly, in 2013. And we had this strategy, which has remained pretty much the same. Obviously, you get smarter, you refine it in time. The idea was we are not very good at finding product market fit, or maybe, you know, lock plays a big role.

Starting point is 00:03:19 Probably both things are true. But we have become pretty good at engineering, design, monetization, marketing in just three years of hard work. we should be able to be among the best in the world at that, and we should be able to buy product market fit from people, and they get a good price, we get a good asset, we can make more valuable, and then we deploy more capital into making our platform more competencies. What was the first acquisition, and how much did you pay,

Starting point is 00:03:46 and how did you get the deal then? So the first acquisition was we paid $10,000, give or take, and it was a mobile app for iPhone, specifically, that you use. to personalize your keyboard. Very simple. One man, kind of developer, sold it to us, obviously a very amateurish operation,

Starting point is 00:04:10 not that difficult at the time to make it better and more successful. What were you buying? You were buying one-time's revenue? You were buying the revenue? You were buying the app. That one specifically, I think, had negligible revenue. It wasn't even really monetized.

Starting point is 00:04:24 Okay. Which, of course, is never the case for scaled businesses. But that was not. It had users. It had users. So what we bought at the time was an app with a bunch of users and a good positioning on the app stores, so it would get an influx of new users. And that's remained broadly speaking similar over time.

Starting point is 00:04:44 And we keep looking for great brands, user and customer bases, where we can improve everything ideally and make those assets even more valuable over time. We just do it at a much bigger scale these days, but the underlying concepts have not changed. Did you rebuild that app? Did you take over the code base and redo it? Just help us understand technically what's going on in the organization from that business through to some of the bigger ones today. Yeah.

Starting point is 00:05:11 Is it a code business? Are you doing engineering, product, design, marketing, all of the above? Yeah, most of what we do is engineering and product. We have a core team of this point about 800 people, and I would say probably three quarters of them are either engineers or AI researchers or product designers, product managers. Most of what we do is actually improving technologies and products. And of course, yes, that app we wrote it completely, but it's very early days. Today we're much more sophisticated.

Starting point is 00:05:44 What we do is we bring in a Co-Eton operating system of 50 plus proprietary technologies. We built kind of an engine to run technology businesses very effectively and efficiently. really our core product. We swap out the technological foundation of the businesses we buy with Batman so we can run it much better and also the people we transition across our various businesses always play by the same rules. They're more efficient because they find the same tool. And so these tools cut across what, like HR, finance, tech ops, DevOps?

Starting point is 00:06:15 Pretty much everything. Yeah. I mean, orchestration of AI models, check, recruiting tools, check, A.B. Testing platforms. And then do you bring all of the technology spend up to the Topco so that you're doing one deal with AWS, all the licensing becomes scaled across one entity. Yeah, that's a lever for quality creation. I'd say that's a relatively small one.

Starting point is 00:06:34 It probably adds, I don't know, one, two percentage points in EBITA margins. The more important aspects are being able to drive revenue increases through better product tech and monetization, sometimes marketing, cost reduction through linear teams or more talent-dense teams. But yes, vendor optimization is helpful. You were doing the Elon X playbook before he did it. I mean, like, there's some stories that were written about how you right-sized Vimeo's workforce, you right-sized bright-cote. He called me before doing the X. No, I'm joking.

Starting point is 00:07:05 Oh, he did? Oh, no. Advice. But explain how do I cut all the people? No, no, he didn't do that. I don't know Elon, so. How did you figure out that you could cut 80% of a team and it still works? How do you figure that, or did that accidental, were you just pushing to a threshold?

Starting point is 00:07:21 I think it's something we learned partially because early days where we were acquiring smaller businesses typically these people would sell us the asset, say the product, but not the team because for them it was very small teams. They wanted to move on to whatever other project they had. And so we didn't really know any better. We were establishing teams internally to carry on the work. And the number of FTEs was much smaller than what... In the original footprint.

