Luca Ferrari, Bending Spoons CEO: The $40K Start, Buying Product-Market Fit & Beating Private Equity

You are the reason that NASDAQ exists. [music] >> 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 [music] again. Milan based tech company Bending Spoons announced it will buy ticketing platform Eventbrite. >> Bending Spoons is stirring up the market. [music] They go from fixing one zombie app to reviving 20 of them. >> Half a billion people use our products. We're trying to build a generational company. Please welcome Luca Ferrari. [music] Hey, here he is. Nice to see you. >> You got fans.

>> All right, Luca, you have uh 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 up. >> Absolutely. Absolutely. >> I I asked somebody yelling like it's Super Mario Brothers in the audience. >> We could have another presidential moment here at the All-In podcast. So, if she picks up if she calls you, then just run the phone over. [laughter] >> Got my phone here. >> Okay. Just in case. >> Yeah, it's ready. >> Um I mean, there's a lot of us that have actually been tracking you for a while. Um, I I originally heard about you because you were in Milano, uh, where,

you know, my wife's family is from. Uh, and you had this incredibly progressive, methodical approach to growth. You did this fantastic, um, podcast with, um, uh, Patrick Onessy, which was great. I encourage all of you to listen to it. and you explained uh 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 the nadier of the company and then the beginning of the ascent. >> Yeah. So the you know most of the I mean the pain there's been plenty of pain throughout as for most entrepreneurs I think but the the the biggest failures were in the previous startup. So with my

co-founders, we launched uh an AI company in 2010, very early, too early, clearly uh uh crashed and burned um 3 years later. uh we're left with about $40,000 in capital we raised from the VC and um um we you know clearly there wasn't a lot to salvage other than our relationship being stronger uh and uh and and that money that the VC uh pretty much uh uh gifted to us as they you know didn't want to go through the liquidation process too too much uh in legal fees and too many headaches they had seen us work pretty hard uh 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 nice vacation. Uh we're clearly a little bit

sick in the head." And so we took the money and enthusiastically turned it into uh seat financing for Benny's phones. And and we, you know, we came up with >> You started with $40,000. >> 40,000 exactly in uh 2013. And we we had this strategy which has remained pretty much the same. Obviously, you get smarter, you refine it in time. Uh that was the idea was we we are not very good at finding product market fit or maybe you know luck plays a big role. Probably both things are true but we have become pretty good at engineering uh design monetization marketing in just three years of hard work. And so 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 uh and and you know they get a good price we we got a good asset we can make more valuable and then uh we we deploy more capital into making our our platform >> the first acquisition and how much did you pay and how did you get the deal done? So, the first acquisition uh was a we paid $10,000 give or take, and it was a um a mobile app for iPhone specifically that you used to personalize your your keyboard. Very simple. One uh one uh uh man kind of developer uh sold it to us. Obviously, very amateurish operation, not that difficult at the time to to make it better and more successful. Uh but you know,

>> what were you buying? like you were buying one times revenue, you were buying the revenue, you were buying the app. Like >> that one specifically I think had negligible revenue. It wasn't even really monetized. >> Okay. >> Uh which of course is never the case for for scaled businesses, >> but it had users. >> It had users. So what we bought at the time was uh an app with a bunch of users and good positioning on the app stores. So it would get an influx of new users. Um and that's you know remained broadly speaking similar over time and you know we keep looking for great brands user and customer bases where we can uh uh

you know improve everything ideally and make those assets even more valuable over over time. We just do it at a much bigger scale these days but the the underlying concepts have not changed. >> You 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. >> Is it a is it a code business? Are you 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 uh 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. Uh and uh and of course you know that yes that app we we wrote it completely and but it's you know very early days. Today we're much more sophisticated. We we what we do is we we bring in a call it an operating system of 50 plus proprietary technologies. We built uh kind of an engine to run technology businesses very effectively and efficiently. um really our core product uh we swap out the technological foundation of the businesses we buy with that one so we can run it much better and also the the people we transition

across our various businesses always play by the same rules they're more efficient because they find the same tool >> these tools cut across what like HR finance tech ops devops >> pretty much everything yeah I mean orchestration of AI models check recruiting tools checking platforms check >> and then do you bring all of the technology spend up to the top co so that you're doing one deal with AWS one all the licensing becomes scaled across one entity. >> Yeah, that's a that's a lever for quality creation. I'd say that's a relatively small one. It probably adds I don't know one two percentage points in

