David SenraBuilding a $150 Billion Company With Just 400 People | Adam Foroughi of AppLovin
EVERY SPOKEN WORD
100 min read · 19,543 words- 0:00 – 2:15
The $6B Buyback That Made $60B
- DSDavid Senra
[music] Tell me about these billions of dollars of stock buybacks you did.
- AFAdam Foroughi
Uh, so let me give you a little bit of context on when we went public and why this became a pretty big opportunity. We went public in COVID in April 2021. Company was worth about $28 billion, went up to forty billion first six months. We're all excited. Stock goes down from there literally every day for all of '22.
- DSDavid Senra
[laughs]
- AFAdam Foroughi
We got to a floor of, I think, like $3.8 billion. We went from $115 a share to $9 a share. So you're running a business, and the whole world is telling you your business is trash. Like [laughs] like what, what do you do? At the same time, interestingly, we went out with $700 million of EBITDA in '21. We did a billion dollars-plus of EBITDA in '22. So, like, fast growth, executing on the business, yet public market investors were telling us business is terrible. Like, and, and it was what it was.
- DSDavid Senra
Why did they think the business was terrible?
- AFAdam Foroughi
It is a tough space to understand. First of all, like we're, we're in advertising and we're in gaming, and those are two tough places to be in the public markets. The other challenge was that we went out in COVID, and there were just way too many IPOs. And once you learn the public markets, which I've learned a lot more, um, as we've been public for now four years, you need really big investors to start buying shares in companies early on, 'cause you have your private company investors trying to sell shares. So on the one hand, you have this imbalance. You've got a flood of shares that are gonna come to the market. And with all the COVID IPOs, the big funds, the companies like Fidelity, BlackRock, et cetera, they weren't doing as much research on any new IPO 'cause they couldn't tell the difference. There was just too much hitting the market. So we ended up with a cap table that didn't have support, and then shares started selling into the market, stock crumbles. You start going down every day. People look at the company and go, "This company, something's wrong with this company. Like, what's happening?" And it's really hard to look past the stock price and go, "Let me look at the fundamentals and try to assess what's going on." A- and you know, you're, you're out there. It's like catching a falling knife. Like, what do you do as an investor? So we were thrown out. It's easy to go, "Look, we're down 92%, hang it up. Like, what are we gonna do?" Start getting reactive, defensive. Um, instead of that, what, what we ended up doing was going two things. One is the whole world doesn't like our shares, so if no one's gonna buy our shares, why don't we just start buying our own shares? And
- 2:15 – 5:02
Borrowing Money To Buy Back Stock At A Discount
- AFAdam Foroughi
so we kicked off a really successful buyback. The company at the bottom was worth $3.8 billion market cap, and we were generating over a billion dollars of EBITDA. So you think about the cash flow to, to market cap, it was about one-fifth that we were generating every single year. Well, in theory, we could buy back 20% of the shares of the company just in the next year if we really believed in the path we were on. So we kicked that off. But we did it a little bit differently than what most companies do. Most companies go out and say, "I'm gonna buy shares from the public markets," and just take shares back. But you don't know who's on the other side of that trade. On the other hand, we knew that we had a cap table where about 50% of the shares were gonna sell at some point over the coming years. We had private equity investors that owned roughly 50% of the shares of the company alongside some other founders that were no longer there. So instead of going to the public, we went to the shareholders that we knew were gonna sell and got them to agree to sell back to us over time. And so for the following 18 months, we ended up deploying somewhere around $6 billion of buybacks of our own capital, and we leveraged some to buy back shares in the company. And over time, that ended up creating somewhere in the neighborhood of $50, $60 billion of actual proceeds from the buyback, one of the more successful buybacks in the history of companies.
- DSDavid Senra
You bought back around $6 billion. You made about $60 billion-
- AFAdam Foroughi
On the other side of it
- DSDavid Senra
... on that $6 billion. Where did you get the-- You said some of it came from earnings of the company, and then you, you went and, and-
- AFAdam Foroughi
We leveraged as well.
- DSDavid Senra
Where'd you borrow the money from?
- AFAdam Foroughi
So a- as a private company-
- DSDavid Senra
And is anybody telling you at the time you're nuts for borrowing?
- AFAdam Foroughi
[laughs]
- DSDavid Senra
You're, you're down $3.8 billion market cap, right? Explain, like, how you were thinking, uh, the difference between how you were thinking about inside the company versus, you know, the world telling you about your business. Because there had to be a lot of people around you saying, "What, what the hell is wrong with you? You gotta be nuts going into debt-
- AFAdam Foroughi
Yeah
- DSDavid Senra
... to buy back your stocks of this shitty company."
- AFAdam Foroughi
[laughs] I, I mean, look, a lot of times, like, people like to be conservative when it comes to cash. And so one, to, to lever up is scary to people. But then two, to lever up to buy your own shares when everyone's telling you your, your company is a piece of shit, that's really scary to do. I never believed in saving cash for a rainy day. I feel like I'm a big believer in what we're building. I believe in where we're going. So if I believe in the future, and we're a really high cash generative business, we should always be buying back our shares. So at a bottom point where the valuation became that juicy, there's no reason to be afraid of it. And the good news is, uh, I mean, I don't have a lot of experience, uh, with boards, and we can talk about that in a bit, but our board was very supportive, 'cause it's not... it's rocket science. You look at a, a, a multiple of five times cash flow, and you go, "Okay, why don't we just buy all the shares? Buy as much as you possibly can." And so because it was so cheap, and we had a lot of conviction on our future growth prospects, we just hit it and hit it as hard as we could.
- DSDavid Senra
Explain what you mean about you didn't have a lot of experience with boards.
- 5:02 – 9:00
Why VCs Passed On AppLovin In 2012
- AFAdam Foroughi
When we first started the business, I went out and talked to VCs to raise capital, and I got turned down by all the top VCs. So a million dollars over $4 million valuation some point in spring 2012.
- DSDavid Senra
Wait, that was your first-
- AFAdam Foroughi
All rejected. That's what I pitched. I would've given up-
- DSDavid Senra
[laughs]
- AFAdam Foroughi
... a quarter of the company for, um, a million bucks.
- DSDavid Senra
[laughs]
- AFAdam Foroughi
Would've, would've, would've been a big payday for those VCs.
- DSDavid Senra
And they said no.
- AFAdam Foroughi
And they said no, because, again, we're in advertising and we're in games, and it was a tough pitch. And, um, this is my third business. I'd already-
- DSDavid Senra
What, what year is this, though? Because I think people-
- AFAdam Foroughi
2012.
- DSDavid Senra
2012. 'Cause people hearing you say, "We're in advertising and games," now those are some of the most profitable businesses in the world. What wasn't happening in 2012, though?
- AFAdam Foroughi
What was challenging for VCs back then was, well, Google and Facebook and Amazon are in this space, and so why would some goofy name little company that's trying to develop something be able to compete with the giants? I think the, the sort of failure in the logic is, this is my third business in advertising. I already had successes over a decade before in advertising, so it's a failure on seeing who's the, the founder. So bet on the person.A, a million over four million, you get 25% of the company. It's a pretty good deal. And then understanding that the space itself in, in mobile gaming and mobile apps at the time was nascent. It hadn't become as big as it is today by any stretch of the imagination. So you had this, like, we... Well, where we got sort of lucky is we bet on that space, but this gaming space on mobile that became massive now was very little back then. And so those were misses on the VC side.
- DSDavid Senra
Your previous advertising business was desktop-based.
- AFAdam Foroughi
Yeah.