Starting point is 00:07:50 No, no, no, also that. But then when we ended up buying businesses with established teams, we had perhaps naively built teams to run comparable businesses that were much smaller, and so we couldn't explain why you necessarily needed more people. Partly, yes, through experimentation, we have found, called it the sweet spot. Obviously, it's never perfect, but overall, let's say the key thing for us is we want our businesses to be, you know, run at a 10-at-a-10 level, And we find that generally you're more likely to get that level of performance if you have very, very small teams, super high bar for talent and sensible ownership. You have a 40-odd billion-dollar market cap-ish right now, I think plus or minus.

Starting point is 00:08:30 I don't know, actually. I haven't checked the ticker since we IPO. I think it's roughly in that zone, which is incredible from starting with the $10,000 acquisition. When did you transition from scaling on cash flow to then using debt and using more sophisticated? financial engineering so you can go after these bigger fish and how how is it so historically we we started using debt in 2017 I believe either 2017 or 2018 very basic bank loans TLAs and then as we and so free cash flow the reimbursement of free cash flow had always been a thing for us we have we deployed pretty much 100% of our free cash flow toward acquisitions since the

Starting point is 00:09:12 beginning that from 2017 and you know and and And it was we scaled, we got more credible, a little bit wiser, and more sophisticated. We went for, you know, TLBs, and maybe in the future there'll be bond issuances and other more complex instruments. We haven't used a whole lot of equity. Actually, when we IPOed, we had only, quote unquote, only raised about half a billion dollar in primary equity, and we were at roughly 20 billion in valuation. And even that half a billion dollar, we had raised pretty much all of it in the previous six months or so. So almost all of our track record we've achieved through reinvestment of free cash flows and debt.

Starting point is 00:09:49 But going forward, I think, particularly as a public company, using equity tactically here and there could be a good idea. So with that equity, you're taking loans, I guess, five, six points over LIBOR, so 10%, 12% loans, and then you buy a business like Airtable. But that means you have to pay $100 million in debt payments per year. If interest rates go up and it's a 90-some odd chance they're going to start going up, what does that do with the business? Does it throttle a little bit? And then my second question, people have been pretty enamored by the progress you're making.

Starting point is 00:10:25 And I think you're now facing some bending spoons competitors. So maybe you could talk, are you seeing more people show up at these auctions? And it's not just you and like two other players. Yeah. So that is an accelerant to our growth. we would still go up pretty fast if we only use free cash flows, but definitely being able to use debt is a good thing, prudent levels of debt. And I would say, I will give you two parts. First, the risk with the existing indebtness.

Starting point is 00:10:57 So all of our debt currently, the average cost, the blended cost is about 9%, give or taken, it's fully hedged. So increases in interest rates would not impact our cost of debt. it matures in 2013, so we are in a position to pay back completely before maturity. We're currently at two and a half times leverage approximately. Now, if interest rates were to go up substantially, then new debt would be more expensive. I think that would be under most scenarios, a net positive for us for a couple of reasons. Our returns unleavened historically have been pretty high, consistently about 25%. Again, unlevered.

Starting point is 00:11:36 So whether we pay 9% or 12%, of course, I'd rather pay 9, but it's not, it doesn't break the model. And, you know, and the second aspect is typically when interest rates go up, the value of assets goes down. And so as a serial acquire, I think we're more likely to benefit more from the lower valuations than they hire that. Now, that depends. I'm generalizing and simplifying a bit, but overall, we feel we are fairly well-protected and robust when it comes to to indebtness. When it comes to competition for acquisitions, we have all of the processes we have participated in and have had other buyers or almost all of them. I'm sure competition will intensify, or I'm sure it may intensify, who knows? It could also get weaker. We're seeing