Ibida margins. Uh the you know the more important aspects are being able to drive revenue increases through better product tech and monetization sometimes marketing uh cost reduction through leaner teams. So more talent dense teams uh and but yes vendor optimization is is helpful too. >> You were doing the Elon X playbook before he did it. I mean like there's some stories that were written about how you rightsized Vimeo's workforce. You right sized bright. >> He called me before doing the X uh No, I'm joking. >> Oh, he did? Oh, [laughter] >> but explain explain how do I cut all the people? >> No, no, [laughter] he didn't do that. I

don't know Elen. So >> how did you figure out that you could cut 80% of a team and it still works? How how do you figure that out? Is that accidental where you just pushing to a threshold? >> I think it's uh it's something we we learned uh partially because early early days when 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 you know 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 footprint. >> 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 and so we couldn't explain why you necessarily needed more people. Partly, yes, uh through experimentation, uh we have found call it the sweet spot. Obviously, it's never perfect, but we we overall, let's say the the key thing for us is we want our businesses to be, you know, run at a 10 out of 10 level. And we find that generally you're more

likely to get that uh that level of performance if you have very very small teams, super high bar for talent and sense of ownership. >> You have a 40 odd billion dollar market capish right now. I think plus or minus. Um >> I don't know actually. I haven't checked the ticker since we >> I think it's roughly roughly in that zone. um which is incredible from starting with the $10,000 acquisition. When do you trans when did you transition from uh 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 that? So historically uh we we started using debt in 2017 I believe

either 2017 or 2018 uh very basic bank loans TLAs and then uh as we and so free cash flow the reinvestment of free cash flow had always been a thing for us we have redeployed pretty much 100% of our free cash flow toward acquisitions uh since the beginning uh that from 2017 and you know and and it was rescaled 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 and that. But going forward I think particularly as a public company using equity tactically here and there could be a good good idea. >> So with that equity um you're taking loans I guess uh five six points over libore so 10% 12% loans and then you buy a business like air table but that that means you have to pay 100 million dollars 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? has to throttle a little bit. And then my second question, people have been pretty enamored by the progress you're making. Uh, and I think you're now facing uh, 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, um, that is an an accelerant to our growth. uh we would still grow up pretty fast if we only use free cash flows but our free cash flows but definitely being able to use that is is

a good thing uh prudent levels of debt and and and I would say I will give you like two parts uh first the the risk with the existing indebtness so all of our debt currently the the average cost the blended cost is about 9% give or take and it's fully hedged so increases in in interest rates would not impact our cost of debt uh it matures in 20 31. So we are in a position to pay pay it 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 would be more expensive. Um I think that would be under most scenarios a net positive for us for a couple of reasons. Our returns

unlevered historically have been pretty high consistently above 25% again unlevered. So whether we pay 9% or 12%, of course I'd rather pay 9, but it's not it doesn't break the model. Uh and uh you know and the second aspect is typically when interest rates go up the value of uh of of assets go goes down. And so as a serial acquirer 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 uh overall we feel we are fairly well protected um and you know robust when it comes to to indep um we have all of the processes we have

participated in have had other other buyers or almost all of them um I'm sure competition will intensify or I'm sure it may intensify who knows um it could also get weaker seeing private equities web historically down softer actually raise less capital to do the same and so on balance we might be better off it's also I think important to note that it's it's really painful and timeconuming to replicate what we've built 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 um you a lot of

the value we create is thanks to those 800 odd people we have pain painstakingly selected over time the culture of high performance and and a scientific 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 5 years rather than 13 but not in two months so I I think we we'll face competition but I'm pretty optimistic follow up if I may um 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 S, 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 I've heard you say. Um, so what is the expectation for your brands? Do you want to create cutting edge you know version twos of event brights 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 you know level of of passion and and that mentality is you know nine [clears throat] times out of 10 will be a major net positive. uh the generally when we end up acquiring companies these are businesses that that have been around for 10 20 years even more than 20 years in some cases and 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 on closing I want to move on so the the the real question there for for us we win if that business does better with us than it would have uh 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 than that business staying uh with the same uh ownership group and maybe losing the founder anyway. Um 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. >> Can you bring us into the M&A deal? So like in the room, walk us through your screening process. Are we how do we 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 uh slim down the long list of businesses that would be interesting targets. Uh one is scale. We that process of integration uh and and and profound transformation takes a lot of operational effort. So we can't 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 revenue. So, we're much better off acquiring relatively few sizable companies than a million small ones. So, we like we look for scale. We look for predictability in uh in earnings and

it's a big topic in and of itself, but we like businesses where we are pretty confident we can project at least, you know, the next five or six years directionally. Um, and then we look for businesses where we can create a lot of value. It could be technology, org, uh 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 operation? >> 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. Um, 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? 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 customerf facing synergies. what what you described uh plenty of behind the-scenes synergies like I said it's all built on the same technological foundations and then there's this large core team of people