- DSDavid Senra
So the advantage that you had here starting this other company, which is AppLovin, right, is you saw the shift, uh, from traffic from desktop to mobile at the very beginning.
- AFAdam Foroughi
Yeah, we, we, so we sort of got lucky in that, too. We had, uh, built a, a business on social media in 2005 in advertising with a few other guys, and then in 2008 had another one. And so when you're on desktop and you're in social and then the mobile app store launches and you start seeing your traffic shifting really quickly, but nobody's talking about it, it, it's a huge data advantage on a market. And so what ended up happening was in 2010, I had sold those two prior businesses with others and just went over to Palo Alto and said, "Mobile's gonna be big. I don't know what we're gonna do in mobile, but mobile's gonna be big." Funny enough, because we had had quite a bit of economic success, I didn't wanna do advertising again. Advertising is a tough deal. And so-
- DSDavid Senra
Why?
- AFAdam Foroughi
It's just really hard to get excited about being an advertising person for 20 years. [laughs] So now, now I'm sort of life commitment to it, and I'm pretty good at it, but a- at the time, I was like, "Look, we succeeded in advertising. Go try direct-to-consumer something." And so why, why wouldn't we? And-
- DSDavid Senra
Why would you wanna go from B2B to direct to consumer?
- AFAdam Foroughi
The grass is always greener and everything. And so it felt to me like I'd already conquered advertising. Why, why do I need to do it again? And that's so far off reality 'cause I've obviously proven you can build a much bigger advertising business than I imagined at the time, but I felt like it's tough. You're dealing with the client on the other side. And when you're in advertising business or any B2B business, y- you're trained the client's always right, so you're on the other side of that trade. If you own the consumer, well, then you own your destiny. And so I, I felt like it would be a lot more fun to build a consumer business, and we tried. We, we built... In 2011, we launched a dating app and a fashion app. Both terrible.
- DSDavid Senra
So a married guy is building a dating app.
- AFAdam Foroughi
Yeah. Yeah.
- DSDavid Senra
And you, every time I see you [laughs] you're in the same clothes.
- AFAdam Foroughi
Yeah. You made a joke about that earlier. I have, like, four outfits.
- DSDavid Senra
[laughs]
- AFAdam Foroughi
So I have zero fashion sense, and I was married at the time. Four... Two terrible ideas.
- DSDavid Senra
[laughs]
- AFAdam Foroughi
Pre-Tinder, though. And the fashion app we launched right around when Pinterest launched, and they were down the block from us. So, uh, there was obviously opportunity in those markets. We were not the right teams to do it.
- DSDavid Senra
But you just wanted to have an app because you saw everything s- shifting there?
- 9:00 – 14:45
From App Discovery To Ad Platform
- AFAdam Foroughi
that goes to the third app we launched was the first version of AppLovin. It was an app discovery app, and this was... I think it was in, in late summer to fall 2011. You and I would go connect on this app, AppLovin, and it would tell you, "Hey, Adam's playing Words With Friends. You should go play Words With Friends with him." And that was the entirety of the app. It was just an app recommendation app. The app itself stunk, but when you got that push, the response rate was through the roof. Everyone who was on that app was going and downloading other things. So we were like, "Okay, well, there's a... Potentially this app store's gonna be bigger than people realize. There's gonna be a ton of content. This app stinks, but this recommendation algo is really cool." And so that, that's what really turned into what we became, which is we took that recommendation algo and just launched it eventually as an advertising platform on other apps.
- DSDavid Senra
One of the things I love most about the conversations I have with Adam is how focused he is on making the best possible product he can for his customers. "Obsess over customers" is a maxim that is repeated by Jeff Bezos, and you definitely see that with Adam. It is also the same trait that I see in my friend Kareem, who's the co-founder and CTO of Ramp. Ramp is the presenting sponsor of this podcast, and Kareem is one of the greatest technical minds working in finance today. Kareem is obsessed with crafting a high-quality product and using the latest technology to constantly create better experiences for his customers. Ramp has one of the most talented technical teams in finance, and they use rapid, relentless iteration to make their product better every day. Ramp is completely committed to using AI to make a better experience for their customers and automate as much of your business's finances as possible. Today, Ramp helps your business control and automate spending. They do this with corporate cards for every single one of your employees, expense management, bill pay, procurement, travel, budget controls, accounting automation, and AI tools that flag waste, fraud, duplicate charges, and policy violations. Tomorrow, Ramp is full self-driving money for your business. Many of the fastest-growing and most innovative companies in the world are running their business on Ramp. I run my business on Ramp, and you should too. Make sure you go to ramp.com to learn how they can help your business save time, save money, and grow revenue. Let AI chase your receipts and close your books so you can use your time and energy building great things for your customers. Get started today by going to ramp.com. You said you had two other advertising businesses. You sold them, so now you're gonna try to s- go, uh, direct to consumer. You're, you're gonna build these apps, the, the precursor to, to AppLovin. Were you already rich at the time?
- AFAdam Foroughi
I was rich enough to not need more money, in my mind. Um, unfortunately, money, the, the line on that always goes higher a- as you get richer, but I felt like if I didn't make another dollar, I'd be fine. So I was bootstrapping this business for the first year and a half while we were just tinkering with things.
- DSDavid Senra
Were you bootstrapping because you wanted to bootstrap, or bootstrapping because the VCs would not take-
- AFAdam Foroughi
No, it was pre-
- DSDavid Senra
... 25%?
- AFAdam Foroughi
... pre- predated that.
- DSDavid Senra
Okay.
- AFAdam Foroughi
I didn't believe in selling to investors an idea that I wasn't confident in. So I figured i- if I'm out there with this team and we're just playing around and trying to find a fit, during that point in time where I'm gonna pivot a bunch, I don't wanna deal with investors. So we actually set it up as an LLC, um, early on, and the nice thing is you put a million dollars into an LLC, you lose a million dollars, you get back 500 grand. So, uh, we had, we had a tax-efficient way to bootstrap against whatever earnings we had elsewhere, so we did it, and we did that for... We covered the cost of the engineers at the time, did that for the year and a half until we landed on product market fit. I didn't go to VCs until I knew we were gonna be an advertising business.
- DSDavid Senra
Were the other two companies you started before this
- DSDavid Senra
Did you also bootstrap those, or you raised money for that too?
- AFAdam Foroughi
One had, had, uh, investors. And, and these were both, uh, I've had co-founders at all three businesses. But one of-- The first one had investors, and I was the junior co-founder. The second one I was a co-founder at, um, we had just bootstrapped, 'cause we'd launched an advertising business on social media, and it was profitable right away.
- DSDavid Senra
Okay. So now you have this idea, you have this app, recommendation app. What happens next?
- AFAdam Foroughi
So nobody's using the app, which shocking. People use apps with hot people in them, and this was an app of apps. But we realized if you're gonna download at a really high rate based on a recommendation we can send you, well, why... we don't need distribution on the app. Why don't we just go distribute our technology inside all these other apps that are, are coming into existence? So w-we... not rocket science back then, we just realized, let's go build an advertising platform around this construct. And so we did that. We, we hired a team to build what's called the software development kit, but just code that someone could put in their app to access an advertising platform. And we launched that in March of 2012. So scrapped the app, Discovery app. AppLovin became this ad network. We launched-
- DSDavid Senra
Now you're back to ads. [laughs]
- AFAdam Foroughi
Right back to ads. But, like, it, it... what was interesting, I mean, full circle. One, I didn't like to lose, and when we did direct-to-consumer, it's like, I have no idea what I'm doing. The, the, the not into dating, not into fashion, all true. We had no idea how to take to, to market a direct-to-consumer business, and we didn't know what we were looking for. The product stunk, so it was really difficult to lose. And then second, when we saw how powerful these recommendations were and knew that this market was gonna be big, there's no reason to shy away from ads. At that point, we're just like, "Let's go." And we packaged up the tech, put it live, and then from that moment that we got into market, business started growing really quick.
