Luca Ferrari says Bending Spoons began in 2013 with about $40,000 left over from a failed 2010 AI company, after venture investors sold their shares to the founders for $1.
Ferrari says the founders chose to buy product-market fit rather than find it, starting with a roughly $10,000 iPhone keyboard app and now running a shared operating system of more than 50 proprietary technologies across acquired businesses.
Ferrari says unlevered returns have consistently topped 25%, and he argues private equity firms raising less capital for software deals will never match them.
Bending Spoons buys aging software and rebuilds it leaner
Bending Spoons buys mature software products and rebuilds them on a shared proprietary platform run by small, elite teams. Cheap-to-acquire aging assets and hedged debt produce unlevered returns above 25%, according to CEO Luca Ferrari. He argues private equity cannot match this because it keeps its portfolio companies separate and cannot share technology.
Takeaways
Bending Spoons buys product-market fit instead of finding it. The founders were weak at finding product-market fit but strong at engineering, design, monetization and marketing. So they acquire products with existing user bases and improve them at larger scale, preferring a few sizable companies to a million small ones.
A proprietary platform replaces each acquired tech stack. More than 50 proprietary technologies replace the technology foundation of each acquired business, with shared tools for nearly every function, from AI model orchestration to recruiting and A/B testing. About 800 core staff, three quarters technical or product people, run it.
Very small, elite teams run businesses best. Early acquisitions often came without teams, so Bending Spoons built smaller ones internally. Ferrari argues very small teams with a very high talent bar run businesses best. The company took 800,000 applications last year and hired fewer than 300.
Modest equity and hedged debt fund acquisitions. Before its IPO, Bending Spoons raised only about $500m in primary equity at roughly a $20bn valuation. Debt began in 2017 or 2018, now costs about 9% blended and fully hedged, matures in 2031 and sits near 2.5 times leverage.
Returns exceed 25% and higher rates help. Ferrari says unlevered returns have consistently exceeded 25%. He argues higher rates would be a net positive in most scenarios because asset prices fall, and says private equity firms are raising less capital for software deals.
Founders often want out; brand synergies are small. Acquired businesses are often ten to twenty years old, and founders often want to move on. Customer-facing synergies between brands have created almost no value, perhaps 3%. With Miro the group nears a $4bn run rate, so organic new products are unlikely to pay off.
Tech cash flows can be underwritten like conglomerates. Chamath argues tech cash flows can be underwritten over seven to nine years, as Amphenol, Roper, Danaher and Berkshire Hathaway did in industrials. Ferrari says private equity keeps companies separate, so they cannot share technology or engineering teams, and will not match his returns.
From failed AI startup to first acquisition
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On this episode 2
Show 1
In 2010 the founders launched an AI company that was too early, and it failed.
The venture investors sold their shares to the founders for $1, leaving about $40,000 in the company.
That money seeded Bending Spoons in 2013.
The first acquisition was an iPhone keyboard-personalization app, bought for about $10,000 from a one-man developer. It had negligible revenue but a base of users.