00:12:58 · Luca Ferrari
[00:12:58] S2: I mean, it's critical ultimately, you know, you build products for customers and that's... You know, it's customers who pay you and give you a business. So listening to what customers want is is paramount. Ironically, I think that Bending Spoons does so more than most companies while our reputation often it's it's more like we're more ruthless in optimizing and sometimes do things that piss off some customers. A lot of companies in my experience actually don't build things primarily because they think customers really need them, but because they think they are interesting, exciting, they are more passion driven. We try to be 100% focused on creating value for users and customers and then monetizing as a separate, let's say, pursuit obviously. There... You're... Think you're never gonna be wrong if you spend time with customers and really understand what they're trying to accomplish and try to to give them that. It doesn't mean that you take the how from them because sometimes customers haven't put a lot of thought into it or they don't have the skills to tell you what the ideal user experience would be like, but the their goals, excites them, what they need, they tend to know better than you do if you ask and listen carefully, I think.
00:14:13 · Anish Acharya, Luca Ferrari, Erik Torenberg
[00:14:13] S1: Yeah. Really interesting. I agree. A lot of things tend to get built. They get... The story gets told as if they're built for customers, but in truth founders build things that are intellectually compelling to them. Has your taste in problems changed over the years or taste in opportunities the type of company you want to acquire your intuition for it? [00:14:32] S2: Maybe. I mean, I suppose so. We all learn as we go through life and do things and reflect on on what we fail at and what we we we succeed at. Yeah. I guess not not in any extremely concrete way that I can that I can think of. Right now, I I tend to get excited about problems in general and and finding creative solutions to problems. I'm I'm not as motivated by what let's say broader society may perceive to be to be cool. So my taste in companies if that's what you mean has not really ever been oh, this is a sexy brand or... But if the problem is complex and solving it would create a lot of value then I I get excited. Even if the company itself, like AOL, feels old and legacy, I actually find the AOL acquisition incredibly exciting, one of the most exciting frankly [00:15:36] S0: for us. [00:15:36] S1: Amazing. Well, let's talk about the portfolio. You know, you had mentioned acquiring 50 companies. That right? [00:15:42] S2: Yeah. 50 acquisitions approximately. Yeah. Maybe 60 at this point.
00:15:42 · Luca Ferrari, Anish Acharya
[00:15:42] S2: Yeah. 50 acquisitions approximately. Yeah. Maybe 60 at this point. [00:15:45] S1: Incredible. And obviously, the portfolio lets you do things that any single product CEO can't do. You know, you talked on the David Senra podcast about being able to take these expected value bets where the payoff is outsized, but the sort of downside is you may lose your job as the CEO of a single product company. Do you think that CEOs of single product companies irrationally overweight the probability of things going wrong? I mean, if you were to go back and do your single product startup again, would you change the way that you approached your investments? So I
00:16:16 · Luca Ferrari
[00:16:16] S2: mean, I like I said, I I I did co found a single product startup when we failed. So clearly, we reached... We took a lot of risk. Think the short answer is no. I think that there are probably executive teams that substantially miscalculate risks. But I think primarily the reason why they don't take some risks isn't because they got them wrong by 20%, but because they hate the median case. And they should. Look, it's like if you're a VC and you may be better positioned than me to to elaborate on this, but you may want ultimately you invest in say 50 companies you what you care about is the overall returns from the portfolio and you you may want each of these companies to go 100 miles per hour against the wall and you know that the four or five who get to go through the door, which is very narrow, win a 100x and the others will crash and burn. Whereas if they had taken it more slowly, would have lost the opportunity of winning, but they probably would have had better chances of being somewhat sustainable, decent businesses. You as a VC, the more cautious approach is bad because your expected outcome gets worse and your median outcome doesn't actually get much better. But for an individual company, while their expected outcome would be better if they went a 100 miles per hour, their median outcome would be massively worse. It could go from I end up with something to I end up with nothing. Right? And so it's not irrational for some of these teams, whether it's entrepreneurs, professional managers to try to protect the downside against the downside a little bit because ultimately that's, you know, they only have one life and one career.
00:18:11 · Anish Acharya, Luca Ferrari
[00:18:11] S1: I mean, that's what I appreciate so much about what you guys do Luca, which is that for, you know, extraordinary companies that have been innovative and have achieved scale, you know, but perhaps haven't gone all the way to the stratosphere. They have an opportunity to keep building and creating value with Bending Spoons. [00:18:26] S2: Yeah. I think we are a a very important and perhaps missing up to now element of a healthy innovation ecosystem. Proof being that, you know, we... Every time we have made an offer to someone to buy their company either they chose not to sell or they sold it to us not to someone else. So when you have such overwhelming call it success rate Yes. It means you're really finding great product market fit in a way, like you're really solving a problem that people have. [00:18:57] S1: Yeah. Yeah. Yeah. Absolutely. So you've talked a bunch about sort of Bending Spoons in terms of the focus on clear strategy and extreme focus on talent. It feels like credit and capital markets has been a key part of what you guys have achieved as well. Can you talk about some of the lessons from leveraging debt effectively? Because some companies have gotten in trouble, and yet you guys have benefited and been so strategic in how you use debt and debt markets.
00:19:22 · Luca Ferrari
[00:19:22] S2: Sure. So... Well, for... Debt helps you basically do more sooner, faster and assuming your expected returns from those investments are higher than the cost of debt, it's always smart to take that with the... With one big caveat, which is assuming the risk of defaulting on your debt remains negligible. Cause obviously if it becomes significant then it's not a no brainer any longer that taking the extra risk makes sense. Now as an intellectually honest disclaimer, I think if you take, you know, companies that at some point went bust but hadn't had issues up to a certain point and you asked them, they would all come across as very bullish about their usage of debt. So we have been doing fine and have not even come remotely close to having issues with it, but it's still important to remain cautious because it's not the people who went bust thought they would as they raised the debt. I mean, I guess in some cases there were some perverse incentives to still raise the debt, but in most cases they thought they were fine and then things turned and they had issues. So I think it's important to be paranoid in general when when taking on any significant amount of debt. We have stringent limits. We self impose trying to keep leverage ratio well below three x. It's currently about 2.5, 2.4. Historically, it's been closer to two than to three. Always been in a position to be able to pay back 100% of our debt before maturity even under severely adverse scenarios. We try to refinance most of our debt every year to to keep maturity five plus years out. We hedge 100% of our debt against interest rate fluctuations so we know exactly how much interest we will pay in the future. We're highly diversified, we have a very high level of profitability and high cash conversion. So there are all sorts of things that mitigate the risks associated with leveraging up and and my assessment right now is that our risk of defaulting on our debt is close to zero. It's extremely extremely low and so we're better off having that debt than not. But again, cautious, don't overdo it particularly if you're not sophisticated and you don't fully understand the cash flow consequences of it. Start small, develop knowledge, good modeling, good processes and checks and balances and then maybe take a little bit more.