- DSDavid Senra
How did you find distribution for it?
- AFAdam Foroughi
These other app developers were desperate for money. So at the time, I mean, it's like 2012. The App Store was full of calendar apps, fart button, flashlights, and the beginning of games. You had Candy Crush, Clash of Clans, and some simpler games at the time. Not many, though. And these developers needed money,
- 14:45 – 19:30
Beating Google's AdMob With Performance Marketing
- AFAdam Foroughi
and so we just went out and said, "Look, you've got a million users on this calendar app. We'll pay you ten grand a day. Just put our ad platform in there." It was up to us to make it spread on it.
- DSDavid Senra
What was their alternative? Like, what... If they don't go with you, what else could they, what other decision could they have made at the time?
- AFAdam Foroughi
At the time, Google had bought this company, AdMob, in 2008 for, I think it was nearly a billion dollars. Huge transaction back then. And so that was the alternative, go with Google's ad platform or go with this new ad platform. Since they had bought it in 2008, when we started in 2012, there wasn't a lot of innovation there. So when we went to market, it was easy for us to go out-compete Google at that point in time.
- DSDavid Senra
How?
- AFAdam Foroughi
They'd first come to market with a product that was built for brands, and most advertising businesses are built for brands. That's where the big money is in advertising. So people get, get in their mind that we're just gonna go take money from brands, create a spread, place ads, off you go. That's what the AdMob business was back then. It's a lot different today. When we went into market, we didn't wanna sell to brands, so it was never a consideration for me. I mean, it, it... we can talk about it, but-
- DSDavid Senra
Why?
- AFAdam Foroughi
... it was like a one-week consideration. It is a tough thing to sell. I, I went over to, to New York early days. Everyone told us we should, we should worry about brands too, and try to talk to some agencies, and it's brutal. You're trying to convince someone to give you access to part of a budget, and then proving that their dollars were well spent is completely hand-wavy. There's nothing scientific about it. You're placing their ads, you're trying to get a cut of their budget, and the biggest cut goes to the folks that are wining and dining the client the most, and I didn't wanna be in that business. I wanted to be in the business of no sales, high-value product. And so what was different about us to AdMob was we went to the developers themselves. We said, "Look, on the one hand, like, allow us to place our ads inside your app. On the other hand, you need more users for your calendar app or for your game or for your fart button or whatever it was. Run an ad on our platform, and we'll get you users on the other side." So the very, very beginning was, and, and this has always held true, if our customers are able to buy on a performance basis, and we can define what that means in a little bit, but if they're able to buy on a performance basis, their business is getting better because the ads are well spent. And if you spend your money well on ads and on the other side you can monetize and create a spread, they become effectively a company that can arbitrage our platform, then they could scale their business. And so we built tools for the developer instead of building tools for the brand, a-and that really served us well at that point in time.
- DSDavid Senra
That's a really interesting insight. And so there was no other alternative for the game developer at the time, or the app developer rather, that there was no other platform like yours doing what you were doing then.
- AFAdam Foroughi
There were a couple other companies that were just starting to exist too. It, it was interesting 'cause-
- DSDavid Senra
They had your same idea, though?
- AFAdam Foroughi
At the exact same time, a few of us had the exact same idea. [laughs] So you had this-
- DSDavid Senra
Independent of one another.
- AFAdam Foroughi
Totally independent. A-and it's also funny, the, uh, same VCs that rejected me put a lot of money into those companies, and that was very motivational. We had a, as a goal to put those companies out of business.
- DSDavid Senra
Why do you think the VCs turned you down when you had two successful advertising businesses before, and yet they're funding the competitor of yours that has the same exact idea without the, the s- the previous success in that regard?
- AFAdam Foroughi
I mean, look, I'm terrible at sales, so maybe it's that. Um, but maybe it was that this market was a little bit further along at that point in time. Like, I think VCs tend to look at a market, and they have to really have high conviction in it. And you had, in early 2012, things were just starting to form, and we were just getting to market with our product. By the time these other companies were raising in later 2012 and 2013, it was pretty clear this thing was gonna grow pretty quickly. And then our, our revenue ramp, at, at the point in time when we launched in 2012, from March to, to November, when we did our, our... we did an angel round, and we marked our own m-money in, and that was it.
- DSDavid Senra
What do you mean that was it?
- AFAdam Foroughi
So we raised four... over $25 million preAs a convertible note to Common, um, in, in November. The business by that point in time had gotten to a million dollar a month run rate. So we went from launch to a million dollar a month run rate and profitable in, in a matter of eight months.
- DSDavid Senra
How much profit do you think you were making on a, a, on a monthly basis out of that million?
- AFAdam Foroughi
Barely. It was, it was-
- DSDavid Senra
Okay
- AFAdam Foroughi
... a little bit profitable. But, uh, the... I mean, back then, nowadays, like ARR ramps are astounding. But ba- and as are evaluations. Back then, to build a business in mobile and have it go from zero to $12 million run rate in that short amount of time was really phenomenal. And so once we did that, it was easy to recruit investors in November. I mean, it's like, okay, looks pretty good. It was more around for, uh, a few folks that I'd just known for a while, and a few other folks that I thought could be helpful to the business, and to mark my own dollars in. And so we did that round in November, and then we didn't raise another round. So back to the board point, uh, and we did raise another
- 19:30 – 30:12
No Board For Six Years
- AFAdam Foroughi
round, that was more liquidity later, but back to the board point, um, I didn't have a board in this business until 2018. So from-
- DSDavid Senra
Six years later.
- AFAdam Foroughi
Yeah, six years later when we actually closed a round from KKR, and I can talk about like what went into actually-
- DSDavid Senra
Oh, this story's wild.
- AFAdam Foroughi
Yeah, yeah.
- DSDavid Senra
We're definitely getting to that. [laughs]
- AFAdam Foroughi
It, it, it was, it was a messy path. I would say like pros and cons to, to not having a board. The pro was I made every decision. On every shareholder certificate, uh, it was literally my signature as the president, the vice president, e- everything.
- DSDavid Senra
[laughs]
- AFAdam Foroughi
It was like the, it, it, the, uh... I think I had three or four signatures on all the share certificates. And so I could make all the decisions for the business, and it all flowed through me. That was nice. On the other hand, I ended up making some mistakes, especially in the capital markets and raising capital, that I wouldn't have made if I had had a board and, and people who had understood a, a lot of the things that I ended up navigating poorly.
- DSDavid Senra
Can you give us some examples of that?
- AFAdam Foroughi
Yeah, so in 2014 and '15, we were growing really, really quickly, and we got to a point where... So 2015, call it some period, I think it was about three, three and a half years post-launch, we were gonna do about $50 million of EBITDA roughly. That's pretty big ramp up. Again, back then, like this is... I was, I was wealthy enough, but the rest of my team wasn't. And so this is a really quick ramp up for a business. We didn't have a lot of people, we were just growing really quickly. We started getting interest from, from other tech companies to buy us. And so got as big as an offer for $600 million cash.
- DSDavid Senra
From Snapchat?
