Luca Ferrari, Bending Spoons CEO: The $40K Origin Story, Buying Product-Market Fit & Why Private Equity Can't Compete

"You are the reason that has that 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." "Malan Bay's tech company Bending Spoons announced it will buy ticketing platform Eventbride." "Bending Spoon's is stirring up the market." They go from fixing ones on the app to reviving 20 of them. "Alpha 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." "Chau Luca." "You got fans." "All right, Luca, we have a great company." "Don't make fun of Luca Ferrari." "I'm mad. I'm just. " "This is a great Italian entrepreneur, so shut the fuck up." "Absolutely. Luca, I asked somebody to call you." "I asked Mario Brothers to be audience." "We could have another presidential moment here at the AOL in podcast." "If she calls you, then just run the phone over." "Go on my phone here." "Okay, just a case. That's ready." "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 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." "Yeah, so most of the pain, there's been plenty of pain throughout 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 to early, clearly crashed and burned three years later." "We're left with about $40,000 in capital we'd raised from the VC." "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 as they didn't want to go through the liquidation process to much illegal fees and to many headaches. They had seen us work pretty hard." "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 into seed financing for Benin's phones and and we you know we came up with this." "He started with $40,000." "$40,000 exactly in 2013 and we we had this strategy which just remained pretty much the same. Obviously you get smarter, you refine it in time. That was the idea was we are not very good at finding product market fit or maybe you know a lot plays a big role, probably both things are true but we have become pretty good at engineering, design, monetization, marketing in just three years of hard work and so we should be able to be among the best in the world of that and we should be able to buy product market fit from people and and and you know they get a good price. We get a good asset we can make more valuable and then we deploy more capital into making our our platform. What was the first acquisition and how much did you pay and how did you get the deal though?" "So the first acquisition was if we paid $10,000 give or take and it was a mobile app for iPhones specifically that you used to personalize your your keyboard. Very simple. One one man kind of developer sold it to us obviously a very amateurish operation. Not that difficult at the time to make it better and more successful but you know." "What were you buying like you were buying one times revenue, you were buying the revenue, you were buying the app?" "That one specifically I think had the negligible revenue, it wasn't even really monetized which of course is never the case for scale businesses." "But 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 store so it would get an influx of new users and that's you know remained broadly speaking similar over time and you know we keep looking for great brands user and customer bases or we can improve everything ideally and make those assets seem more valuable over time. We just do it at a much bigger scale these days but the 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." "Is it a code base are you doing engineering, product design, marketing, all of the above?" "Yeah most of what we do is 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 other engineers or AI researchers or product designers, product managers. Most of what we do is actually improving technologies and products and of course you know that yes that app we wrote it completely and but it's very early days today we're much more sophisticated. What we do is we bring in a quality and operating system of 50 plus proprietary technologies we build kind of an engine to run technology businesses very effectively and efficiently and really our core product. We swap out the technological foundation of the businesses we buy with that one so we can run it much better and also the people we transition across are various businesses always play by the same rules. They're more efficient because they find the same tools cut across what like HR finance tech ops dev ops pretty much everything. Yeah I mean orchestration of AI models check recruiting tools check AB 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 want all the licensing become scaled across one entity." "Yeah that's a lever for quality creation I'd say that's relatively small one it probably adds I don't know one two percentage points in EBDA margins the you know the more important aspects are being able to drive revenue increases through better product tech and monetization sometimes marketing cost reduction through leaner teams of more talent than as teams and 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 write size Vimeo's workforce you write size break." "He called me before doing the X no I'm joking." "Oh he did?" "Oh no he advised but explain explain how do I cut all the people." "No no he didn't do that I don't know Elon so." "You got how did you figure out that you could cut 80% of a team and it still works how do you figure that out do that accidental where you just I think pushing to a threshold?" "I think it's it's something we we learned partially because early early days where we were acquiring smaller businesses typically these people would sell us the assets 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 FDs was much smaller than the original. "No no no well 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 so we couldn't explain why you necessarily needed more people partly yes through experimentation we have found calling the sweet spot obviously it's never perfect but we overall let's say the key thing for us is we want our businesses to be you know run at a 10 out to 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 owners. "You have a 40 odd billion dollar market cap issue right now I think plus or minus. "I don't know actually I haven't checked the ticker since the IPO. "It gets roughly roughly in that zone which is incredible from starting with the $10,000 acquisition. When did you transition from scaling on cashflow to then using debt and using more sophisticated financial engineering so you can go after these bigger fish and how how's it?" So historically we started using debt in 2017 I believe other 2017 or 2018 very basic bank loans TLAs and then as we saw free cashflow their investment of free cashflow had always been a thing for us we have redeployed pretty much 100% of our free cashflow toward acquisitions since the beginning. That from 2017 and usually scaled we got more credible a little bit wiser and more sophisticated we went for TLABs and maybe in the future there'll be bond issues and other more complex instruments. We haven't used a whole lot of equity actually when we IPO'd 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 cashflow and debt but going forward I think particularly as a public company using equity tactically here and there could be a good equity. "So with that equity you're taking loans I guess 5, 6 points over a lie-bore, so 10 percent, 12 percent loans, and then you buy a business like air table, 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 as a throttle a little bit? And then my second question, people have been pretty enamored by the progress you're making, 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 pretty fast if we only use free cash flows, but our 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 like two parts -- first, the risk with the existing in debtness. So all of our debt currently, the average cost, the blended cost is about 9 percent. Give a take and it's fully hedged. So increases in interest rates would not impact our cost of debt. It matures in 2031, so we are in a position to pay it back completely before maturity we're currently at 2.5 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, and that positive for us for a couple of reasons. Our returns unlevered historically have been pretty high consistently, about 25 percent, again unlevered. So what do we pay 9 percent, or 12 percent, of course, of rather pay 9, but it doesn't break the model. 