Bending Spoons CEO Luca Ferrari on acquiring AOL and the playbook for buying overlooked digital businesses

benchmarks, number one in competitive bake offs, number one ranking on G2. You can get started for free. Our next guest is Luca from Bending Spoons in the Restream waiting room. Welcome to the show.

Welcome to the show.

Good to meet you. How you doing?

Hello. Hi,

thank you so much. I imagine it's late there. Thank you for staying up late and uh coming and chatting with us. For those who don't know you, would you mind introducing yourself?

Of course. Uh one of the co-founders, the CEO at Venice Bones. And what we do is we uh look for digital technology businesses with unexpressed potential and then we acquire them if they'll sell them to us and uh transform them sometimes quite radically by rewriting big chunks of of the software uh rearchitecting the cloud infrastructure uh redesigning the UI launching a lot of lots of features uh optimizing monetization and marketing rebuilding uh big parts of the organization. So lots of hand hands-on work and then if we do it right uh we generate a lot of value we uh plug back into bigger acquisitions and strengthening uh with our platform. So basically our proprietary technologies our expertise access to talent.

The company's huge now 11 billion valuation. How did you get started with all this?

So I coounded a startup in 2010. Uh, interestingly talking about AI, we were trying to uh create a self-writing diary or journal with AI in 2010, which was pretty early. We couldn't I mean it worked fine, but it wasn't good enough. Uh, so that was like your typical startup. You work from a garage. It was really our, you know, living room in our apartment, but uh, more or less the concept is the same. We we worked on it for 3 years, couldn't make it work um uh commercially and uh then we kind of shut it down and uh through that experience we came up with uh uh the the strategy for Ben basically why don't we try to outsource uh looking for product market fit to the market. We try to be the best in the world at the call it functional expertise that's necessary to run a digital technology business. So software engineering um product design growth and all all the things and uh then we we buy businesses where the owner is basically doesn't want to work on it any longer or where maybe uh we can do better uh so we can offer an exciting price uh for all involved.

Is the reference is the name a reference to the matrix

actually? Yes. Yeah, it is.

Cool. Yeah, it it is it it feels like at least to me like it's kind of an odd name for any business. I it's cool. I like the reference, but uh why did you pick that name particular in in particular?

So, we we knew we weren't going to work on just one product. Okay. Uh so, we couldn't call it say Facebook. Yeah. If you do, you know, um

Yeah. You need like a name for a holding company on day one sort of.

Yeah. Something like that. So we we chose to to find a name that would uh somehow convey uh a couple of principles or values that we thought were important to us. Uh and bending spoons reminds us of two things. One is the power of the mind. Uh for obvious reasons if you are going to bend spoons with your with your mind it means you believe it's powerful and you can do great things with it. And the other one is call it uh perseverance, hard work, dedication. Uh in my uh imagination to to get to the point where you can bend spoons with your mind. you probably have to work pretty hard at it. So, and plus it was kind of memorable. So, we we liked it.

Yeah, I like it. Uh I I reached out or or one of us reached out when uh when the when the AOL acquisition got announced like give give us a backstory on on that deal, how it came to be, when you started thinking about the business, what what value you saw in the business and and maybe why it was a target that that was uh uh overlooked by by uh maybe American private equity players uh and and what you saw in There were multiple private equities that uh were looking at it too. Um so we weren't the only ones. Um you know it was owned by a private equity or it's still owned because the the acquisition was only signed. It hasn't closed yet. Uh and so you could imagine how they would run a proper competitive process. um the um typically we we follow a business for a long time before an opportunity to acquire it presents itself. I I don't have precise statistics but my my off the top of my head I'd say it's quite rare that we end up acquiring a business we haven't followed for at least a year sometimes more. Uh so we had been following uh AOL for a while and uh you know when when it it became available we we made an offer that we thought was quite competitive and here we are. Uh what do we see in it? So I think it's a it's actually a great business. People are a bit stuck uh in the with the idea of AOL from the '9s or maybe early 2000s of internet connectivity. It doesn't do that. Haven't done that for a long time. Um today it's two different products. There's a web portal for people to consume news and entertainment and and an email client like Gmail pretty much, you know, like that sort of thing. Uh they have well well in excess of 30 million monthly active users. Uh 8 million daily active users. Uh so it's huge. Uh give or take one in 10 Americans uses it. Um, and and it's just not necessarily, you know, the the new hot thing that you would read about online, but it's still massively used and, you know, very good retention because people are self- selected if if they still use it for really liking the brand and the offering.