- AFAdam Foroughi
No. [laughs]
- DSDavid Senra
[laughs]
- AFAdam Foroughi
We're not talking about the companies on the other side. But there's a reason why I like running my own business. It's tough for me to imagine being at the company on the other side and, and, uh, the companies that we were engaging with might have been even tougher for me to imagine being an employee at. And so the, at this point in time, the business was really all roads ran through me as a, a really hands-on executive. And the challenge with that was we were still growing 100% year over year. So when you're going and, and trying to do a deal and someone pushes a term sheet towards you and goes, "Look, there's a lot of zeros, $600 million," you're like, it is a big number, like all cash, like life-changing for a lot of people on the team. The problem is, between the time of seeing that number and getting to a deal, your business has grown a ton. And I'm a finance person. I would've had a number I would've done the deal at, but it was not that number, and so I ended up walking away from it.
- DSDavid Senra
What was the number?
- AFAdam Foroughi
It was quite a bit higher. It had to be around a billion dollars at that point in time.
- DSDavid Senra
Still only 400 million.
- AFAdam Foroughi
Yeah, it wasn't that much. I mean, in hindsight, obviously-
- DSDavid Senra
Could you imagine if you would've made that mistake? [laughs]
- AFAdam Foroughi
Yeah.
- DSDavid Senra
What's your market cap today?
- AFAdam Foroughi
140 billion roughly.
- DSDavid Senra
[laughs]
- AFAdam Foroughi
It would've left a lot of money on the table. Now, look, you m- most businesses when they sell, they lose the opportunity to keep innovating. And so had we done it there, we may n- none of us would've known what this could've become. So it, it was a little fortuitous that I had enough conviction to, to not take an offer in that range.
- DSDavid Senra
I wanna go back to the mistakes you're making, uh, without, like where you were just saying the m- mistakes in the capital markets that you think you could've avoided if you had a, a board. I wanna go back to that, but, um, I wanna take a small tangent because Raph, who maybe you sh- should explain who that is-
- AFAdam Foroughi
Yeah
- DSDavid Senra
... he sent me a bunch of notes on you.
- AFAdam Foroughi
Yeah.
- DSDavid Senra
And the reason it just came to mind, 'cause, uh, he, he remembers being, getting an email, I think he actually sent me the, the, the copy from the email where you're like, "I'm pretty sure we can build a billion-dollar business here, guys." [laughs]
- 30:12 – 37:45
The China Deal That Almost Blew Up
- DSDavid Senra
So let's go back to the mistakes you thought you were making. Go back to 2015 before you-
- AFAdam Foroughi
So, so the, the, uh, not taking the big offer was a, a bonus for me because if we had a board of investors, I may have faced pressure to take the offer. And so being able to make my own call on that was like, "Okay, this is great." Like, I don't actually have that pressure. The, the downside was the second you say no, and parts of your team know that you turned down that much money, and they can run the math and go, "Would've made this much," you end up with a lot of pressure to do something. So this was l- late 2015And I used to be a finance background. I was a derivatives trader out of school. Um, and so I understood multiples, I understood capital market arbitrage. And late 2015, what was going on in the markets then, then, was that you had China investors buying a lot of US tech companies because the Chinese capital markets had just opened up. You know, the, the market over there, their NASDAQ is A-shares back then, was ripping. And so you had these investors coming in and saying, "I'm gonna deploy China capital into a US company, and then go list that US company in China, make a big spread, call it a day." Um, and so I went out to talk to some of these investors, and ended up announcing, I think it was, it was some, it was some point in 2016, I don't remember the exact date, but I announced a private equity investment in the company of a billion dollars, over $1.4 billion valuation. So fast-forward less than a year, company's valued-
- DSDavid Senra
Wait, who, who's this, uh, investment coming from? The Chinese company?
- AFAdam Foroughi
China-based and Orient Hontai Capital-
- DSDavid Senra
Okay
- AFAdam Foroughi
... um, was the name. And this was like, like a small team. I met four guys, really good guys, like went out in China, got along, so I liked them, and they came in, they invested.
- DSDavid Senra
What's the state of the business at the time they're investing?
- AFAdam Foroughi
We're still growing 100% year over year. Um, I, I think at the time, part of the dollars were based on us doing $85 million of EBITDA in 2016.
- DSDavid Senra
Okay.
- AFAdam Foroughi
And so, like deal structure was like, "If you can knock this, if you can beat this number, you get full value." Now, the structure of the deal was a little interesting. It was to clear out most of the cap table. My shares mostly would remain. Anyone else who wanted to roll could, and then we'd take the company public in China. Now, I don't speak ... I speak maybe five words of Mandarin. [laughs] Wouldn't have been a great China public company CEO. They thought I'd be charismatic and appear well, but no communication, probably not a good idea. The other thing I didn't know, and this is where a board would've been helpful, is at the same time President Trump had just been elected to his first term, and, uh, so this was actually fall to, to going into winter of 2016. So President Trump had just been elected. Geopolitical climate was getting worse. China-US, there was, there was a lot of suspicion around like what are these Chinese companies doing buying all these US tech companies? I felt like it's just an arbitrage, like whatever. People are trying to make money. Who cares? I didn't even know what a state-owned business was at the point in time. It turned out like, and, and we announced the deal, you still have to go through regulatory, and we're doing a cross-border transaction, and the regulatory body that governs cross-border transactions is this committee called CFIUS. And so this committee exists to go, "Is there a national security threat with this foreign money coming into the US to invest in a US company?" I didn't even know what this was, but-
- DSDavid Senra
[laughs]
- AFAdam Foroughi
... I, I announced this deal. People think you got rich. Everyone's congratulating you, and I'm like, "Okay, well, what do I have to do now? What's the next step?" It turned out the next step was you gotta go to DC and you gotta convince this committee that's made up of like, like every government agency. Uh, there was NSA, CIA, FTC, DOJ, like everyone was in the room.
- DSDavid Senra
Why? Is it just because it's China?
- AFAdam Foroughi
Because it's China, for one, and because we, at this point we're a large scale data platform. We're sitting on a lot of mobile devices.
- DSDavid Senra
Oh.
- AFAdam Foroughi
And I'm like, "Okay, what do we know about people? People play like solitaire games. Like who cares?" [laughs] But like, uh, I guess like the belief w- would be that if someone nefarious gets access to your technology, they could do worse things with the data than, than what we had access to. And so that was the general idea, but I, I marched into, to DC, and I'm like I don't know what I'm doing. I hire a law firm, no board, no one's, no one's guiding me. Everyone's just like, "Oh, billion dollars. Get the cash. Call it a day." Um, on the other side, I got this Chinese investor who these four guys that I was working with seem like great guys. They get their billion dollars out of China. So I'm like, "Okay, you're doing your part, like money's ready to go." But we, we walked into DC and i- it was just icy. It was, it was cold. I mean, first of all, like I'm a Persian CEO, and then at the time CTO, uh, had just transitioned to be one of our first engineers, this Russian guy. So I'm like this Persian guy and this Russian guy marched up to-
- DSDavid Senra
Selling to a Chinese company. [laughs]
- AFAdam Foroughi
Uh, uh, selling to a Chinese company with like four Chinese investors. I'm like th- this, this might not go well. Um, and so the first meeting it was like the go- government agency is told us, like, "Get the Chinese people out of the room. Like [laughs] let's talk to just you guys." Um, and so w- we go through this process, and I just realized like this took the better part of I, I think it was over a full year actually of just going back and forth with DC, like, uh, trying to, to navigate this process with our lawyers, and they're just like, "This is just not gonna work. There's no way we're gonna get over the finish line, and I don't, I don't wanna be made an example of with trying to do a Chinese deal, getting blown up."
- DSDavid Senra
What are the regulars spec- regulators specifically saying to you? Like what are... Are they voicing... What are their concerns that they're voicing? Are they like trying to couch it?