Starting point is 00:12:22 private equities, we have historically down software actually raised less capital to do the same. And so on balance, we may be better off. It's also, I think, important to note that it's really painful and time-consuming to replicate what we'll build. Because a lot of it is based on those technologies which you can't build overnight. You don't even know what to build, really, if you haven't gone through many years of painful experimentation mistakes, try and repeat. A lot of the value we create is thanks to those 800-odd people. We have painstakingly selected over time, the culture of high performance and a scientific

Starting point is 00:12:57 approach to business we have developed. Those things are done. There's no shortcut. I still remember hiring the first one person and then two people and then four people. You could probably do it in five years, seven, and 13, but not in two months. So I think we'll face competition, but I'm pretty optimistic. If I may. In our industry, the venture capital industry, and even going into public markets,

Starting point is 00:13:18 we covet the founder. And if a company loses its founder and the founder authority they have, like Elon, to say, hey, we're not going to make the Model X, we're not going to make the Model S, we're going to convert those to optimists, those kind of bold bets only. made by founders. You have a slightly different philosophy here. You don't want founders inside the company. You're not looking for that founder authority in each of these brands based on what I've heard you say. So what is the expectation for your brands? Do you want to create cutting edge, you know, version 2s of event rights and Vimeo or do you just want them to grow at a predictable

Starting point is 00:13:52 rate and throw off that cash flow? So talk about the founder role. Yeah. So I think if you can have a founder with that level of passion and that mentality is, you know, nine times or the 10 will be a major net positive. Generally, when we end up acquiring companies, these are businesses that have been around for 10, 20 years, even more than 20 years in some cases. And for the founders, if they're still on board, sometimes they aren't on board. For them, it's really a moment of, okay, this is a chapter or on closing, I want to move on. So the real question there, for us, we win if that business does better with us than it would have under previous ownership.

Starting point is 00:14:36 Obviously, if we could have exceptional founders stay on board and pour their hearts into it, it would be even better. But we can still do well by being a better home for that business than that business staying with the same ownership group and maybe losing the founder anyway. So it's not that we don't want founders, but once, you know, companies are sold, people are generally looking to move on. If you bring us into the M&A deal desk, so like in the room, walk us through your screening process.

Starting point is 00:15:03 How are we doing this? What are we looking for? Are we looking for synergy and integration with the assets that we've bought before? Are we looking purely at cash flow? How do we stack rank these things? Just walk us through the deal desk. Yeah, so I think there's a qualitative criteria we use to slim down the long list of businesses that would be interesting targets.

Starting point is 00:15:23 One is scale. That process of very deep integration and profound transformation takes a lot of operational effort, so we can do a million of these. And by the way, the amount of time and effort it takes to transform a business we have found, it doesn't really scale linearly with revenues,

Starting point is 00:15:40 so we're much better off, acquiring relatively few sizable companies than a million small ones. So we look for scale. We look for predictability in earnings, and it's a big topic in and of itself, but we like businesses where we are pretty confident, and we can project at least the next five or six years directionally.

Starting point is 00:15:58 And then we look for businesses where we can create a lot of value. It could be technology, org, product, monetization marketing, ideally most of these. Does value include the integration with these other assets that you have, or value just means economic value operators? Well, let me just ask a detailed point of that. Like, if you own AOL, you could put ads for Vimeo or Eventbrite or Miro on AOL. If you own Vimeo, you could probably have a sales team that's selling ads on AOL that you can use. How much synergistic effect is there?

Starting point is 00:16:29 And if there is synergistic effect, and you've got all this capacity to do design, build, product management, agentic orchestration, testing, AB testing, why not also build organically at the same time and leverage the network effects of the existing businesses? So historically, we have created almost no value from, let's say, customer facing synergies, what you described, plenty of behind-the-scenes synergies. Like I said, it's all built on the same technological foundations, and there's this large core team of people we move around fluidly going forward. And by the way, the reason why we haven't unlocked a lot of value through customer-facing

Starting point is 00:17:07 synergies of being that we, I think the portfolio wasn't necessarily large enough for good overlaps to materialize, but as it grows more and more, for example, now Eratable and Miro are both quite appealing to a lot of enterprises. I think what you are describing could become an additional value creation dimension. You haven't tried or you've tried and it hasn't worked. No, we've tried and it's worked but marginally. So maybe it's helped 3%. But now, like the bulk of it has been bringing 10 at 10 excellence in operations, product, monetization, technology.