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 the higher debt. 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 debtness. When it comes to competition for acquisitions, we have all of the processes we have participated in 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 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, you know, 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 people, we have painstakingly selected, over time, the culture of high performance and a scientific approach to business we have developed. Those things are, 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, several than 13, but not in two months. So I think we'll face competition, but I'm pretty optimistic. In our industry, the venture capital industry, and even going into public markets, 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 X, we're going to convert those to Optimus," 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 brand? You want to create cutting edge version 2s of Eventbrights and Vimeo, or do you just want them to grow at a predictable 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 nine times so that 10 will be a major net positive. The 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 in board, sometimes they aren't in board, for them it's really a moment of, okay, this is a chapter, I'm closing, I'm on number one. So the real question there, for us, we win if that business does better with us, then it would have under previous ownership. 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 stand, 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 that 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. 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. One is scale. That process of very deep integration and profound transformation takes a lot of operational life for it. 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've found, it doesn't really scale, linearly with revenues, or 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, we can project their, at least, you know, the next five or six years, directionally. 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. Is value include the integration with these other assets that you have or value just means economic value operation? Well, let me just ask a detailed point of that. 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? 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 or 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 synergies is just being that, I think the portfolio wasn't necessarily large enough for good overlaps to materialize, but as it grows more and more, for example, now our table 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 the bulk of it has been bringing 10 out to 10 excellence in operations, product, monetization, technology on an individual business basis. And then why not build organically products? 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. And so. Got a lot on your plate. Yeah, yeah. There's so many different kinds of products already. We launch a lot of new things on top of existing brands, but it's not 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. So at this scale, we are at this point where 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. So what's the, you know, we would have to deploy a lot of our resources and very unlikely to work? 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 you're up with, aren't you? Well, it's, I mean, it's difficult to assess from the outset in, but you can form first principle subpoenas, 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, anthropic would have not seen anything shocking here. Maybe 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 Benning'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 VMO and then build a platform technology to manage payments, all with the same employer, mostly the same college, same culture. You get broad technical scope. Exactly. So career opportunities just stay motivated because it's fun and new. Yeah. Very high talent density. Biggest high talent density. So there's an element of virtual cycle. So we have been in the process. to attract some of people last year, 800,000 applications, we hired fewer than 300 people. 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 people, plenty of people in the States, I think, starting next year. Bring some interesting question. You're up as a tech center. Isn't exactly something that venture capitalists, even late-stage 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, I know, I think it is thee. I mean, I mean, Spotify, obviously is much better, but Clarina, you're in the top 10 probably, clearly in the top 10. So what's the talent pool like there? How is it different, specifically Italy? I noticed when Shamas goes to Italy, maybe there's a little bit less working going on. 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. Like Italy changes Shamas, we see it. How do you keep these Italians working? How do you, what's the secret? 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 of people leaving, let's say, the main part of Europe. So it's a lot of people, a pretty good education. It's not Stanford, but it's solid. And a lot of these people have achieved 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. We find that my wife, she doesn't work with me, she works in other companies, she works a long hours. At our company, we work pretty hard. 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 and entrepreneurial, and then give them no good reason to do their best work because they see that they can have a unique career. I mean, a lot 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 in headquarters? Why? Lucas, 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, they're not from MIT Stanford per se, you know? They're at U of T, they're like the Gales. It's like, you're a CMU portal. Well, it could be an advantage. Yeah, well, that's sort of what I'm getting at, yeah. 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, and that might be the reason, because you're in Milan, and you're not kind of alternated into cultural thinking. I mean, look, I'll just say what's, 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, Amphenol, Roper, Danahair, Berkshire. And we've never seen a successful implementation of it in tech. And I think you're the best-caled 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? And I think you're proving that they're underwriteable, 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 and transact, and you're announcing deals at a pace where these, you know, a lot of the PE folks are. So how do you manage this risk? Like, clearly it's not a risk. You think it's a tailwind for you? Yeah, I think the, you know, the product equity is completely different, because they keep this company separate. It's pretty much part to sell them. And so they could never have that technological foundation, because once you plug it in, you know, company, what do you do when you solely to your product equity competitor? Do you license it to them? So that's, you know, remove that. They can't have a pooled team of engineers, designers, because if they put them on the, on a business, and then they sell it, what do they do? They take the team out, and that needs the team, the business is almost worthless, or did they sell the team with it? So the model is pretty different, 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, you know, hands off. But, but you can never achieve the returns I think we have. Look, all right. I wanted to thank you, an incredible business you're building. Congratulation. Thank you. Thank you.