All-In with Chamath, Jason, Sacks & Friedberg
00:03:03 · Chamath Palihapitiya, Luca Ferrari
[00:03:03] S3: You started with $40,000. [00:03:04] S0: 40,000 exactly in 2013 and we we had this strategy which has remained pretty much the same obviously, you get smarter, you refine it in time. That was... The idea was we we are not very good at finding product market fit or maybe, you know, lock 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 at that. And we should be able to buy product market fit from people. And and and, you know, they get a good price, we we get a good asset we can make more valuable, and then we we deploy more capital into making our our platform... Acquisition, [00:03:45] S3: and how much did you pay, and how did you get the deal [00:03:48] S0: So the first acquisition was we paid $10,000, give or take, and it was a mobile app for iPhone 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 to make it better and more successful. But you know... What were you buying? [00:04:16] S3: Like, you're buying one times revenue? You're buying the revenue? You're buying the app? One specifically,
00:04:16 · Chamath Palihapitiya, Luca Ferrari, S4
[00:04:16] S3: Like, you're buying one times revenue? You're buying the revenue? You're buying the app? One specifically, [00:04:21] S0: I think, had negligible revenue. It wasn't even really monetized. Okay. Which of course is never the case for for scale businesses... Users. It had users. So so what we bought at the time was an app with a bunch of users and good positioning on the app stores, so they... 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, where we can, 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. [00:04:59] S4: Did 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 biz... Are you are you doing engineering, product design, marketing, all of the above?
00:04:59 · S4, Luca Ferrari, Chamath Palihapitiya
[00:04:59] S4: Did 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 biz... Are you are you doing engineering, product design, marketing, all of the above? [00:05:16] S0: Yeah. Most of what we do is is engineering and product. We have a core team of, at this point, about 800 people, and 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. And 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... So what we do is we we bring in a... Call it an operating system of 50 plus proprietary technologies. We 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. Also, the people we transition across our various businesses always play by the same rules. They're more efficient because they find the same [00:06:09] S3: tool. So these tools cut across what? Like HR, finance, tech ops, dev ops? [00:06:15] S0: Pretty much everything. Yeah. I mean Everything. Orchestration of AI models, check. Recruiting tools, check. AB testing platforms, it's [00:06:21] S3: And [00:06:21] S0: then do
00:06:21 · Luca Ferrari, Chamath Palihapitiya, S4
[00:06:21] S0: then do [00:06:22] S3: you bring all of the technology spend up to the Topco so that you're doing one deal with AWS, one... All the licensing becomes scaled across one entity? [00:06:30] S0: 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 EBITDA 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, so more time dense teams. And... But, yes, vendor optimization is is helpful too. [00:06:54] S3: 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... [00:07:03] S0: He called me before doing the x... No. I'm joking. [00:07:05] S3: Oh, he did? Oh, no. Okay. No advice. But explain explain how do [00:07:09] S4: I cut all the people? [00:07:11] S0: No. No. He didn't he didn't do that. I don't know Elon so... [00:07:13] S3: Luca, 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 [00:07:20] S0: I think... [00:07:20] S3: Pushing to a threshold?
00:07:20 · Chamath Palihapitiya, Luca Ferrari
[00:07:20] S3: Pushing to a threshold? [00:07:22] S0: I think it's something we learned partially because early 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. 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 FTEs was much smaller than In 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 we we... Overall, I'd 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 that level performance if you have very, very small teams, super high bar for talent, and sensible energy. [00:08:25] S3: You have a 40 odd billion dollar market cap ish right now, I think, plus or minus? [00:08:30] S0: I I don't know, actually. I haven't checked the the ticker since we IPO ed.
00:08:30 · Luca Ferrari, Chamath Palihapitiya
[00:08:30] S0: I I don't know, actually. I haven't checked the the ticker since we IPO ed. [00:08:32] S3: Think it's roughly roughly in that zone, which is incredible from starting with a $10,000 acquisition. When do you trans... 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 how is it [00:08:49] S0: done with that? So historically, we 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 a 100% of our free cash flow toward acquisitions since the beginning. Debt 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 IPO ed, we had only, quote unquote, only raised about $500,000,000 in primary equity, and we were at roughly 20,000,000,000 in valuation. And even that $500,000,000, 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 debt. But going forward, I think, particularly as a public company, using equity tactically here and there could be a good good...