Starting point is 00:17:42 On an individual business basis. And then why not build organically products? Yeah. Yeah, so first of all, you can't do everything. I mean, Elon can. My colleagues and I, we don't think we can. Maybe we should be more ambitious with ourselves. You've got a lot on your plate.

Starting point is 00:18:01 Yeah, yeah. There's so many different kinds of products already. We launched a lot of new things on top of existing brands, but it's not like completely radical innovation. We don't do a lot of that. We try to stay focused on one thing to try to be the very best in the world at it. And also, at the scale we are at this point where, you know, on a pro forma with Miro close to a run rate of $4 billion in revenue, it's difficult. Like if you look at the percentage of new startups or products being launched that would move the needle, it's very, very small.

Starting point is 00:18:32 So what's the, you know, we would have to deploy a lot of our resources and very unlikely to work. Sorry, let me say that. Can you just talk about the thing, you and I talked about this point on the talent exodus that happens in Silicon Valley companies, when they start to stall out. And that the talent maybe that's working on the business isn't the quality of the talent that you've built in your core platform. How much of that is assessed in that M&A process that Chimot was mentioning?

Starting point is 00:18:59 Well, it's difficult to assess from the outside in, but you can form first principles opinions. Businesses that, again, are more in a saturation phase. They tend not to be as appealing to some of the most entrepreneurial engineers or designers. And so you can assume that the level of talent will be maybe good, but perhaps not, you know, what anthropic would have. I'm not seeing anything shocking here.

Starting point is 00:19:22 They have a very unique kind of talent, but we'll talk about that another time. Yeah, okay. We have a big advantage in attracting talent because if you work at Benin's films, it may be one of the very few places in the world where you can spend, say, one year rebuilding the email infrastructure for AOL, and then seven months helping rethink subscriptions on Vimeo and then build a few years. and then build a platform technology to manage payments, all with the same employer, mostly the same colleagues, same culture. You get broad technical scope.

Starting point is 00:19:50 Exactly. So career opportunities, just staying motivated because it's fun and new. Very high talent density begets high talent density, so there is an element of virtual cycle. So we have been able to attract some of people. Last year, 800,000 applications. We hired fewer than 300 people.

Starting point is 00:20:04 Are they all in Milan? Where are they? No, no. We are fully, you know, very international as a company. Milan, for historical reasons, remains like the biggest pool of talent, but London, for example, is coming up faster. Madrid. We'll be hiring

Starting point is 00:20:18 plenty of people in the States, I think, starting next year. It brings up an interesting question. Europe as a tech center isn't exactly something that venture capitalists, even late-state investors are pursuing. They kind of look at the market there as maybe slower and maybe just not as good of an opportunity is, I think, their decision, rather be in Silicon Valley or American companies or perhaps Asia. So what's it like being the most aggressive, successful company then in Europe or one of them? Is there? I think you're right. No, I think it is the. I mean, Spotify, obviously is much better. But Klarna, you're in the top 10 probably. I didn't. Clearly in the top 10. So what's the talent pool like

Starting point is 00:21:05 there? How is it different? Specifically Italy. I noticed when Chamats goes to Italy, maybe there's a little bit less working going on? An extra button. He goes from three on buttons to four. Yeah, the buttons go down and the number of hours in front of a laptop goes down as well. Like Italy changes Chamath. We see it. How do you keep these Italians working? How do you do? What's the secret? No, but tell us about the talent pool and running a company in Europe. So I think Europe has a lot of problems, but I think there's a pretty good talent. Half a billion people live in, let's say, the main part of Europe. So it's a lot of people have pretty good education. It's not Stanford, but it's solid.