- AFAdam Foroughi
They don't voice concerns, but I'm pretty good at reading a room, and it's like when you give them a lot of information and you're talking about people playing solitaire, and on the other side, they're taking a bunch of notes and really asking you questions that have nothing to do with solitaire, you start realizing what the concern is, which is i- in the wrong hands, as a platform that's as large as ours, it, it could become something that's, that's risky. And so, um-
- DSDavid Senra
But they'll never specifically say it.
- AFAdam Foroughi
They won't specifically say that.
- DSDavid Senra
Okay.
- AFAdam Foroughi
That, that's what they're, that's what they're trying to assess it for. Now we're, they're... We're selling 70%, right? This is a company that I've had full control over, and so you have this Chinese party that turned out to be a state-owned, partially state-owned private equity firm fund. Uh, again, I didn't even know what that meant, but turns out to be partially state-owned, and they're gonna invest this money into us, and they're gonna get 70% control. So what could they do with that control?
- DSDavid Senra
Whatever they want to.
- AFAdam Foroughi
Who knows? I, I mean, it's very hard, right? Like it's not like they're our engineers on the front lines, but can they exert pressure on an American to then go against Americans' best interests? That, that becomes the concern, right? Like what can they do for that kind of money? These are things that I had no, I wasn't aware of whatsoever. So again, I had n- no one to turn to. There's no one to talk to about this stuff. So not having a board, you're going through this and I'm like, "Okay, well, had I had a board, [laughs] probably wouldn't have made this mistake. I would've saved some time." There, and there would've been plenty of alternative means to get liquidity to the team. I just thought good valuation, good number, a billion dollars cash, and I still retain my own ownership and run the business forward. So-We go forward and the business was doing really well. For this one year plus period, we couldn't issue options, everything was frozen. We weren't really hiring people, yet the business doubled again. We got to like, I think it was two thousand and seventeen, you're talking over, well over a hundred million dollars of EBITDA. We cleared whatever numbers we told them. Everything's going well. If I had a board, they'd say, "Just rip up the deal. This is a mess. Walk away. Your business is worth much more than the one point four billion dollar valuation now." On the other hand, I've always felt like if anyone bets on me, especially as someone who's like just always had a you're-not-gonna-bet-on-me mentality, a-and I'm gonna prove to you how wrong you are, I feel like if anyone bets on me, takes an investment in our business, gotta be loyal the other way. And so these four guys bet on us. They t- made an investment and, or thought they were making an investment, and so I didn't wanna leave them hanging. I also didn't know what happens to a
- 37:45 – 46:30
The Convertible Note Pivot And KKR
- AFAdam Foroughi
group of, of people from China that take a billion dollars offshore, and then the deal blows up. Like, what happens to the money? What happens to those people? So I didn't wanna deal with any of that, and so I ended up finding a way to get them a deal that then we could unravel later. We ended up doing it so that instead of their billion dollars being an e-equity investment for seventy percent where they would get control, which is what triggers this scrutiny, we ended up pivoting it to a billion dollar convertible note that if on conversion we pay them back the money plus interest, they would get ten percent of the business. So under ten percent, there's no control, and then they can come along for the ride. We did that deal. We dividend out a billion dollars to shareholders. Think of it as like a liquidity round pre-IPO. I knew that like, okay, we're gonna get the, the money in my team's hands. No one's selling their shares, but now I'm stuck with this massive convertible debt that I gotta go unravel. And so I called a few private equity funds. One of them was KKR, and that's what brought me to KKR as an investor in the business. Their partner, Harold Finn, and his team looked at the, the company. I think he would tell you, he got an email that came across his desk that said, "This goofy named company, AppLovin, is looking to raise some private equity. My evaluation looks good." And he would've said like, "Just b-based on the name, I wouldn't have invested," [chuckles] and ran for the other way. Uh, but his team rolled up their sleeves. They started looking, and then Harold rolled up his sleeves, started looking, and we all realized this is a good idea. Bring in traditional US capital, get some debt, clear out the Chinese convertible debt, give them their ownership. Off we go. Clean cap table. And so we did that, I believe it was in the summer of two thousand and eighteen, and we had to build the first board that I'd ever been part of. We had myself, Eduardo Vivas, who's Raf's older brother, a-and then Harold Chen, this three-person board.
- DSDavid Senra
Where are your co-founders at this time? 'Cause AppLovin had... It was founded by three people, correct?
- AFAdam Foroughi
Yeah. So one of my co-founders, this guy John Krasnack, was in charge of technology.
- DSDavid Senra
He's CTO or no?
- AFAdam Foroughi
He was CTO originally.
- DSDavid Senra
Okay.
- AFAdam Foroughi
So he built a really good team. So I would say like a really good manager's job is build a really good team and eventually get replaced. And the, uh, first engineer that was the lead engineer at the time, this guy, Basil Shiken, um, just became so good that in two thousand and sixteen, we swapped him into the CTO role. Um, and John then a-at that point was transitioning out.
- DSDavid Senra
Out of the company completely?
- AFAdam Foroughi
Yeah. And so like I've, I've always had this belief that like a lot of people get complacent with the leaders that they have, and those leaders, if they're not at that moment as good for the role as someone underneath, that person underneath is gonna leave and start a new business. So like you owe it to every single person and you owe it to your company to make sure the best person is in the right role at any given time. And, and actually this like fast-forwarding to just last week, we just announced Basil's gonna, gonna shift gears to a different role in the business, and one of the people that he'd hired who's built a whole bunch of our new technology and now runs the team is gonna transition into CTO. So the same concept.
- DSDavid Senra
So the same thing happening again. Okay.
- AFAdam Foroughi
So, so th-this always happens. At every role I've seen i-is if we were complacent and said, "You're a VP because you've been here ten years," the person underneath who's been here two years that's just much better and we're not getting into that VP role is gonna leave. I don't wanna lose the best talent. I want, at any given moment, the best talent in the most important roles, and so we always do that trade. And if you don't do that trade, it's really depressing because you end up with these really long-tenured people who, who end up in all these really important seats, but all your fresh blood is churning despite having more upside. You could've given them room to grow, and you could've transitioned. And so we d- we do that every chance we can get. And then the other co-founder was a head of product type person, and I think he transitioned, uh, it was about three, four years ago. And really like what changed over time for both of them and then like, I think, just generally like a, a lot of the people that were early at the business, when you go through this transitional period of like private, fast growth, small team to we're gonna go public, we're gonna be a bigger company, it changes what people... the types of people that you may need for that next chapter. And so there was just transition on the team across the board, where we were constantly changing those like fifty, hundred person type company people who really wanted to hustle with no structure to people that could actually continue to hustle with less structure than what most public companies have, but more than a fifty-person startup.
- DSDavid Senra
You have a very, a lot of very interesting ideas on retention of talent, proving every single hire, what happens, like how you actually retain a culture of A players, because you have a couple hundred people. I think ninety-eight percent of your EBITDAs comes from like four hundred people now, something like that.
- AFAdam Foroughi
Yeah, that's right.
- DSDavid Senra
So we'll get to that in, in one second, but I need to understand this. So go back, you almost, y-you almost sold the business for six hundred million, right? Again, we're talking about a business-
- AFAdam Foroughi
I didn't almost. I, I-
- DSDavid Senra
You were four hundred million off.
- AFAdam Foroughi
Having discussions, having discussions.
- DSDavid Senra
So how much of the business did you sell to the Chinese then? Did I understand you, you sold them, uh, uh, ten percent for a billion?
