00:37:40 · Nik Storonsky, David Senra
[00:37:40] S1: Well, what we started, if you look at the unit economics of the business, we started with a negative gross margin. And the negative gross margin continued for next three, four, five years until we optimize it to up to 80% of positive gross margin. And then if you look at why is that, right? So in our business, if you look at Europe, everything is extremely kept and regulated compared to US. For example, interchange is 20 basis points versus one half percent in US. Credit card rates are kept in majority of countries. Credit is very limited. Right? You cannot really freely give credit to many people. It's very difficult to actually set up a bank in Europe, going country by country. Because even if you have a bank license in Europe, you cannot be a primary bank because with the regulation doesn't allow you to stop issuing local accounts unless you stop a local branch of the bank [00:38:32] S0: in You had a physical location. [00:38:34] S1: I mean, let's say you need to have an office, you need to have local connectivity, local regulation. And so also, you go country by country and takes a lot of time, a lot of resources as well. So different languages as well. [00:38:45] S0: And you had to do all of this?
00:38:45 · David Senra, Nik Storonsky
[00:38:45] S0: And you had to do all of this? [00:38:46] S1: Yes. Plus very tough employment laws in many countries. And yes, it's very easy, right? I mean, it's like employment as well. In Europe, it's not like that. So you need be very careful how you hire, who you hire. So all all this together is actually produced environment which is not very profitable. Right? And very difficult to build a company. And then even in that environment, we kind of succeeded. Right? But then we succeeded because we spent a lot of time and a lot of energy and a lot of kind of, you know, brainpower to optimize on every single problem. If I will start the same business in Brazil or like in The US or maybe in other countries in Mexico, certain aspects would be much easier if you look at unit economics. Credit is so much easier to give. Interchange is not kept. Technically, this difficult environment in Europe actually taught us how to build business in a very competitive landscape. You see what I mean? [00:39:45] S0: Okay. So if you were surviving in this very difficult environment, now you have a skill set that people that did not have to go through that, and now you have to compete head to head with them in, let's say, America, they're gonna be very hard to compete with. You're gonna be very hard to compete with because they haven't developed the same skill sets and [00:39:59] S1: they didn't go through
00:40:00 · David Senra
[00:40:00] S0: all the stuff they did. Okay. That makes perfect sense. I found one of my all time favorite quotes when I was reading the book Zero to One. The quote says, the single most powerful pattern I have noticed is that successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas. That is exactly what Applovin has done with their advertising platform. Applovin connects you with over a billion potential new customers in mobile games. AppLovin allows you to capture undivided attention. AppLovin ads are full screen videos that are watched for an average of thirty five seconds. That is retention that blows other ad platforms out of the water. And you can launch on AppLovin in minutes. You set the goal and Applovin achieves it. No complex setup, no expertise needed. And Applovin scales quickly. They can put your ads in front of over a billion potential customers. Other businesses have seen immediate results scale to hundreds of thousands of dollars of spend per day and increase their revenue by millions. So you wanna get started quickly before all of your competitors are on Applovin. And you can do that by going to applovin.com. That's applovin.com. You've said some very interesting things about investors that I want to talk to you about because it's really important. This show, the whole idea was just like, I think entrepreneurs are the most important people in the world. The idea that, you know, somebody has an idea and it doesn't exist and they through determination, agency, aggression, make something that didn't exist that started in their mind real. And in your case, you're in 40 countries or whatever the case is, thousands of employees, how many customers, tens of millions, like from an idea that you had, when you were what, in your late twenties? Yeah, it's absolutely incredible. Think that's a miracle to me. And yet a lot of the discussion that takes place that what founders say about investors in private, they do not say in public. And so we were talking earlier because I saw this clip of you where you compared investors to football cheerleaders. Can you explain why you made that comparison?
00:42:05 · Nik Storonsky, David Senra
[00:42:05] S1: Well, gave this history before. So when I started the company was twelve, thirteen years ago. Back then in Europe and in The UK, was extremely difficult environment to raise money. Simply, there were not that many VCs around, and then there were all more like private equity guys, like extremely aggressive, extremely legalistic. So to raise money, you had to sign a lot of bad conditions in your shareholder agreement, liquidation preferences, both seats, like, you know, reducing your voting rights as a founder and so on. So these people basically think that because of them, the company was kind of created because they gave money and that they are entitled to Lash part of its success. So that's the mentality of... Know, a quite a few investors that invested very early on, like in in my company, for example. I think it's kind of largely wrong, this mentality, because getting money from LPs is extremely easy. Also... [00:43:12] S0: Getting money,
00:43:13 · Nik Storonsky
[00:43:13] S1: you said? Getting money from... Because their business is very simple. Right? Okay. They they have LPs. They collect money from them and then they invest in startups. And then they have a business model of two twenty. Right? So, it's so much easier compared to building a real operational business from scratch. Because they never receive their own money. Right? They don't really need to work hard. I mean, there is competition, but competition is just, you know, for getting deals. So I think their job is so so much easier. That's number one. And then number two is... Back then there was, you know, almost no competition compared to what it is now in in VC circles. And back then there was basically this opinion that we, as VC, will help you run the company. The company will be successful because we'll give you advice, you know, how how to run a company. Rality, almost none of them, they ever build any company. Right? So they just raise money from LPs. They invested their money in many companies. And sometimes they have boss seats, sometimes they don't. But having a boss seat doesn't teach you how to run a company at all. Right? You are just observer. As a result, you have all these people with a lot of power. Right? Because they give you money, they put certain conditions in shareholder agreement. And then they also have this mentality that they can tell you what to do as a founder. Right? And that's, in my experience, very dangerous. And I had many cases in the past when seven VCs... I mean, the advice was simply wrong for the company. So I think, you know, my advice to entrepreneurs would be, even if you raise money from VC's, try to pay a lot of attention to shareholder agreement. Right? And then to ensure that they're purely financial place, that they have no right, no voting right, no seat at the table, decision making. Super important. Because if something goes wrong, right, you effectively have cheerleaders, you know, who look at the match. And then they try to play this match, you know, instead of professional players. And that's, you know, always disaster.
00:45:23 · David Senra
[00:45:23] S0: Why did you say some of the advice they gave you was dangerous?