Invest Like the Best with Patrick O'Shaughnessy
01:03:25 · Luca Ferrari
[01:03:25] S2: Varies by period a lot. So for example, if when we close a large transaction, I'm often there with a task force in the trenches meeting the new team and for weeks or even months sometimes that would take up 50% of my time or 70% of my time. If we're working on a big fundraise, we just raised the largest debt round of any private company in Italy in history. And like we said, we raised $700,000,000 at an $11,000,000,000 valuation in equity. These two initiatives certainly took a substantial part of my time. When we're not in fundraising mode, the DAG goes down to trickle, maybe have some calls with investors but much less. So it varies. But I would say probably a fair split would be 50% of my time talent. I check each candidate before we extend an offer. I extend the offer. I talk to many of the new hires. I help with talent density, I help trying to push for being demanding. So that's probably 50% of my time. 50% of my time is on average in time probably financing and external relations, I would say. 50% of my time is these transformations of companies we newly acquire. And 50% of my time would be other, call it long tail platform work, which is probably where I would put that thinking creatively about improving the strategy. I work all the time, so I probably work as two FTEs like I think most people in my position would. But it's probably these four categories are comparable in investment on average in time.
01:04:49 · Patrick O'Shaughnessy
[01:04:49] S0: What did you learn during this biggest ever debt raise? Most of the people that I talk to for this are raising equity capital. I haven't had a lot of conversations with people that have raised lots of debt capital for something like an acquisition. I'm curious about the whole process and how you would compare and contrast equity versus debt markets from a raising perspective.
01:05:07 · Luca Ferrari
[01:05:07] S2: The mindset is quite different because an equity investor tolerates the risk of losing money vastly better because they have an upside that's essentially uncapped within reason. A lender is almost entirely intolerant to the possibility of losing because their upside is that 3% spread, 5% spread. Depending on the exact financial instrument, it's still a limited and generally fixed upside they have. It's all about not losing it. So a lot of the questions are more oriented toward understanding the potential worst case scenario and the risks. Equity investors are more oriented toward the TAM, how big could this be, how quickly could we get there. The surprising part is a lot of banks, a lot of lenders are actually quite visionary. I heard people say, Well, they're probably more boring. No. A lot of them are brilliant and visionary. They're quite curious about the model and how far it could go and understand very quickly why it works. I thoroughly enjoyed my conversations with lenders, at least as much as those with equity investors. Perhaps because they have this, they have to be so paranoid about the downside, this breeds in them a thoroughness, a thoughtfulness that's not always the case with equity investors for whom maybe that intuition of, Oh, this team, this thing could go far is more important. Like catching the big wins is more important and so they can be wrong more often so they're maybe a little bit more quicker in their judgment a bit more. But I think lenders are quite an interesting type of investor to talk to. And generally it works that you talk to a couple of anchor lenders, some of the biggest banks, typically those with a strong investment banking arm too. They help you figure out what kind of shape they're around. They commit some of the money immediately so you know you've got some of it covered and you know where you're going. And then you start bringing under the tent more players with other important roles and then lesser roles and at some point it's just providing capital. And typically some of this capital is basically it's with that lender, it will stay with you until maturity five or seven years down the line. Some of this capital you may want to syndicate.
01:07:06 · Luca Ferrari
The lender tells you, Okay, I'll give you a billion dollars, but we agree that in the short term we'll be going out to sell away essentially this billion dollar to many providers, each with $1.10 dollars 50,000,000 each. And they'll hold it for five years or seven years, but I'm just giving you a bridge to that moment. You need the money now, you're doing M and A for example, and we don't have time to talk to 20 parties plus. It would certainly leak that you're buying that target. So I help you get there, but then we agree contractually that we'll be transferring that credit from me to these other lenders. So that phase is also interesting and it's quite optimized because the debt markets are huge. It's gigantic and vastly more efficient probably than the much smaller VC capital markets. And so the process of how you take that credit from the point of view of a lender and syndicate it out is super standardized by now. You create a deck, you record a presentation, you show up for one hour, maybe three times with batches of lenders. Like it's super, super standardized, very efficient.
01:08:05 · Patrick O'Shaughnessy
[01:08:05] S0: I'm so curious what you think about what I would call almost like a religious debate right now in the world of software, is how AI will affect the sorts of businesses that you've bought historically. Will it enhance them? Will it hurt them because it's easier to create replicas or copies or new versions? We talked about Remedy earlier, which is an app that you bought before ChatGitio that I'm sure has benefited tremendously from the advent of AI. How does this new tidal wave of technology impact your old businesses, how you think about new businesses, just your take on it in general?
01:08:38 · Luca Ferrari
[01:08:38] S2: Yeah, it's a complex discussion and I think you're asking maybe a timeframe of five years because AI changes the very fabric of our society fifty years out or something like a long timeframe in ways that are both exciting and scary. But in the medium term, think for Bending Spoons specifically, I think it's mostly a good thing because we don't care too much about within reason the risk to each individual piece of our business. Basically most of our business units are 20% of our revenue or less. A dramatic decrease in one of them is still, yeah, we've been growing at 75% a year, I'd rather not have them decline, some do, some will. Maybe one or two will decline fast. It's undesirable but not existential. So for our model, it's highly diversified. Lastly, a lot of what we do is being better, functionally better at running this company, meaning having higher quality output at a lower cost across the functions, engineering, design, product growth. AI is an accelerator of both quality and efficiency if used properly, but it doesn't do it by itself. Maybe it will in ten years but today we've seen it clearly as we have invested internally in excellence through AI in our operations. A lot of it is custom integrations, proprietary technology, a lot of culture work on getting people to use it the right way. So like with every innovation in the past, we'll see a small percentage of companies being at the forefront of leveraging that. Most companies being laggards. And I'm pretty confident Bending Spoons will be at the very cutting edge of using it. So we're already making strides there. That if anything, the gap in ability between us and most companies will widen for years. But again, I think it's likely to mostly benefit an aggregator and consolidator like Bending Spoons, assuming we stay disciplined with pricing, while being very disruptive for certain verticals. And some will be disrupted much earlier, I think we as a society and investment community will be able to start seeing things and update our model of reality and predictions based on that. Now, can it be disruptive for many SaaS businesses? Absolutely. I think the time where we open up ChatGPT and we tell it, Okay, build me Jira as far away. It's not months away. It's not even a couple of years away.