we move around fluidly uh going forward and and by the way the reason why we haven't unlocked a lot of value through customerf facing synergies being that um 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 air table and miro are both quite appealing to a lot of enterprises I think what you are describing could become an additional value creation uh uh dimension. >> You haven't tried or you've tried and it hasn't worked. >> No, we 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 out of 10 excellence in

operations product monetization uh technology >> on an individual business basis >> and then why not build organically products. Yeah. >> Yeah. So the first of all you can't do everything. I mean, Elon can I I you know, my colleagues colleagues and I we don't think we can. Maybe we should be more ambitious with ourselves, but um and so >> you got a lot on your plate. >> There's so many different kinds of products already. >> We we launch 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 on one thing to try to be the very best in the world at it. Also at the scale we are at at this point we're you know on a proform 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 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 >> sorry let me can you just talk about the thing you and I talked about this um 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 your core platform. How much of that is assessed in that M&A process that Chimat was mentioning? >> Uh well it's it's I mean it's difficult to assess from the outside in but you can form uh uh 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. Um, and [clears throat] 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

saying anything shocking here. Uh, >> they have a very unique kind of talent, but we'll talk about that another time. >> Yeah. Okay. Um we we have a big advantage in attracting talent because if you work at Benny's films, it may be one of the very few places in the world where we can spend say one year rebuilding the uh email infrastructure for AOL and then seven months helping uh rethink uh subscriptions on on Vimeo 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. >> Exactly. So career opportunities just

staying motivated because it's fun and new. uh very high talent density begets high talent density so there is an element of virtual cycle so we have been able to attract a ton of people last year 800,000 applications we hired fewer than 300 people >> are they all in Milan where are they >> no no we we are fully you know very international as a company Milan for historical reasons remains like the biggest uh pool of of talent but London for example is coming up faster Madrid we we'll be hiring people plenty of people in the states I think starting starting next year >> brings up an interesting question um Europe as a tech center um isn't exactly

um something that venture capitalists even lateage uh investors are pursuing. They kind of look at the market there as maybe slower uh and maybe just not as good of an opportunity is I think their decision. Rather be in Silicon Valley or American companies uh 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 Well, I mean Spotify obviously is much better, but Clara, you're you're in the top 10 probably. U clearly in the top 10. So, >> um what's the talent pool like there? How is it different? Specifically Italy.

I I noticed when Chamas goes to Italy, maybe the there's a little bit less working going on. >> An extra button. He he goes from three unbuttons to four. >> Yeah. The buttons go down and the number of hours in front of a laptop. >> Italy changes chimoth. We see it. >> How do you keep these Italians working? How do you what's the secret? No, but tell us about the talent pool in running a company in Europe. >> So, I I think uh I think Europe has a lot of problems. Uh but I think there's a pretty good talent. Uh half a billion uh uh 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. Uh and uh 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. Uh I I do think there's a the fact that Italians don't work hard is mostly a false stereotype. Yes. Uh I we find that uh I mean my wife, she doesn't work with me, she works in other company. She works uh a lot 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 the the team we bring in works substantially harder. So um I don't know we just try

to hire people who are intrinsically motivated very ambitious uh you're just hungry entrepreneurial and uh and then give them you know a good reason to to do their best work because they see that they can have a 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 the headquarters >> why Luca is totally right you get like these people the problem with people in in the in 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 uft they were at CMU it could well it could be an advantage like >> no that's sort of what I'm getting at a huge advantage I mean when I when I interviewed Charles Ko 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 Witchah, Kansas. And I say it's like the Witchita mindset cuz 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 cuz you're in Milan and you're not kind of indoctrinated into cultural thinking. I mean, look, I'll just say what's what what I find so incredibly interesting about your company and what you're building is in in all of our generations, we've seen this these incredible examples of companies that have run your playbook, but in traditional industries. Um, Amphenol, Roper, Danahare, Berkshire, and we've never seen a successful implementation of it in tech. And, uh, I think you're the best scaled example. I mean, Expedia

tried, Barry tried. I think it was a little complicated. Um, so it's really exciting to see that this thing can work because the the the structural issue was always how do you underwrite these cash flows and I think you're proving that they're underwritable that these things can go out for 7 8 n years and especially now if you look at PE the PE guys are basically like we don't know what the 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 how do you how do you manage this

risk? Like it's clearly it's not a risk. You think it's a tailwind for you? >> Yeah, I think the the know 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 to your product competitor? Do you license it to them? So that's you know remove that they can't have a pulled team of engineers designers because if they put them on the on the uh on a business and then they sell it what do they do? take the team out and then it's the team the business is almost worthless or do they sell the

team with so just the model is completely different and and I believe these structural differences are a big reason why we have been I'd like to say successful um 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 uh but you can never achieve the returns I think we we have >> I want to say thank you an incredible business you're building congratulations >> well done everybody