The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:14:20 · Harry Stebbings, Luca Ferrari
[00:14:20] S1: Luca, how would you respond to me saying it's like a PE model? Buying distressed assets potentially, turning them around, and having a roll up play. Is that wrong? [00:14:31] S0: I would say yes. And I would say the main differences are the private equities typically, they focus on finding sufficiently cheap financing and then making some relatively high level improvements and then make a profit a few years down the line. In our case, we are incredibly hands on. So unlike a private equity, we rewrite the whole software or at least the most critical parts of the of the code base. We completely change the IT architecture. We redesign the user experience and the user interface. We add lots of features, remove other features, revise the marketing and monetization dramatically. It's almost like as if we built a product to launch it, but we do so on the foundation of an existing customer base or brand. So we're incredibly hands on. In fact, if you look at us, you know, private equity in their team, will have... Almost all of the people will be investment managers, for lack of better word. In our case, out of 400 people, at least 300 are software engineers, AI researchers, data analysts, data scientists, product managers. So we are a product and technology company operationally speaking, but we do have a second soul, and it's the capital allocation soul, which is the soul of a private equity. So we're... I think we're hybrid. It's almost like a private equity had a baby baby with Google or something like that, you know. That's the closest metaphor
00:14:31 · Luca Ferrari, Harry Stebbings
[00:14:31] S0: I would say yes. And I would say the main differences are the private equities typically, they focus on finding sufficiently cheap financing and then making some relatively high level improvements and then make a profit a few years down the line. In our case, we are incredibly hands on. So unlike a private equity, we rewrite the whole software or at least the most critical parts of the of the code base. We completely change the IT architecture. We redesign the user experience and the user interface. We add lots of features, remove other features, revise the marketing and monetization dramatically. It's almost like as if we built a product to launch it, but we do so on the foundation of an existing customer base or brand. So we're incredibly hands on. In fact, if you look at us, you know, private equity in their team, will have... Almost all of the people will be investment managers, for lack of better word. In our case, out of 400 people, at least 300 are software engineers, AI researchers, data analysts, data scientists, product managers. So we are a product and technology company operationally speaking, but we do have a second soul, and it's the capital allocation soul, which is the soul of a private equity. So we're... I think we're hybrid. It's almost like a private equity had a baby baby with Google or something like that, you know. That's the closest metaphor [00:15:51] S1: I can come up with.
00:15:51 · Harry Stebbings, Luca Ferrari
[00:15:51] S1: I can come up with. [00:15:52] S0: Some people have characterized it that way after Evernote, because Evernote, some people thought would qualify as such. But we have acquired a lot of products that were on the way up, some that were flat, some that were on the way down. We really don't have an opinion in that regard. Just... We just need the price to be right and the opportunity to improve the product to be significant enough. [00:16:12] S1: Can I ask you, in terms of capital allocation, how does capital allocation in Bending Spoons work? Because you have, you know, several different products, you know, Meetup, you have Evernote, you have Remini, you have a lot. How does that work? Is it like cash sits in Topco and then is allocated by you into sub products? [00:16:28] S0: Yeah. The cash is managed at the top company level. Yes. Not just that old resources, also our team members, you know, we were very fluid in that regard. The principle is simply to apply our resources to the next most valuable opportunity. So we will ask ourselves the question, if we were to allocate our resources, capital and and the talent we have available to this product or that product based on the backlog of ideas we have to improve the product and the marketing of the product, where would these resources unlock the most value on a per unit basis. And of course, that's an assessment that remains fairly noisy. That is the principle we try to implement in practice. [00:17:05] S1: Do you ever kill projects?
00:17:05 · Harry Stebbings, Luca Ferrari
[00:17:05] S1: Do you ever kill projects? [00:17:07] S0: Yeah. Yeah. Absolutely. If we feel that it's not working. I remember one particularly we built a few years ago that cost us a lot. I think we invested 6 or $7,000,000 in it, and we we we completely eliminated it. [00:17:20] S1: Woah. Talk talk to me about that. That's unbelievable.
00:17:20 · Harry Stebbings, Luca Ferrari
[00:17:20] S1: Woah. Talk talk to me about that. That's unbelievable. [00:17:23] S0: Yeah. Yeah. So that was four years ago, give or take. It was called Playyond and the vision was to build a kind of a Netflix of mobile games. So Netflix not not in the sense of streaming, but in the sense of you pay one subscription, you have unlimited access to basically as much content as you can possibly consume. We built a team. We licensed many games, 50 to a 100 games, some of which pretty significant games on mobile. The licensing was quite expensive. And we built an app for the user to be able to subscribe and then access the library of games. That's exactly case of us thinking, okay, this is... This cannot possibly fail because it's such a good deal. There's plenty of players spending hundreds of dollars a month to try many many different games, most of which are pay upfront, you don't even know if you like it in the end and we only ask for, you know, we have different price points and we tested all sorts of things, but you know, even the most expensive monthly subscription was maybe 10 or $12, so relatively inexpensive for someone who looks to play maybe at one hour per day. That's a very good value for money. And... But it never flew. The KPIs were terrible. We could never make it work. And then, roughly at the same time, Apple released Apple Arcade, which is almost the same thing. And we were like, oh my god, this is so unlucky. But you know what? I think it really didn't play a role in our product failing. Arcade is not a great success either.
00:17:23 · Luca Ferrari, Harry Stebbings
[00:17:23] S0: Yeah. Yeah. So that was four years ago, give or take. It was called Playyond and the vision was to build a kind of a Netflix of mobile games. So Netflix not not in the sense of streaming, but in the sense of you pay one subscription, you have unlimited access to basically as much content as you can possibly consume. We built a team. We licensed many games, 50 to a 100 games, some of which pretty significant games on mobile. The licensing was quite expensive. And we built an app for the user to be able to subscribe and then access the library of games. That's exactly case of us thinking, okay, this is... This cannot possibly fail because it's such a good deal. There's plenty of players spending hundreds of dollars a month to try many many different games, most of which are pay upfront, you don't even know if you like it in the end and we only ask for, you know, we have different price points and we tested all sorts of things, but you know, even the most expensive monthly subscription was maybe 10 or $12, so relatively inexpensive for someone who looks to play maybe at one hour per day. That's a very good value for money. And... But it never flew. The KPIs were terrible. We could never make it work. And then, roughly at the same time, Apple released Apple Arcade, which is almost the same thing. And we were like, oh my god, this is so unlucky. But you know what? I think it really didn't play a role in our product failing. Arcade is not a great success either. [00:18:44] S1: No. It's not. But what did you learn from that failing? I'm intrigued again there.