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

You are the reason that Nasdaq exists. They went from $0 to $1 billion in revenue in just 10 years.

Bending Spoons 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 Eventbrite. Bending Spoons is stirring up the market.

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.

Hey, here he is. Nice to see you.

Ciao, Luca.

You got fans.

All right, uh, Luca, you have, uh, 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. Luca, I asked—

No, I got somebody yelling like it's Mario Brothers in the audience.

We could have another presidential moment here at the All-In Podcast. So if she picks it, if she calls you, then just run the phone over.

I got my phone here.

Okay, just in case.

It'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, I mean, 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, too early, clearly. Crashed and burned. 3 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, too 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 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 Ben Spoon. 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 luck plays a big role. Probably both things are true. But we have become pretty good at engineering, design, monetization, marketing in just 3 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 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 comprehensive.

What was the first acquisition and how much did you pay and how did you get the deal done?

So the first acquisition was, we paid $10,000, give or take, and it was a mobile app for iPhones specifically that you used to personalize your keyboard. Very simple. 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. What were you buying?

You were buying one-time 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. Which of course is never the case for scaled businesses.

But it had users?

It had users. So what we bought at the time was an app with a bunch of users and good positioning on the app stores so it would get an influx of new users. And that's remained broadly speaking similar over time and we keep looking for great brands, user and customer bases, or 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. 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 at this point about 800 people, and I would say probably 3/4 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 that Yes, that app, we rewrote it completely, but it's very early days. Today we're much more sophisticated. What we do is we bring in a— call it an operating system of 50+ proprietary technologies we've built, 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 our various businesses always play by the same rules. They're more efficient 'cause they find the same toolkit.

And so these tools cut across what, like HR, finance, tech ops, DevOps?

Pretty much everything. Yeah, I mean, orchestration of AI models, check. Recruiting tools, check. A/B testing platforms, it's across all of this.

And then do you bring all of the technology spend up to the top co so that you're doing one deal with AWS, all the licensing becomes scaled across one entity?

Yeah, that's a lever for value creation. I'd say that's a relatively small one. It probably adds, I don't know, 1, 2%, percentage points in EBITDA margins. The more important aspects are being able to drive revenue increases through better product tech and monetization, sometimes marketing, cost reduction through leaner teams or more talent-dense teams. But yes, vendor optimization 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 right-sized Vimeo's workforce, you right-sized Brightcove.

He called me before doing the X change. No, I'm joking. Oh, he did? Oh no, okay.

But explain, explain, how do I cut all the people?

No, he didn't do that. I don't know Elon, so.

Luca, how did you figure out that you could cut 80% of a team and it still works? How do you figure that out? Is that accidental where you just keep pushing to a threshold?

I think it's something we learned partially because early days when 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. 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—

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, through experimentation, we have found, call it the sweet spot. Obviously, it's never perfect, but overall, I'd say the key thing for us is we want our businesses to be run at a 10 out of 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 sense of ownership.

You have a $40-odd billion market cap-ish right now, I think, plus or minus.

I don't know, actually. I haven't checked the ticker since we IPO'd.

I think it's roughly in that zone, which is incredible from starting with a $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 has it gone so far?

So historically, 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 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 since the beginning. Debt from 2017, and, you know, and as 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 IPO'd, we had only, quote unquote, only raised about half a billion dollars in primary equity, and we were at roughly $20 billion in valuation. And even that half a billion dollars, we had raised pretty much all of it in the previous 6 months or so. So almost all of our track record we've achieved through reinvestment of free cash flows and debt. But going forward, I think particularly as a public company, using equity tactically here and there could be a good Good idea.

With that equity, you are taking loans, I guess, 5, 6 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 it a bit? 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 2 other players?

Yeah. So that is an accelerant to our growth. We would still grow 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 like 2 parts. First, the risk with the existing indebtedness. So all of our debt currently, the average cost, the blended cost is about 9%. Give or 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 paid 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, would be more expensive. 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. And the second aspect is typically when interest rates go up, the value of assets 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 overall we feel we are fairly well protected and robust when it comes to indebtedness. 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 are seeing private equities who have historically done software 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 really painful and time-consuming to replicate what we've built 'cause 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 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 1 person and then 2 people and then 4 people. You could probably do it in in 5 years, 713, but not in 2 months. So I think we will 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 heard you say. What is the expectation for your brands? Do you want to create cutting-edge version 2s of Eventbrite and Vimeo, or do you just want them to grow at a predictable rate and throw off that cash flow? Talk about the founder role.

I think if you can have a founder with that that, you know, level of, of passion and, and that mentality is, you know, 9 times out of 10 will be a major net positive. Uh, 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, 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 I'm closing, I want to move on. So the, the real question there For us, we win if that business does better with us than 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 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 Can you bring us into the M&A deal desk?

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 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 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 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 at least the next 5 or 6 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.

Does value include the integration with these other assets that you have, or value just means economic value operationally?

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, A/B testing, why not also build organically? at the same time and leverage the network effects of the existing businesses?

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 synergies has been 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 Airtable 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 not like the bulk of it has been bringing 10 out of 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. You've got a lot on your plate. Yeah, yeah.

There's so many different kinds of products.

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 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 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. We would have to deploy a lot of our resources and very unlikely to work.

Sorry, let me just ask, 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 Chamath was mentioning?

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 what Anthropic would have. I'm not saying anything shocking here.

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 Bennis Films, it may be one of the very few places in the world where you can spend, say, 1 year rebuilding the email infrastructure for AOL and then 7 months helping rethink subscriptions 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. Yeah, uh, very high talent density begets high talent density, so there is an element of virtuous 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 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.

Brings up an interesting question. Europe 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. 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.

Spotify obviously is much bigger, but Klarna, you're in the top 10 probably.

I do.

Clearly in the top 10. What's the talent pool like there? How is it different? Specifically Italy. I notice when Chamath goes to Italy, maybe there's a little bit less working going on.

An extra button. He goes from 3 on buttons to 4.

Yeah, the buttons go down and the number of hours in front of a laptop goes down.

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.

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 with pretty good education. It's not Stanford, but it's solid. 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 is 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 in another company. She works 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, just hungry entrepreneurial, and then give them a 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 the headquarters?

Why? Luca's 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 They're not from MIT, Stanford, per se. They're at U of T. They're at McGill. They're at CMU. Waterloo.

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. 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. Amphenol, Roper, Danaher, 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? And I think you're proving that they're underwritable. that these things can go out for 7, 8, 9 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, 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, you 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 your product 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 a business and then they sell it, what do they do? They take the team out and then the business is almost worthless, or do they sell the team with it? So it's just the model is completely 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.

Luca, I want to say thank you. An incredible business you're building. Congratulations.

Well done.

Luca Ferrari, everybody.