- AFAdam Foroughi
So, so the way it worked, so, so actually like I, I sort of calculated to my ownership today.
- DSDavid Senra
Okay.
- AFAdam Foroughi
After the convertible note round, we diluted about fifty to fifty-five percent until today. So if I took... I own about, I'd say about twelve percent of the company. I owned back then about twenty-four, twenty-five percent. So that dilution is all the dilution we've had between the convertible note, um, conversion to the Chinese, paid out the Chinese, convert them to ten percent equity, bring in KKR, eventually go public.
- DSDavid Senra
There's nothing between the KKR and IP- and the IPO?
- AFAdam Foroughi
Nothing else.
- DSDavid Senra
Okay.
- AFAdam Foroughi
So like, and the IPO, uh, if I recall, was about, I think we sold about like seven, eight percent float. So whi- which i- is really low and probably a mistake in hindsight.
- DSDavid Senra
Why?
- AFAdam Foroughi
You wanna sell more float. If, if anything, like you need float to like lower volatility. We've been one of the more volatile companies. If you push up valuation to where you're round, uh, and IPO is just like a series D, series E. For us, it was our series B. Um, but you end up doing the IPO, and we, we did two billion dollars, I think, over a $28 billion valuation. Too low a float makes you more volatile, and if the valuation is lower and you can do a ten to fifteen percent float, you end up attracting better investors who can end up being long-term with you. If you push the valuation where you can't fill a bigger round, you end up with more volatility and less blue-chip investors, and you're signing up for just a much more volatile time in the public markets, which we saw.
- DSDavid Senra
So after you do this deal with KKR, was there a chance that you were gonna look for another acquirer, or did you know, okay, the likely outcome here is we're gonna IPO?
- AFAdam Foroughi
No. Uh, since then, I don't think I've had a single acquisition discussion with anyone. Um, and by that point in time, I'd realized, well, first of all, we paid a billion-dollar dividend, right? Like, and so everyone was much wealthier than, than when they started, me too. This is more money than, than I know what to do with. So we were past the point of worrying about liquidity, and we were much more in the mode of like, "Okay, let's, let's run this long and see what we can do at that point."
- DSDavid Senra
Is this when I'm reading the email where you're like, "Okay, I thought, I think six years in, maybe this can be a billion-dollar company." Now you're thinking, "Oh, it could be a $10 billion company."
- 46:30 – 51:45
Buying Gaming Studios To Get Data
- AFAdam Foroughi
we closed the deal in 2018. Yeah, we went public in April 2021, so it was about three and a half.
- DSDavid Senra
What does the business s- consist of at that point?
- AFAdam Foroughi
It changed a lot. So when we first started, we, we grew really quickly and, and I mean, we cleared over a hundred million dollars of EBITDA, and we had a very simple algorithm. In advertising business, the algorithm is key if you're doing performance ads. So our very early algorithm was, if you play a solitaire and you play a poker game, people who play solitaire and poker also play these games. And it just pushed you games, and you'd see game, game, game, game, game. Eventually, you download off a simple algo like that. What we realized, um, as really machine learning technologies evolved and, and Facebook built this fantastic platform. Over the 2010s, once they got their mobile marketing platform out, they really did turn ads into content.
- DSDavid Senra
What does turning ads into content mean to you?
- AFAdam Foroughi
If you have a very powerful algorithm on showing users ads that are really good for them, the consumer's gonna discover products that they wanna buy through the ads. And when you can do that, you can show people an endless amount of ads. They don't care about the ads that they're seeing. They're not disruptive. They're actually something that they can engage with. And what I saw was, a- and, and I inferred, that their, their algorithm was way more potent than what we had at the time. And obviously the simple like rules-based algorithm wasn't gonna cut it. And so in 2018, we started realizing we've got to upgrade to a machine learning capability. Other companies are doing it. Facebook's way ahead of us. In order to do that, we need data. And the data that we had were games that people were playing. The data that Facebook had, of course, they had the social graph, but they're pixeled on most of the websites in the world. Advertiser data is very, very important in predicting an advertiser relevant outcome. So by that I mean like if you're a consumer and you're on 40 different sites and you're browsing for different products and you buy four in the last year, that's a very good data set to predict what are you actually interested in. And if you don't have that visibility-
- DSDavid Senra
Which Facebook has and you don't.
- AFAdam Foroughi
Facebook had. We didn't. And so if we were gonna go build a much more robust model, it's very hard to just do it with solitaire and poker data and whatever else other games we had in the system. We needed advertiser data. Now, in, in this case for us, it was inside mobile games, what are you actually spending on? If we could get that data, we could train a model that was a lot more powerful than what we had. What you buy is very much predictive of what you'll buy next. And so that, that was critical for us to go get our hands on that data. We were unable to convince advertisers to share that data with us. Even though they were sharing it with Facebook and Google, they would not share it with us. We were just the small startup, um, even though a billion-dollar company, just this other company in the space that didn't have a need for the data because we didn't yet have the model. So in order to solve that problem early on-I went out and, and we just kicked off buying some gaming studios. So actually, like, the business from KKR investment to IPO ended up looking wildly different than an advertising business because we ended up with, like, fourteen, fifteen different game studios across all categories of gaming that we ended up owning so that we can not only understand what the game developer needs from a marketing platform and a monetization platform, but also use their data inside our model. And so we, we bought the studios. We launched our first Axon one model. That Axon name is the name of our, our advertising model. The first one was more traditional machine learning, but huge upgrade over the first system. And revenue growth started happening really quickly once we brought that to market, but we couldn't do it without owning these studios ourselves and being able to feed data into the model to train it on.
- DSDavid Senra
How long from the idea of we-- we're gonna... Essentially, like, you're vertically integrating, right? And so now you're buying gaming studios. These gaming studios all own a bunch of different games, I assume-
- AFAdam Foroughi
Yeah
- DSDavid Senra
... and they're producing. And so now you have the data of what people are doing inside the games, right? So the idea of, like, how long from the time you had that data till you start buying your first gaming studio?
- AFAdam Foroughi
We move really quick. We have an idea, and we just go. And so one of the nice things with KKR was they were actually supportive in this. It wasn't like, "Let's start analyzing, like, what it is we're doing." It's like, "Adam's got an idea. Let-let's go behind him, and we just made this investment, so we gotta believe he knows what he's doing." And so it was idea to first acquisition almost right away was we have a studio to go buy. Um, it was a studio called People Fun, and then we were building up our own studio internally too. And then everyone was supportive 'cause the logic was really, really sound. Now, the, the fear in why a, a bigger board might have said, "Hey, we don't wanna do this," is we're a platform servicing gaming companies, and everything I've done in my career is be transparent all the time. Like, your reputation and trust can break down at any moment if you violate trust on the other side of things. And so I'm a very transparent person, and we end up in this space where we're servicing the gaming clients, and we're now going, "We're gonna compete with you." And so in their mind, it was, "Okay, the ad platform's becoming now a vertically integrated competitor." And the proof for this was Amazon does this all the time, right? Like, why wouldn't the distribution platform build their own brands? In our case, it was build the brands to get data. It's very hard if you're a client on the other side and you see this to believe that they're still-- they've still got your best interests in mind. And so that would've been the reason you wouldn't choose to do something like this.
- DSDavid Senra
You could make the case to them that what you actually wanted was not the economics of the game. You want the data because you still thought the advertising business was better than the gaming business.
