The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:06:48 · Luca Ferrari
[00:06:48] S0: Yeah. So connecting to your previous question, so the three of us, we started it, we didn't have any money, we had this agreement whereby we... All all three of us would look for a job, and then whoever got the most lucrative job would work and pay for food and rent, and the others would work full time and then once we we get an investment or some sort of ability to do without the financing from the person working, you know, that this person would join full time. So I I ended up getting this offer from McKinsey. I told them before accepting that, you know, or as I accepted that I meant to work and start up part time and then resign as soon as we hopefully got this investment and they... I thought it would kick me in the in the ass and tell me to go away, but they were great actually. They told me this is awesome and we love the ambition and this works for us. And so, I worked there for about a year, I think a year and three months give or take. And then I was working nights and weekends in my vacation also on Evertail. I like to joke that once I joined full time, made it fail very quickly. We immediately pretty much started Bending Spoons on the ashes of of that startup. Can I ask, what was the insight with Bending Spoons? It was a straight off transition to founding Bending Spoons. What did you believe? What did you see? What was that opportunity set? With Evertail, we went the usual path. You have an idea for a product. You focus on building that. You hope it finds a fit with the market. It grows, and you're successful, and the rest follows. We took the opposite direction, as in we focused on building a platform of technologies, know how, company culture, employer brand, fully optimized, not for launching a product or specifically a technology product, but acquiring a product that has shown fit with the market, but where we feel there is some, you know, substantial untapped potential and then we work to try to unlock that additional potential. So that's a very different approach. We let others seek product market fit, and then we... If they will sell it to us, we will acquire their company and try to make it even better than they they have made it up to that point.
00:08:48 · Luca Ferrari, Harry Stebbings
The reason why we we took that route, think, is precisely because we crashed and burnt by being arrogant in thinking we knew what the market would want and we could build it for them. And it turned out we were wrong, and so we we decided to see whether a different direction was more efficient for us. [00:09:04] S1: Can I ask a weird question, which is how do you determine what has product market fit or enough signal to be interesting? Because things can be volatile, things can be transient short term. How do you determine whether an asset has enough signal to be interesting to partner with? [00:09:20] S0: The assessment process is fairly sophisticated, but, you know, the very simple way of summarizing it is to say we like user base, a customer base, a recognizable brand, or good positioning in a distribution channel. What was the first product? And how did you acquire [00:09:37] S1: it given you didn't have funding or money?
00:09:39 · Luca Ferrari
[00:09:39] S0: The company, we founded it with around $40,000, which was the leftover capital from Evertail. And then the Venture Capital firm at the time preferred to sell their... The money would have been theirs because they had liquidation preferences, it's pretty typical for a VC deal. And for them, it was more of the hassle of going through the liquidation process for $40,000 and paying low... For lawyers and all that. And so they sold their shares to us for, I don't know, a euro, I think, or something. And then we liquidated Evernote, and then we founded with a different group of people, as I mentioned, the same three founders plus two employees we had at Evernote. We founded Bending Spoons. The first product wasn't wasn't... And I think the first two or three were not, were very simple apps. The first one I remember because I coded it myself with one of my co founder co founders. I think it was called Fontsy. It was a very basic fonts app. We built it in like a few days and, you know, neither of us was an expert software engineer. So long story short, I think we made around 10,000 in all time revenues from that particular app. Launched another one or two, maybe one slightly more successful, maybe made a $100,000 from it. But soon enough, we made our first acquisition, I think early twenty fourteen. So we're talking maybe six or seven months into the startup at the time. It was for a keyboard app, paid $15,000 for it, and we managed to make it grow a little bit. And then we invested the proceeds into building team and learning few more things and building some in house tools. Bought a new a new, you know, high potential larger app. Rinse and repeat, compounding all those things over a decade now. I mean, we're going for eleven years in a few months. We've gotten to a much bigger scale.
00:11:23 · Harry Stebbings, Luca Ferrari
[00:11:23] S1: Luca, when did you know that you had something? [00:11:25] S0: When did you sit down with your other two cofounders and go, this is working. We have enough signal. So on the one hand, we were pretty confident early on, but it was mostly based on some observation and first principles. We didn't have a track record. On the other hand, I tend to be paranoid by nature, so I always second guess myself and and wonder if there isn't some huge risk lurking in the shadows. So I I don't know. I've never... Not even today am I massively confident. So I think our level... At least my level of confidence, I can't really say for the others, has more or less remained between decent and good, and it was never super high or super low for for the whole of this decade. [00:12:04] S1: Do you think that's a European mindset? I don't mean that really, Luca, but I spend so much time with, you know, US founders, and it's just we're gonna dominate from day one. We're gonna change the world. It's all gonna work. Do you think that's an inherently European mindset of being much more even?
00:12:04 · Harry Stebbings, Luca Ferrari
[00:12:04] S1: Do you think that's a European mindset? I don't mean that really, Luca, but I spend so much time with, you know, US founders, and it's just we're gonna dominate from day one. We're gonna change the world. It's all gonna work. Do you think that's an inherently European mindset of being much more even? [00:12:19] S0: So I don't know. I would say the level of ambition has been wild since the beginning. We... Pretty much day one, I remember I was sending emails to people we wanted to hire, and it was really honestly so that our goal was to build one of the best companies of all time, one of the largest, most admired and positively envied. I mean, course, ambition is quite subjective, but at least from my perspective, that's high a level of ambition almost as you can have. So we didn't lack ambition, but yes, maybe we were not bullish about our ability to get there, which might be European trade. In terms of [00:12:51] S1: the bootstrapping nature, why did you decide to bootstrap? You were three very smart guys, I'm sure you could have raised. Why did you in those kind of in between periods, 2014 to 2019, why did you not raise?
00:13:04 · Luca Ferrari
[00:13:04] S0: I guess you can always raise, but I don't know that we could have at sufficiently appealing terms. Consider that we were three people with a failed startup behind us building a technology company in Italy, which had a negligible VC scene and attracted absolutely no interest from international venture capital firms with a strategy that was, as far as I can tell, unheard of. To this day, I don't really have a comparable company. I mean, there are... Of course, you can come up with examples, but nothing that's really spot on like what exactly what we do. And so we felt our likelihood of attracting capital at sufficiently appealing terms was very low. To this, you have to add, we really wanted to build this with a multi decade decade view and we felt that it was quite dangerous to relinquish control so early. Of course, we would have done it had the terms being sufficiently appealing. And lastly, we could afford not to. I mean, that's a big factor. If you if you are building a business that's losing money and you expect it to lose money for for a while, then there's no other way. Right? For better or worse, we had a model that, you know, maybe was more... It's not the fastest growing model. We never grew by 300% in a year ever, you know, like, so it was more of steady pace. On the flip side, we were cash flow positive early on. At least, we know we made it so, and so we could afford not to raise.