And we, you know, nevertheless, we think we could help make the product more modern, uh, more effective. We think that through AI we could create better uh recommendations for the uh web experience essentially better content to consume. We'll see. But it's exciting. We look forward to working with the team on it. Uh plenty to to refine and expand. We it's it's and it's exciting to work on a story brand. You know, it's I find it kind of cool uh actually to be able to get our hands dirty with with with a brand of the caliber of AOL. Um

yeah, it truly is one of the great America Online. one of the great uh one of the great names in in business history. How do you think about uh like I feel like Silicon Valley like has this sense that uh businesses are either in hyperrowth or they're dying, right? And there's nothing in between. And that's just because like the industry venture capital dollars are deployed into companies that are growing really quickly and as soon as you stop growing like that that sort of source of capital is is turned off and you kind of fall out of the headlines. But how much like I assume a lot like the kind of part of the thesis for bending spoons is that a lot of these businesses are just like way more durable than like the tech industry maybe gives them credit for because even after they're not uh getting like headlines in tech crunch. They can still generate a lot of cash flow for a very long time. But how how do you think about like durability of of digital businesses and and when they be can can become sort of like lindy and and survive across decades versus when they uh evaporate.

Yeah, I would say I kind of agree and I and I will say that if anything a business that has a lot of history, it's a lot easier to project its, you know, its future and and and make accurate forecasts. uh maybe you know it's not gonna 10x but you also have a ton of data uh historical records for all the cohorts at scale to know roughly where it's going. So uh yes maybe the upside is not transformative as it would be in a seed or VC investment when if all the stars align you know maybe 10x or even 100 extra money but but you also know you're very unlikely to to seed melt in your hands. Uh yeah,

many of these businesses have excellent metrics. They're just not cool and hot so to say. Uh and so the entire capital markets particularly on the private side, not so much uh the the public side, but on the private side is geared towards growth, very aggressive growth. And there's merit in that, but it also means there's perhaps an opportunity to be less opinionated about growth at all costs. We we know on our part, we try to we're basically quite mathematical about it. We make our projections, have our own return thresholds and then we are happy to buy fast growing businesses. We have many times stagnant businesses, decline businesses as long as the math uh checks out and this has been quite good for us not not being too uh you know thesis uh you know limited by a very narrow thesis but actually staying opportunistic.

How are you uh structuring bending spoons? Uh do you have a deal team and an operational team that goes in and actually runs the companies or is it more of a you know a hybrid model where a partner who finds someone who finds the deal might uh be immersed in that company throughout the life cycle of owning the deal.

Yeah. So it's actually say that we're kind of 25% private equity 75% that company. So we do have an M&A team. It's actually pretty small probably eight nine people. uh and and they they do what you would imagine a private equity firm would do. They they create a pipeline, scout the deals, uh negotiate the deals, and then really probably 95% of the of the team here are software engineers, product designers, growth managers, AI researchers, and once we close a a transaction, we add a call it a task force of experts to get, you know, get in the trenches with acquire team and study things in fine detail and help with those kind of radical transformations I was describing earlier. So that's the tech technology company part. We almost all we do is writing software, developing and refining technologies, user experiences and we we buy to hold and operate forever. We're not a fund to be clear. More like a burial hat. We buy off our balance sheet. You never sold a business or do intend to.

So you so is it is it fair to think yeah you'll you imagine AOL and Vimeo existing as companies in 50 years or brands is 50 years or both like uh what is the critical

business units I would call it? business units. Okay.

So the the the the if a company is more a kind of a legal entity that may be uh dissolved in the future maybe yes maybe no depending on considerations but

the there there will be a business unit with its dedicated management team and engineers and designers uh and uh uh sorry I don't know why

that's on the other side zoomed

in we we just zoomed you in a little bit for the viewers at home. Sorry. There you can [laughter] you can see my baby's uh credle just in the background.

Oh, cool.

Nice.

Congrats. [laughter] We have we have five kids on our side. It's amazing.

Yeah. Mine is 2 and a half months old, so that's pretty intense these days.

Well, thank you so much for taking the time to come talk to us. We really appreciate it.