- AFAdam Foroughi
That was what ended up
- 51:45 – 58:20
Losing Trust With Game Developers
- AFAdam Foroughi
over time. So, like, uh, the, the fact-
- DSDavid Senra
Did you think it might have changed-
- AFAdam Foroughi
There, there was a moment in time where a lot of people stopped trusting us in the, in the space because our games were growing really quickly. We were feeding their data into our model. And so the early adopters of our Axon one platform were our own games. So then you start seeing our games grow. On the one hand, you had companies that go, "You're competing with us," who just chose not to work with us. We said, "Fine." That-that's not only logical, it's okay 'cause we made this bet, and we're gonna live with it, and it's really good for our business potentially. On the other hand, you had smaller businesses, small to medium sized inside gaming. They just need any win they can get. And so we ended up with these companies that then said, "Okay, your own studios are sharing your model data. We're gonna share your model data and help us grow our business."
- DSDavid Senra
Yeah, 'cause if I'm them, like, I know your product works because you're using it to grow your own games.
- AFAdam Foroughi
Yes and no, right? Like, you go, "That's great, but then if I feed you data that's helping your own game, so am I fueling a competitor to become better?"
- DSDavid Senra
Oh, 'cause y-you could just clone their game.
- AFAdam Foroughi
That's what the concern would be, right?
- DSDavid Senra
Okay.
- AFAdam Foroughi
Is like, "You're using my data to effectively get into the space and compete with me." Now, you have to know who's on the other side of it. One other interesting data point about me is growing up I played games, but as an adult I hate games. I don't, I don't spend a minute playing games. So, like, it wasn't like-
- DSDavid Senra
Wait, you hate games?
- AFAdam Foroughi
I, I mean, it just consumes time. It's addictive. Like, it, it... Like, for me, myself, like, uh, I don't have the patience to, like, get good at games, so therefore, I suck at games, and I don't like sucking at things, so I don't play games. You talk to these game developers and they, they... Like, what they had to really realize is, like, the company run through me can't be a game developer. I don't even care about the game content. I cared about the data, and I cared about the distribution platform. So once they started realizing, okay, they're never gonna be a good game developer, this is clearly a strategy, it's a means to an end, it started changing things. But it required us-
- DSDavid Senra
Who was telling them that story, though?
- AFAdam Foroughi
I, I, I know a lot of the game developers in the space. A lot of us are now quite close, and over time, like, over the last decade, a lot of us have grown up in this industry together, so we've become close. So it just required a dinner, a lunch, sit down, ask me whatever question you want. I'll say in hindsight, the mistake I made is I'm very transparent when I sit down with people and they start asking me questions, but I didn't convey to the community of game developers directly and explicitly, "We're getting in the gaming business, and here's why." And so people started finding out on their own and then thinking-
- DSDavid Senra
Oh, yeah
- AFAdam Foroughi
... there was some malicious intent when there never was. But then once they sat down with me, it was like, "Okay, now we can overcome that and, like, get down to business. How are we gonna grow your business?" And so a-as a company, we've always had a, a belief that if our clients are improving their business, we're whole. We're, we're good to go. I mean, the gaming, the mobile gaming space, there's very little VC funding. A lot of these companies are bootstrapped businesses. The founders are the key people. The founders are the marketers. Um, most of the companies we work with are not even in the States. They're in Europe and Asia. And so these types of businesses, they need partners that are there to help them. And for a moment's time, because I was not proactive in, in talking about what is our strategy, I broke trust down. Then we got back together, sat down with the, the companies in the space, and trust comes back really quickly when you, you realize, like, it's a communication error, not a desire to deceive. We ended up going forward a-and all of these companies over from when we launched Axon one model in two thousand and twenty to today, they all work with us in much, much bigger scale, and our platform's become the dominant one in gaming. We're, we're probably, I, I don't, I don't know how big, but maybe even almost the over fifty percent of the marketing dollars in the space go back to our platform because the, the developers on the other side are seeing the be-be-best returns that they've ever seen in their existence on the dollars that they're spending on our platform. So their businesses are growing really healthy rates. It's been powered by this desireTo-- by-- from us to build this technology the way we did, and, and interest from them to trust us as the platform to do right by them. And that evolved over the last few years, but it's gotten to a really great place.
- DSDavid Senra
So you sold off the gaming studios?
- AFAdam Foroughi
Aligned with the fact that we were never gonna be good at gaming, we got to a place where the business had grown so much that every advertiser in mobile gaming was now starting to connect into our models and, and work with us the right way. Once we got to that point, we realized we don't need these studios. Headache, it's a distraction. Uh, as you said, the, the-- our core team on advertising is only four hundred people. Well, to run studios is a huge lift. You need a lot of headcount. There were fifteen hundred plus people on those businesses, and it was distributed over the world. So we got to a place where we said, "We, we just can't manage this. It's not in our DNA. We don't know what's going on. We're not paying attention to it." A-and we ended up, um, selling it off to this company whose, whose founder I've known a very long time. He's a great guy. This company, Tripledot, out of the UK. They bought the whole thing, and that was important to us. We didn't wanna go through and say, "We, we own fifteen studios. We're gonna sell off one at a time just to make a profit." So instead, we just priced it down enough to make it enticing to a company like Tripledot to just take the whole thing off our hands, and we did that, I believe it was about a year ago.
- DSDavid Senra
So how many years did you have to own these gaming studios?
- AFAdam Foroughi
From beginning to end, I wanna say five years, roughly.
- DSDavid Senra
Adam is one of the most focused and intense founders I've ever met. As you're seeing during this conversation, Adam is driven to build a great product that serves his customers, relentlessly improve that product over time, and win. And that is exactly what Adam and his team has done with their advertising platform, Axon. Axon connects you to over a billion potential new customers in mobile games. Axon allows you to capture undivided attention. Axon's ads are full-screen videos that are watched for an average of thirty-five seconds, retention that blows other ad platforms out of the water. You can launch on Axon in minutes. You set the goal, and Axon achieves it. No complex setup, no expertise needed. And Axon scales quickly. They can put your ads in front of over a billion potential customers. Other businesses have seen immediate results, scaled to hundreds of thousands of dollars of spend per day, and increased their revenue by millions. So you wanna get started quickly before all of your competitors are on Axon, and you can do that by going to axon.ai/senra. That is axon.ai/senra. You have to have one of the craziest, like, employee-to-market-cap ratios. So how are you able to run a hundred and fifty billion dollar company that's making, what, a couple billion a year in cash flow?
- AFAdam Foroughi
Uh, more than that now. Quite a bit. Yeah.
- DSDavid Senra
Oh, whoa.
- AFAdam Foroughi
I mean, run, run rate-wise, I think Q1 we made... Or, or I guess Q4, what we just announced in, in Q1 was, um, I think it was one point three billion in cash just in a single quarter.
- DSDavid Senra
Okay, so five billion are there-
- AFAdam Foroughi
Yeah
- DSDavid Senra
...a little bit more, uh, per year with four hundred, three hundred and fifty to four hundred employees in the main business.
- AFAdam Foroughi
Yeah.
- DSDavid Senra
How are you able to do that?
- 58:20 – 1:02:00
The 2022 Crash And How He Kept His Team
- AFAdam Foroughi
A couple things happened. When, when we tanked in 2022-
- DSDavid Senra
Why'd you tank in 2022?
- AFAdam Foroughi
This is when the stock mar- stock collapsed 92%.
- DSDavid Senra
Okay.
- AFAdam Foroughi
And so-
- DSDavid Senra
'Cause you went public in, in, uh, in '21.
- AFAdam Foroughi
In '21.
- DSDavid Senra
Okay, got it.
