Invest Like the Best with Patrick O'Shaughnessy
00:09:31 · Luca Ferrari
[00:09:31] S2: That happened constantly. At the very beginning, we actually had another startup called Evernote and that was a failure. We learned a lot and actually the strategy for Bending Spoons we came up with it through the failure of Evernote. At the time with Evertail, we raised about €1,000,000 all in all and VC money and ultimately the company was about to go bankrupt. We had about €40,000 left. That money belonged to the VC because of liquidation preferences, but it was too little for the size of that fund. And they told us, look, it's just too much hassle and legal cost for us to go through this administrative process of liquidation. You guys worked, you were honest, worked as hard as anyone could demand of you. You keep the money. We'll sell our shares to you for a nominal €1 and you'll probably get something after taxes from it and just go and get a nice vacation. We're sick in the brain and so rather than going on vacation, we took whatever we could and that was a seed capital for Bending Spoons twenty thirteen. It wasn't a lot of money. All of us lived in the same apartment, very low burn rate, very low, as low as it gets still. 40,000 you don't do much. Particularly as our vision was to acquire companies, CapEx intensive, at the beginning. You can't use debt because you are nobody and you don't have a track record of cash flow. And so we figured we need a source of cash to kickstart our acquisitive strategy. We figured certainly the easiest way is to just write software, build products for third parties. We are decent at programming and design. We should be able to do that. It seems like an easy business to start, maybe not to scale to gigantic
00:11:05 · Patrick O'Shaughnessy, Luca Ferrari
[00:11:05] S0: To get some cash, yeah. [00:11:07] S2: Especially, our co founder and I spent a good three, four months, twelve, sixteen hours a day just emailing anyone on the planet and cold calling people. We offer discounts, we're like, just hire us to do something. I swear to God, we couldn't get anybody, not a single soul hired us to do anything. The only contract we got was for about €10,000 from essentially a friend of one of my co founders who I think took PT on us and said, Yeah, we need an app for our small chain of burger places. We'll give you €10,000 to build it. So that was an after failure. I remember the stress levels with after working our ass off for three years on the startup which failed. Having this little money to try to make the dream come true and failing miserably at this sales effort, I had a real breakdown. I remember, I don't cry much. I cry maybe once a decade. I cried. I had a moment where I cried at that point. I remember I left the office, I just had to cry because I was like, Goodness, it's been like three and a half, almost four years where we've been working like a hundred hours a week and we have nothing to show for it. So that was a massive challenge to my resilience and I owe it to one of my co founders who I think is naturally more optimistic and has better perseverance than I do. And he comforted me and we said, Okay, at least we're in this together and just keep going. So we did and of course I'm happy we did. That was a pretty low point.
00:11:07 · Luca Ferrari, Patrick O'Shaughnessy
[00:11:07] S2: Especially, our co founder and I spent a good three, four months, twelve, sixteen hours a day just emailing anyone on the planet and cold calling people. We offer discounts, we're like, just hire us to do something. I swear to God, we couldn't get anybody, not a single soul hired us to do anything. The only contract we got was for about €10,000 from essentially a friend of one of my co founders who I think took PT on us and said, Yeah, we need an app for our small chain of burger places. We'll give you €10,000 to build it. So that was an after failure. I remember the stress levels with after working our ass off for three years on the startup which failed. Having this little money to try to make the dream come true and failing miserably at this sales effort, I had a real breakdown. I remember, I don't cry much. I cry maybe once a decade. I cried. I had a moment where I cried at that point. I remember I left the office, I just had to cry because I was like, Goodness, it's been like three and a half, almost four years where we've been working like a hundred hours a week and we have nothing to show for it. So that was a massive challenge to my resilience and I owe it to one of my co founders who I think is naturally more optimistic and has better perseverance than I do. And he comforted me and we said, Okay, at least we're in this together and just keep going. So we did and of course I'm happy we did. That was a pretty low point. [00:12:29] S0: Didn't you have to get a job at McKinsey at some point to fund everybody else? The previous startup. Oh, okay.
