The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
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.
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?