Bending Spoons: From Failure to Billion-Dollar Acquisitions

After a failed AI company launched in 2010 that crashed three years later, Luca Ferrari and his co-founders received a gift of $40,000 in remaining capital from their venture capital investors.

The founders formally closed their previous venture by purchasing their shares for $1, subsequently utilizing the $40,000 as initial seed financing for Bending Spoons, founded in 2013.

Ferrari described the earlier attempt as "too early,"

"The biggest failures were in the previous startup. So, with my co-founders, we launched an AI company in 2010, very early, too early, clearly. Crashed and burned 3 years later."

Ferrari recognized his team's strengths in engineering, design, monetization, and marketing, which led to a strategic pivot towards acquiring existing assets rather than developing new products from inception.

The core strategy involves acquiring valuable assets at a competitive price and then deploying capital and expertise to enhance their competitiveness and performance.

This business model, focused on acquisition and optimization, remains fundamentally consistent today, albeit on a significantly larger scale.

"The idea was we are not very good at finding product market fit, or maybe, you know, luck plays a big role, probably both things are true. But we have become pretty good at engineering, design, monetization, marketing in just 3 years of hard work."

This asset was primarily acquired for its existing user base and its established position within the App Store, rather than for its immediate revenue generation.

The company then leveraged its internal expertise to significantly improve the product's performance and monetization.

With a core team of approximately 800 people, Bending Spoons dedicates three-quarters of its workforce to engineering, research, product design, and product management roles.

The company operates on an internal system comprising over 50 proprietary technologies, which is used to manage and integrate all acquired businesses.

Acquired companies undergo a complete overhaul of their technological foundations, ensuring a consistent and efficient operational framework across the entire portfolio.

Bending Spoons centrally manages a range of internal tools, including those for AI model orchestration, recruiting, and A/B testing platforms.

While vendor optimization contributes a minor 1% to 2% to EBITDA margins, the primary drivers of core growth are increased revenue from superior product and monetization strategies, alongside substantial cost reductions achieved through talent-dense teams.

Ferrari observed that very small, highly talented teams consistently outperform larger, legacy teams typically found in acquired businesses.

This insight stemmed from early acquisitions where Bending Spoons often bought only assets, compelling them to build new internal teams from scratch.

The company's objective is to maintain a '10 out of 10' performance level by ensuring teams remain lean, possess a high bar for talent, and foster sensible ownership among members.

Since 2017, Bending Spoons has primarily financed its acquisitions through the reinvestment of free cash flows.

The company initially used basic bank loans, known as TLAs, and later transitioned to TLBs as its scale increased.

Prior to its IPO, Bending Spoons had raised only about half a billion dollars in primary equity, demonstrating that the vast majority of its growth was achieved through internal cash generation and debt financing.

Bending Spoons strategically uses debt to accelerate growth, maintaining a blended cost of debt around 9%, which is fully hedged until its 2031 maturity.

This hedging strategy insulates the company from any adverse impacts of rising interest rates on its debt costs.

The firm operates with a leverage ratio of approximately 2.5x, and its unlevered returns consistently exceed 25%, indicating that even higher interest expenses would not jeopardize its business model.

From Bending Spoons' perspective, interest rate hikes are a net positive, as they often lead to lower asset valuations, creating more favorable opportunities for acquisitions.

While competition for acquisitions exists, Bending Spoons believes its robust tech stack and scientific business approach provide a strong competitive advantage against private equity firms.

The company's custom-built technologies and operational methodologies are difficult and time-consuming to replicate.

The firm's value is deeply rooted in its over 800 employees, who have been meticulously selected and trained over many years, creating an organizational infrastructure that cannot be quickly duplicated.

While founders can be a significant positive asset, Bending Spoons typically acquires businesses that are 10 to 20 or more years old, where founders are often ready to transition.

The company's primary goal is to offer a better home for the acquired business than its previous ownership, focusing on its continued success.

Bending Spoons does not explicitly exclude founders but acknowledges that acquisition frequently marks the natural conclusion of a founder's active tenure with the business.

Bending Spoons employs qualitative criteria to filter a long list of potential acquisition targets, focusing on those that offer significant scale.

Transforming a business requires substantial operational effort, which does not scale linearly with revenue, necessitating a selective acquisition strategy centered on larger entities.

The company targets businesses that demonstrate a predictable earnings trajectory, ideally allowing for reliable projections over the next five to six years.

Bending Spoons prioritizes acquiring a select few large-scale entities over numerous smaller ones, emphasizing value creation through technology, organizational structure, product development, and marketing.

Historically, Bending Spoons has generated minimal value, approximately 3%, from customer-facing synergies across its portfolio, despite efforts to develop them.

The majority of value creation stems from internal synergies, such as shared technological foundations and the fluid movement of teams across different products.

As the portfolio expands, with brands like Airtable and Miro, the potential for more viable customer-facing synergies is beginning to emerge.

Bending Spoons prioritizes achieving operational excellence within its existing products rather than pursuing high-risk, radical innovation from scratch.

With a pro forma revenue run rate approaching $4 billion, launching new small-scale products would not significantly impact the company's overall performance.

The company focuses its resources on becoming best-in-class in specific domains, opting against spreading its efforts too thinly across diverse, unproven ventures.

The firm applies first-principles analysis to gauge talent density in potential acquisitions, overcoming the difficulty of making such assessments from the outside.

Businesses in a saturation phase often struggle to attract top-tier entrepreneurial engineering talent, making them less appealing.

The company leverages internal mobility as a key recruiting tool to maintain and enhance its high talent density across the organization.

Milan, for historical reasons, remains Bending Spoons' largest talent pool, though London and Madrid are rapidly growing as significant talent hubs.

The company plans substantial hiring in the United States starting next year, further expanding its global operational footprint.

Recruitment is highly competitive, with Bending Spoons receiving 800,000 applications for fewer than 300 hires last year, highlighting its rigorous selection process.

With roughly half a billion people, Europe provides a vast, well-educated workforce that Bending Spoons recruits from to support its operations.

The notion that Italians are unwilling to work hard is regarded as a false stereotype by the company.

Bending Spoons prioritizes hiring intrinsically motivated and driven individuals who are seeking unique career opportunities.

Acquired teams frequently demonstrate a strong work ethic when integrated into the company's operational model.

Operating from Milan provides Bending Spoons a structural advantage, allowing the company to avoid the conventional thinking prevalent in Silicon Valley.

The 'Wichita mindset' analogy highlights how a location outside traditional tech hubs can foster unique business approaches and greater success.

Major contributors to AI innovation often originate from diverse academic institutions such as UFT, McGill, and CMU, challenging the perception that talent is exclusive to Silicon Valley's Stanford or MIT.