The Neon Show
00:18:06 · Siddhartha Ahluwalia, Luca Ferrari
[00:18:06] S0: And what was the first acquisition of scale that you did? Like maybe more than $100,000? [00:18:17] S1: So I don't remember the one bigger than a million dollars. I will say Splice, for example, our video editor, 2018, so a few years after the foundation, that was in the millions of dollars. There might have been others a little bit bigger than the threshold you set and smaller than Splice. Now I don't remember frankly exactly. But think Splice perhaps, you could look at it as a bit of a turning point. There has never been a major inflection point for Bending Spoons. Mostly each year has been a little bit better than the previous year. But I would say Splice was perhaps, you know, the first acquisition from a substantial seller GoPro, the action camera manufacturer. At the time, by our standards, a very substantial business. [00:19:16] S0: And you always acquired mostly consumer software businesses. [00:19:22] S1: Yeah, we saw an opportunity in consumer software. Over time we have done more kind of professional individual user kind of businesses, product led B2B. And we're looking with interest into enterprise, although that's not an area where we have built a muscle but that's a muscle we'd love to develop in time just to expand our target markets. But yeah, as long as it's a digital business, we tend to be interested. [00:20:00] S0: And today, if by product wise you have to see which are the top three or five products that contribute maximum to the revenue and by what percentage? So we own
00:20:00 · Siddhartha Ahluwalia, Luca Ferrari
[00:20:00] S0: And today, if by product wise you have to see which are the top three or five products that contribute maximum to the revenue and by what percentage? So we own [00:20:13] S1: around a 100 products. The biggest one by revenues is Remini, AI driven photon enhancer and generator. It's around 20% of our revenues. Evernote is close, also around 20%. Splice, ChemSoftware maybe 12% to 14%. And then we have Meetup, StreamYard and many others. It's a long tail of many many contributors. There is no single champion though. [00:20:47] S0: But the majority of the revenue 50% is just by the top three products. [00:20:52] S1: Yeah, three-four products. It will be around 50, 60%. [00:20:56] S0: Got it. And as you think of, you know, in the next few years becoming a billion dollar revenue company or a $23,000,000,000 revenue company, do you think this ratio will remain the same? Or you will go and acquire a $304,100,000,000 revenue product?
00:20:56 · Siddhartha Ahluwalia, Luca Ferrari
[00:20:56] S0: Got it. And as you think of, you know, in the next few years becoming a billion dollar revenue company or a $23,000,000,000 revenue company, do you think this ratio will remain the same? Or you will go and acquire a $304,100,000,000 revenue product? [00:21:10] S1: It's a big debate we have. I think my position which I may be proven wrong, I may change my mind is that we should focus more on big targets than on small targets. Because our approach is so operationally intense. Every time we perform an acquisition we get our hands dirty trying to look at the business almost from a blank slate, make pretty deep changes that are extremely time consuming, challenging, even painful to do. They don't get a lot easier if the business is smaller. So it's probably better to take care of relatively fewer acquisitions but make sure each matters more. So a long way to say I believe we will do... We have been doing bigger acquisitions all the time, so I think that trend will continue. But perhaps as we as we go there, we'll see there are better ways. But right now that's the hypothesis. [00:22:12] S0: What is the biggest acquisition by dollar value that you have done till now? [00:22:15] S1: We we don't share purchase prices but in in the hundreds of millions. [00:22:20] S0: I believe it might be Evernote or one of the top three products.
00:22:20 · Siddhartha Ahluwalia, Luca Ferrari
[00:22:20] S0: I believe it might be Evernote or one of the top three products. [00:22:26] S1: Well, what I can say is that these days we tend to look at things in the price range 50,000,000 to 1,500,000,000. That's the range we operate at. But if you had asked me two years ago, it would have been a lot lower and hopefully in a couple of years it's a lot higher. [00:22:41] S0: And on these assets that you acquire, usually what's the revenue multiple you tend to give on these acquisitions? Or is it different across different categories? [00:22:54] S1: No. It's... There is... There are many factors. We we try we try to project future value creation cash flows and it all depends. Can the business grow a lot? Is it declining? What about organic traffic? So there is no single... The range is quite wide. What I can say is that to my knowledge every single time we have bid, we have made an offer, we have either acquired the business or the owner chose not to sell it. That's to say we have historically been by far to my knowledge the best bidder. So and that's because our approach, our deep integration enables us to create more value than nearly all other acquirers including all financial acquirers such as a private equity. So we tend to be the best place, the best house for a business when it comes to a seller's perspective. We're very decisive, fast and again, to my knowledge so far 100% of the time the highest paying bidder. So I guess any multiples that someone has in mind, we may be able to top those, but it's it's not a hard and fast rule of course.
00:22:54 · Luca Ferrari, Siddhartha Ahluwalia
[00:22:54] S1: No. It's... There is... There are many factors. We we try we try to project future value creation cash flows and it all depends. Can the business grow a lot? Is it declining? What about organic traffic? So there is no single... The range is quite wide. What I can say is that to my knowledge every single time we have bid, we have made an offer, we have either acquired the business or the owner chose not to sell it. That's to say we have historically been by far to my knowledge the best bidder. So and that's because our approach, our deep integration enables us to create more value than nearly all other acquirers including all financial acquirers such as a private equity. So we tend to be the best place, the best house for a business when it comes to a seller's perspective. We're very decisive, fast and again, to my knowledge so far 100% of the time the highest paying bidder. So I guess any multiples that someone has in mind, we may be able to top those, but it's it's not a hard and fast rule of course. [00:24:17] S0: And in the journey of compounding to $600,000,000 of of revenue, what's been your biggest lesson, right, in scaling these products?
00:24:29 · Luca Ferrari
[00:24:29] S1: Well, there are many lessons, but I believe in general trying to to be independent thinkers. Emulation can be useful and we certainly emulate a lot of virtuous ideas and behaviors. If it's your default mode as opposed to being imaginative, entrepreneurial, you're unlikely to find ways to be better than most and therefore build something remarkable. So trying to stay independent in your thinking, try to be as rational as possible. It's a company value actually to of course we're human beings. Have emotions. Emotions are great by the way. They make life interesting. But when it comes to making a business decision ultimately we need to be able to park them aside and be clear minded. You're never perfect in that but just being aware of your biases, fears, preferences, and trying to offset them is quite valuable in a world of irrationality, rashness, imprudence, and illogical and irrational behavior in general, which is the standard. It's a fairly general lesson but it's much more powerful than some more tactical things. Then, yeah, the value of people. We have always believed, so I can't really say this is something we have learned as we went but I guess we have confirmed it. It's important to... Once you have a strategy that makes sense or has a chance of winning, the quality of the team, the culture you establish are by far the most important factor in determining how well you do. And most companies, most management teams will tell you they take great care of creating a great team and a great culture, but in reality level of investment they make in it is not consistent with their claim. So that's also something we try to do extensively, Perhaps these these points.