00:12:34 · Luca Ferrari
[00:12:34] S2: Yeah, it's a cool store. At least I think it's cool. So we graduate two friends of mine, Francisco Mateo, who happened to be co founders of Bending Spoons too. And we have this idea of building this Evernote company. The idea was to create a self rising diary of a user's life with AI. This is 2010, so AI was... Nobody was talking about AI in 2010. And interestingly, you were very early on AI, too early in fact, because the product just didn't work well because you didn't have machine learning, at least not a way that you could scale for users. We had no money whatsoever because all of us essentially come from pretty low class families, whatever you want to call it. We didn't have a lot of money. And as much as we didn't have an idea for a business that would require a billion dollars in CapEx like a lot of startups today, we certainly needed some money at least to eat and pay for rent. So we decided, okay, the three of us were going to look for a job. Whoever gets the most lucrative offer goes to work and pays for rent and food for the other two. Once we raise seed capital, VC money somehow, then this person would resign and join full time and then we go and conquer the world. So we all look for a job and I get an offer from McKinsey, which was by our standards at the time, lucrative. And so I said, okay, this is perfect. I'll be the one paying for rent and food. I'm capable of not being transparent, let alone lying. So I had to tell the partner at McKinsey that I would be working on the startup on the side. I thought it was unwise in many ways because I was absolutely certain they would withdraw the offer, but I'm like, I just can't. He feels dishonest. Actually he was enthusiastic and he encouraged me and said, Absolutely, we'd love to have you and if and when the startup takes off, wish you the best and thank you. I was very grateful. I still have a very fond memory of McKinsey. For that reason, I like a lot of gratitude and worked there for about a year, then we managed to raise initially €500,000, then another 500,000 later from a VC and I completed my project and I resigned.
00:14:18 · Patrick O'Shaughnessy, Luca Ferrari
[00:14:18] S0: Willingness to do anything to get going. I've never heard that before one person funds the other two to be building and then you join them on [00:14:24] S2: the There was no contract, nothing. Yeah. A 100% just trust. I don't know. I just think it's really a good way to live life. Sometimes you get some sour moments because of it, but it makes 99% of it so much more enjoyable if you don't have to be too transactional. [00:14:38] S0: Between Evertail and Bending Spoons, where did the insight come from to be an M and A driven acquirer of businesses rather than building them?
00:14:47 · Luca Ferrari
[00:14:47] S2: So EverTail was your startup by the book, meaning this idea that probably won't work but if it works could be huge and very innovative like nobody had attempted as far as we could tell anything like that before. And so we worked super hard on that project for about three years. And naturally as you are a start up or when you do something, I think you tend to network with people in a similar situation for a bunch of reasons. And so over time we got to observe probably a couple dozen teams go through similar journeys as we did. And through that observation, we saw that of course most failed, which you would expect, and maybe three or four had levels of success. We saw almost no correlation between the teams we considered more talented and more hardworking and those who come out on top. And so we concluded it's not a huge sample, but probably to go from zero to one, luck plays a huge role. There are so many factors and variables that even if you're a genius and you work your ass off, the stars will probably not align for you anyway. Whereas at the same time, we also found that our skills at all the functional things like software engineering, AI at the time for what it's worth, product design, product management, marketing, although they were still pretty crude three years later, they were night and day relative to when we started. We were on a clear path to, I'd like to think, excellence. And so we thought being really good at the functional knowledge and skills necessary to run a digital business is probably a matter of, assuming you are reasonably talented, a matter of perseverance, effort, discipline. We can bet on that. We don't want to bet our entrepreneurial lives on getting lucky. So why don't we try to be excellent at the functional things and then buy businesses from people who maybe got lucky or they're very good but they also the passions change between going from zero to one to two to 10, like it's a different job. And so maybe there are very talented people who have gotten far, they're just a little bit fed up with it, they're not interested in running the next phase of it. We should be able to find situations where it's a great deal for both parties because of these factors. That turned out to be true and now in hindsight, twelve years later, there is a lot more to it.