All-In with Chamath, Jason, Sacks & Friedberg
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...
00:09:54 · S1
[00:09:54] S1: So with that equity, you're loans, I guess, five, six points over LIBOR, so 10%, 12% loans, and then you buy a business like Airtable. But that means you have to pay a $100,000,000 in debt payments per year. If interest rates go up and some 90 some odd chance they're gonna start going up, what does that do with the business? Does it throttle a little bit? And 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 like two other players?
00:10:36 · Luca Ferrari
[00:10:36] S0: Yeah. So that is an an accelerant to our growth. We would still grow up pretty fast if we only use free cash flows, our free cash flows, but definitely being able to use that is is a good thing, prudent levels of that. And and I would say, I will give you like two parts. First, the the risk with the existing indebtedness. So all of our debt currently, the the average cost, the blended cost is about 9%. Give or take, and it's fully hedged. Increases in in interest rates would not impact our cost of debt. It matures in 2031, 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. 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 nine, but it's not... It doesn't break the model. And, you know, and the second aspect is typically when interest rates go up, the value of of of assets go... Goes down. And so, as a serial acquirer, think we're more likely to benefit more from the lower valuations than the higher... Now, that depends. I'm generalizing and simplifying a bit, but overall, we feel we are fairly well protected and, you know, robust when it comes to to indebtedness. When it comes to competition for acquisitions, we have... All of the processes we have participated in have had other 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're seeing private equities web historically down software actually raise less capital to do the same. And so on balance, we may be better off. It's also, I think, important to to note that it's it's really painful and time consuming to replicate what we've built Cause a 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. You... A lot of the value we create is thanks to those 800 odd people. We have pain...
00:12:48 · Luca Ferrari, S1
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 five years other than thirteen, but not in two months. So I I think we will face competition, but I'm pretty optimistic.... [00:13:11] S1: If I may. 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 gonna make the model x. We're not gonna make the model x. We're gonna convert those to optimists. 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. So what is the expectation for your brands? Do you wanna create cutting edge, you know, version twos of Eventbrite 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.
00:13:57 · Luca Ferrari, Chamath Palihapitiya
[00:13:57] S0: Yeah. So I think if if you can have a founder with that, you know, level of of passion and and that mentality is, you know, nine times out of 10 will be a major net positive. The... Generally, when we end up acquiring companies, these are businesses that that have been around for ten, twenty years, even more than twenty 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 I wanna 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 under previous ownership. Obviously, if we could have exceptional founders stay on board and pour their hearts into it, it 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, the people are generally looking to move on. [00:14:57] S3: If you bring us to the m and 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.
00:14:57 · Chamath Palihapitiya, Luca Ferrari
[00:14:57] S3: If you bring us to the m and 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. [00:15:15] S0: Yeah. So I think there's qualitative criteria we use to slim down the the long list of businesses that would be interesting targets. One is scale. We... The the... That process of very deep integration and and and profound transformation takes a lot of operational effort. So we can 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 in earnings, and it's a big topic in and of itself, but we like businesses where we are pretty confident we can project there at least, you know, the next five or six 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. [00:16:07] S3: Does value include the integration with these other assets that you have or value just means economic value operation?