No, no, my pleasure. Thank you for having me. I' I'd love to know like what what what is it actually like buying a 5,000 person company or like because I imagine like if I'm like if you buy a company and you can actually go interview everyone but with 5,000 people you're like layers and layers and layers deep in everything like how do you actually go and start right sizing we've seen a little bit of what happens uh through the stories of Twitter what Elon did there uh obviously that was a that was a company that it seemed like post Elon was massively overstaffed. Um, but uh but even even even if the staffing is correct, I mean Apollo's owned AOL for a while, so I imagine that it's not wildly overstaffed. Um, how do you actually go in and and just get your handle on everything that's happening within the business because it's such an such a huge entity,

right? So, we have never acquired a 5,000 person company. the largest is about a thousand people. Okay. I think your your point stands I mean but just to for accuracy sake

uh well I think it's very difficult perhaps impossible to do if you are again a private equity and you have a small investment team.

Um in our case we will add a task force that's sized uh in relation to the size of the organization we're trying to study. And so if we acquire a 10,00 person company we'll probably have say 50 people. If it's a 100% company maybe as few as 10 and then over the course of couple of months uh you know we will split the work so everyone is in charge of understanding a piece of the organization that's not too big for like the right size for them and and specific to their capabilities and expertise. So if there is a more technical part maybe an engineer if it's something has to do with design or marketing you know and so on and so forth and then those people will be talking to each individual in in that part of the organization multiple times they will be looking at the code base they'll be contributing on ongoing projects so we take our time to learn uh I mean I was about to say everything there is to know of course that's not entirely true like you don't learn everything in two months but tr truly learn the vast majority of what matters and only then do we come up with say a a new vision for the company, a new road map, the a new design for the updated organization. Uh it is extremely time consuming and only feasible you have if you have a large call it corporate staff of of experts like in our case uh only only then can you do it at scale otherwise yeah you couldn't I agree.

Yeah. what how how much is like I'm assuming when you're thinking evaluating a potential acquisition you're thinking how much can this company benefit from AI and what is kind of the AI disruption risk oftent times it could be both I can I can you know imagine with AOL you're saying like better content recommendation that you could roll out maybe with with uh less resources invested but at the same time uh there's risk of new companies you know entering the market But what's your any sort of like framework that you're using to evaluate what companies are going to do well because nightmare scenario as you buy like a great business today and that becomes uh you know less relevant but there's also uh I I think Silicon Valley also maybe again going back to my earlier point around durability like there's companies from you know that that have been disrupted multiple times that can still continue to produce cash flow but I'm I'm curious what your framework is

yeah so I think there's I believe you can come up with plausible v visions for the future uh I mentioned earlier we were working with AI in 2010 where I I I didn't know a single other person who was interested in AI back then so I mean I'm sure there were many in the world but it was not mainstream so you know we did have a big vision for AI in the long in the long run it turned out to be way too early maybe a decade or more um so I'm I'm I'm a big believer in yes you want to have a vision for the future, but at the same time, if you think you know what's going to happen and especially over what timeline, you're very likely to be disappointed. So, I would never want to bet our future on those sort of uh assessments. What we try to do is uh evaluate whether a company is more or less likely to be disrupted and of course also enhanced through AI and that that's basically qualitative assessment. We try to embed that in our uh acquisition thesis but also we al always need a a contingency plan in case there is a uh very aggressive rapid disruption. So we need to make sure that we have ways to get back our investment uh in case we end up in that or most of our investment if we end up in that scenario. So you some businesses are structured in a way that if things don't go well, you you may be able to trade long-term health for short-term returns and at least uh salvage uh uh your investment overall. I mean, it's not going to be a stellar investment, but still you break even. So we we try to have a uh an escape route just in case things don't turn out the way we we think it will. And of course, the fact that we're so diversified, the biggest business we own contributes about 15% to our revenue. uh and they are across many different segments. Um we are massively less exposed to this sort of disruption than any company running a just one product no matter how successful that one product may be today.

Yeah.

Any any plans to create a Neocloud or anything of the sort or you guys like uh staying at the product level?

Uh no no such plans for for now. uh what's the Italian uh early

I want to dig I want to I want to dig into that a bit more just just out of curiosity because I'm I'm I'm assuming there's a lot of different players that would love to give you guys capital to help deploy uh cloud given that you're running a lot of you know companies that are going to be uh buyers of of compute and you have a track record of being able to deploy large amounts of capital is the decision to you like you the strategy is you're you're invested in a bunch of different companies, but do you like them to be the same kinds of companies and that like again is it just a mandate around digital products or would you one day branch out because again if you use the Birkshshire Hathaway comp it's like you've seen them buy everything from Coca-Cola to Google, right? Um and operate a bunch of different businesses.