Starting point is 00:21:40 And a lot of these people have a chip on their shoulder to prove we're not necessarily less smart or capable. So you do find a lot of good people. I do think there's a – the fact that Italians don't work hard is mostly a false stereotype. Yes. We find that – I mean, my wife, she doesn't work with me. She works another company. She works a long hours. At our company, we work pretty hard.

Starting point is 00:22:06 We generally find that when we acquire companies and we work with existing teams, more often than not, the team we bring in works substantially harder. So, I don't know, we just try to hire people who are intrinsically motivated, very ambitious, you're just hungry entrepreneurial, and then give them no good reason to do their best work because they see that they can have a unique career. Have you thought of having the headquarters anywhere other than Milan and that it might be an accelerant for the business, New York City, where the banking capital is, Silicon Valley, the tech capital. Have you thought about moving their headquarters?

Starting point is 00:22:37 Why? Luke is totally right. You get like these people, the problem with people in the, like you go to these typical places, typical schools, they think they're geniuses. And it's like when you actually like, just look, even just look at AI, who are the major contributors? These are not like the, they're not from MIT Stanford per se, you know. They were at UFT. They were at McGill.

Starting point is 00:22:57 It's like, it's like, well, it could be an advantage. Yeah, well, that's sort of what I'm getting at it's a huge advantage. I mean, when I interviewed Charles Koch, you and I talked about this, what I found so fascinating is he built that business, probably the most extraordinary wholly owned business on earth, from nothing, effectively, in Wichita, Kansas. And I say it's like the Wichita mindset, because he basically kind of ignored everything that was conventional and he was able to do things his own way. I don't know anyone that thinks and does things the way you do them that are based in Silicon Valley,

Starting point is 00:23:29 and that might be the reason, because you're in Milan and you're not kind of indoctrinated into cultural thinking. I mean, look, I'll just say what I find so incredibly interesting about your company and what you're building. is in all of our generations, we've seen these incredible examples of companies that have run your playbook but in traditional industries. Amphanol, Roper, Danahare, Berkshire, and we've never seen a successful implementation of it in tech. And I think you're the best scaled example. I mean, Expedia tried, Barry tried. I think it was a little complicated. So it's really exciting to see that this thing can work, because the structural issue was always how do you underwrite these cash flows?

Starting point is 00:24:10 And I think you're proving that they're underwritable, that these things can go out for seven, eight, nine years. And especially now, if you look at PE, the PE guys are basically like, we don't know what the fuck's going on, right? Yet you're still able to go on transact and you're announcing deals at a pace where a lot of the PE folks are,

Starting point is 00:24:26 so how do you manage this risk? Clearly it's not a risk. You think it's a tailwind for you. Yeah, I think the private equity is completely different because they keep these companies separate for the most part to sell them. and so they could never have that technological foundation, because once you plug it in in a company, what do you do when you sell it to your private-technically competitor?

Starting point is 00:24:45 Do you license it to them? So remove that. They can't have a pooled team of engineers, designers, because if they put them on a business and then they sell it, what do they do? They take the team out, and that the business is almost worthless, or do they sell the team with it? So the model is completely different,

Starting point is 00:25:02 and I believe these structural differences are a big reason why we have been, I'd like to say successful. So it will never work with the traditional private equity, which has other advantages. You can deploy maybe a lot more capital because it's a little bit more hands-off. But you can never achieve the returns, I think we have. I want to say, thank you.

Starting point is 00:25:21 An incredible business you're building. Congratulations. Well done. Luca Farrier, everybody.

All-In with Chamath, Jason, Sacks & Friedberg - Luca Ferrari, Bending Spoons CEO: The $40K Origin Story, Buying Product-Market Fit & Why Private Equity Can't Compete

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