Yeah. Look, I I think there's a trade-off between, let's say, there is a, you know, going back to Warren Buffett, a circle of competence as he calls it, where you you have proven you're good or very good, uh, better than most. And so, on the one hand, if you stay within that circle of competence, you're more likely to do well, but at the same time, uh, if you venture outside of it, you extend your, uh, toolkit, your capabilities, and the TAM, uh, grows with it, too. So there is a trade-off between uh expanding that circle over time while uh seizing the opportunity at hand with the what you already have proven that works. In our case we'll we'll be next year we'll probably be at make about 2.5 billion in revenue and uh the overall um the overall uh digital technology market is about $2 trillion.

Yeah.

So it's not exactly that we're saturating the opportunity here. So before we get into something we know very little about other than uh on a high level I I I think we should uh make sure that we are saturating the core opportunity. But yeah maybe in five or 10 years if we ever feel that uh we're getting too big for for the TAM and maybe we'll look beyond that. Who knows what will be

appealing then.

Uh do you think it's funny that the the US venture capital ecosystem is somewhat like offbalance sheet R&D for you guys? It's like they can deploy a bunch of capital into these categories, create good products like Evernote, and then you guys can come in and and uh own them for the long term.

Look, we when it comes to acquisitions, we're opportunistic. Uh I don't you know, whatever the market offers, if we think we can deliver great returns, we'll be happy to buy it regardless of the particular history. So, I don't know. I don't have other gratitude or any particular opinion on on that. You know VCs have many have done really well. I guess it's normal that at least in some cases uh their investment didn't turn out to be the exceptional success that it could have been.

Well, in many cases some of those firms actually IPOed uh and you know delivered a bunch of returns for the LPs in the venture fund. Uh I I am interested in know you you've you've acquired Evernote's probably a good example. Yeah.

Um but any any example of uh acquiring a company that's already publicly traded? How does that work? How how do you work through those uh that process? Uh are you going directly to the board? like are there uh are there best practices around like when a company or or a group of shareholders uh might be more receptive to a uh to a takeover or um or do you see yourself ever getting into uh more of like a hostile takeover scenario? Does that does that uh does that matter to your strategy?

We've done two uh take privates so far. One is uh Brit.

Yep. early this year and the second one is Vmail.

Yeah.

Uh so I'm no like I wouldn't consider myself a world expert in private but I've seen a couple of them so I can probably provide at least some some input here. Um we have done it quite collaboratively reaching out to the board and uh uh and just saying look we'd be interested and we make an offer. the I would say the the the negotiation is not massively different from what you would do in a private deal, but the there is a lot more pressure on a board of a public company to uh to to to act in the best interests of the broader shareholder base uh because the liability is a lot more legally speaking it's probably not very diff different but of course the transparency of that process makes it really difficult to say I don't like it [ __ ] you know if it's a good offer you have to entertain it So on the bright side, if you have a great offer relative to the stock price, you have, I think, better certainty that it'll be at least entertained, then with private companies where sometimes you find you you're absolutely confident you're making a an incredible offer, but say the founder is just not not going to sell or a particular investor maybe invested at a really high valuation and they're now maybe even delusional in thinking, oh, we'll get back to three billion if we wait for, you know, long enough. And so there you really have any leverage. It's like okay end of end of the conversation with a public company that can't really happen or at least it's quite rare. Uh on the on the you know so that that's the positive on on the negative the process is a little bit more uncertain because with with a private deal typically if you have a handshake agreement with the two three decision makers then it's quite unlikely that uh the deal falls through. with a public company. Um, basically at any point in time if someone comes with a better offer and it can be quite public so everything is you know uh back to square to square one uh you need to show their vote so you only know after multiple months and so you're kind of keeping your fingers crossed but overall I love public deals. I think they're in many ways more straightforward. There's no hiding behind illusions. I mean your stock price speaks volumes and if it's been at a certain level for a long time

that is it you know for the most part.

Yeah. Uh is it also do you have more confidence in audited financials uh or any other sort of process power that comes from actually being a public company? Do do you do you feel like when you go into a company that's been taken private uh you can just feel the difference? Oh, okay. This this company has been operating like a public company and that has maybe pros and cons but you can definitely tell or is it purely in the deal stage that you feel that that there's a difference?

I mean we have seen private companies that are run really well in terms of uh FPNA and we've seen public companies certainly have to reach a pretty high bar. So yeah, I guess we're you're more certain that uh on the one hand, you're more certain that the public company will be better geared uh uh to to provide you with the say the due diligence materials you need and whatnot. On the other hand, there's generally and and understandably so and rightfully so, more uh more risk aversion in a public company because if there is a leak that can truly, you know, create a pretty difficult situation for for everybody involved with private companies. It's leaks are also less likely because the incentives to leak something are lower. Uh there are all sorts of uh reverse incentives with a public company for obvious reasons because the stock is so liquid. So sometimes uh deals are leaked that if the company was private wouldn't be leaked.

Um so I would say um yes the data tends to be a little bit more ready cleaner but on the other hand uh the the company tends to be more uh careful in bringing people under the tent and so at the end of the day it's not always necessarily faster or easier. You know I I think frankly I don't see that's a major point of difference to be honest. I think uh uh but that's not so important when you look for for an acquisition.

Yeah. Do you have any type of internal forecast around when some of the current the new generation of like uh or or just the the new crop of AI native startups will start becoming uh for sale because like right now if you're growing quickly and you have a great product you can probably raise a bunch of uh capital but I could imagine in in twoish years there's companies that maybe don't fully break out that have great products but uh aren't necessarily going to be you know uh public companies one day themselves.

No, we haven't discussed that. We there because we try to focus our time and effort on things we control. So our our focus right now is to just meet as many great entrepreneurs and investors and private equities and management teams and and bankers as possible to make sure we are involved promptly every time there is a an intention to sell a business. We have historically been a great acquire very fast highest highest bid every single time we actually competed um and uh essentially no requirements on management teams to stay if they don't want to stay. Uh so we just need to make sure we are called upon if something is happening but we don't necessarily need to know or have an opinion whether in three years time or two years time a particular company becomes available. There are so many variables that we wouldn't be planning for

for being ready for that anyway. So who cares in a way? Yeah, makes sense.

Last question from my side. Uh how are you think about synergies across the portfolio? You're not doing rollups, but there are some similarities between uh the video products developed by Britco, Vimeo, like are you thinking about how these businesses fit together over the long term or do you see them all as like individual uh project products and companies that you want to kind of grow in their own way?

Yeah, great question. So the short answer is the latter. The reason is uh uh that the I think that those synergies are actually much more limited than people would imagine. Uh and also uh and perhaps more importantly we believe that uh our business units tend to perform a lot better if they are allowed to operate with extreme levels of autonomy and flexibility. M

we want our small teams to feel like they're almost like a startup like we, you know, basically we trust them to make decisions and move quickly. And if you if you start asking many business units to coordinate on branding and cross-selling and yada yada yada, then all of a sudden you're creating a ton of glue then and and that kills sense of ownership, agility, excitement. Uh so it's a trade-off. You want to have teams that feel very entrepreneurial and empowered or maybe extract an additional 5% of revenue through um say cross-selling or some sort of bundling. Uh we we find a former in the long run yields much better returns. Uh so we go for it. In a way I think you can think of Ben a little bit like the technological version of P uh the PNG Proctor and Gamble where there is a ton of shared infrastructure and capability in their case I I suppose I don't know them well logistics and distribution and marketing and product development but they when you look at the brands they sell they most people wouldn't even know yeah that they are by the same broader corporation and and in a way we would like Bennis to be similar we don't really care necessarily that a say an Evernote customer knows that Ben is influencers behind it and we're fine out of a way but we don't try to push that message on them as long as they think Evernote is perfect for them and they stay subscribed and they love it. Uh and and in fact we think that if we try to uh homogenize our brands we'll be destroying a lot of the value that we acquire in the first place with these storyried brands and and loyal customer bases.

That makes a ton of sense.

Makes a lot of sense. Thank you so much for taking some time so soon after having a child to join our show. We really appreciated talking to you. I learned a lot. So, thank you so much for

Thanks a ton, Luka. Come on anytime.

Yeah, we'd love to talk to you.

Looking forward to following the journey.

Have a good one.

Cheers.

My pleasure. Bye.

Take care.

Uh before we bring in our next guest, let me tell you about Adio customer relationship magic. Adio is the AI native CRM that builds, scales, and grows your company to the next level. Uh, fun fact, Jordy. Uh, Brightite Cove,