- AFAdam Foroughi
Stock collapses in '22. That's when we, we ended up under a four billion dollar market cap. A couple things. One is I needed to make sure I retained my team. But by team, I don't mean, like, everyone on the team. There are certain people that are just doing functions and are replaceable. There are certain people that are critical to a business and, like, you really need them in with you for the long haul. A-and so what, what I realized was when building a business, you feel like everyone should be a shareholder. I was like one of those, the founders that was like, "You're the janitor, and you should get shares in my business." When we went public and we faced this volatility, we started hearing from... Or at least I started hearing from a lot of people like, "Man, we're way down on our equity this year. Our comp is way lower. Are you gonna true us up? Are you gonna give us stock on the other side?" And super frustrating for me 'cause, uh, uh, you think about the trade on the other end of it. Well, when the stock goes up, are you gonna give your shares back to me? Like, you're not gonna do that, right? [chuckles] You're gonna be happy, and you're gonna get overpaid. And so we had these four-year grants that we distributed to everyone on the team. And what I realized was it's unfair for me to judge because some people just need compensation. If you're getting paid $150,000 a year and fifty thousand of it was in equity that goes down by 90%, now you're at $105,000 a year, you might not be able to pay your bills. Like, you really depended on that equity. On the other hand, if you're a critical engineer and you're paid a million dollars a year and your $600,000 of stock-based compensation goes down to a hundred grand, you're still getting paid 500K a year. Like, okay, there, there's enough money to make ends meet and to ride out the volatility. And so what, what we did at the, the low point for the team was go, "Some people we're just gonna put on cash compensation." Everybody at the company can buy shares in the business, but we don't need to force that decision for people that have lower total compensation, so they can just go cash compensation. We then said, "Who are the people that are, like, critical to the business?" Your key engineers, your key product people. Again, remember, we don't wanna do brand advertising whatsoever, so, like, this wasn't mostly the business people or sales team 'cause we don't even have much of that. This was core product and engineering. If they build a really good product, they build a really good model, we're gonna be able to scale the business. And so we took it down to a little over a hundred people that we give equity to in the business. And why this was important was it forced me to go, "Who are the people that matter? Like, who, who are, who am I really in this with for the long term?" And we had more people at that point in time. We really slimmed down the business to this core group of people and the support around them. But it was important for me to get it to that point because to your point of having A players, A players don't like to work with B, Cs, Ds. I mean, Ds, you're, you're, you're gonna just burn your As out. But, like, anything that's worse than an A player on the team, and you're distracting your best for working with those types of people and, like, trying to bring them up to speed, i-is a huge loss 'cause eventually you end up churning out your As. So I had to not only understand who are the key people, I had to go through this period of time where in '23, e- or I think it was about '23 or '24, even though the business was rippingWe were firing a ton of people. We let go of about forty percent of the team. I think it was '24. The business grew nearly a hundred percent year over year, and we fired about forty percent of the team because I wanted to distill it down to these A players. I wanted to get it to a place where fresh blood, key people, key roles, they're getting equity, they've got a lot of upside, support around them, and then we're lean and mean organization.
- DSDavid Senra
So wait, go into more of this thing, 'cause it sounds like it's going over several years from '22 to '23 to '24. We're only talking about the ads business. We're
- 1:02:00 – 1:07:25
Building An Hyper Competent & Efficient Company
- DSDavid Senra
not talking about gaming studios-
- AFAdam Foroughi
Yep
- DSDavid Senra
... we're not talking about the other, uh, you own, like, a SaaS company that I think has like another-
- AFAdam Foroughi
Yeah, not talking about those business.
- DSDavid Senra
Let's, like, let's just focus on this. H- so now you're, you know, three hundred and fifty to four hundred o- of them today. What were you back then?
- AFAdam Foroughi
Uh, so we were-
- DSDavid Senra
Double that?
- AFAdam Foroughi
... we, we were more, yeah. I'd say probably close to double that. And so this guy, Giovanni, who just started as CTO, he joined, and he, he joined in November of '22, and he's responsible for i- hi- him and, uh, Basel that or the, uh, CTO I talked about, they, they basically together worked on the Axon 2 model. Really, Giovanni led it and then built out the team, and he runs the team now. The reason I raise his name is he came in and he started asking me interesting but difficult questions. Questions like, "Why do we have this person? Why do we have this team? Why do we have, like, these processes?" And i- as a business, you sort of go... When I first started, I didn't want any process. I, I have almost a no meetings rule. Like, it-- I wanted everything to be as highly efficient as possible. But over a decade plus, you inherit some process. You go public, you're told you need these processes, you need these people. Well, you get someone in who's fresh blood, who's really hungry, insanely high IQ person, I mean, one of the smartest people I've ever met, much smarter than I am, and he's grilling me with this question every day, like, "Why is this person in this role? Why is this person here?" Like, "How come this person is a VP to this person, and the person underneath that person is much better than the VP?" So I kept getting these questions, and I was like, either I'm gonna have to address these questions, or I'm gonna risk losing talent like this person or the other people that are talented like him. In doing that, we ended up going... I, I changed my philosophy to culture and how a company is structured. Y- you, you start a business, you have culture, you have cultural values, and, like, you hope those hold true forever. Well, the world's changing really quickly, and the world of technology is changing, and companies are evolving. If you just consider it static, where your culture from day one is gonna hold true over time, I, I think it's a mistake. So what we did is I, I took his questions to heart and said, "At every moment in time, we've got to rethink our culture for what the world has today." And you started having LMS at that point in time, and a lot of automation was coming, and we also had a business where we had these key contributors that are killers, and then we had support around them, but we had a lot of bloat and process. Even we did it despite the low headcount to revenue because of ten plus years of operating and just the way it was. And so I rechallenged it and said, "If I was starting the business today, what would I start it with? What is it gonna look like? What is gonna be automated away in a year or two years? How am I gonna get Giovanni to stop asking me why and just be excited about his role because everywhere he looks, there's a super capable person around him?" And so I went in and just said, "We're gonna kick off a whole bunch of cuts all over the board, a- and we're gonna do it in this hope of getting leaner, but more importantly, keeping A people from getting contaminated so that those A people can be retained, feel like the organization is theirs." And we ended up turning over a lot of tenured people that were here for a long time. We ended up turning over people whose roles I felt like were eventually gonna get automated by LLMs. And if we felt that way about their role, I wasn't gonna keep them in a dead-end job. I want people to go and do whatever is best for them, a- and usually professional and personal growth leads into what's best for them. And if we didn't have that, we were gonna move on from it. And so we just leaned everything up, and it ended up working really well for us.
- DSDavid Senra
That's excellent. Do you think there's a certain size, like a limit to how many... If you wanna, uh, uh, if you're running a company and you want a team of all A players-
- AFAdam Foroughi
Yeah
- DSDavid Senra
... do you think there's a, a- an upper bound to how many employees you can have?
- AFAdam Foroughi
You have two types of employees. You need some support functions, right? Like, a- end of the day, as a public company, like, not everyone can be, like, an A player because they're not in roles to, to innovate. So let's say y- there's some people that are just doing roles to keep the lights on. That's just a requirement. So set that aside. Then you've got, like, your core people, especially product and engineering. We expect our engineers to be product people, so we don't have much of a product org. So let, let's call it core engineering. We expect them to be A people. Now, to, to have a team of A players, you've got to be able to recognize A players. So I know that Giovanni's an A+ player. I know that he has no tolerance for anything that's not an A player. So he goes, and he's very quick to go, "You're either cutting it or you're not on my team, but you gotta be at this level or you're out." And so putting people in these leadership roles that require that level of talent allows me to have confidence that because they're impatient, they're not gonna enable talent that's not, not qualified in these key roles. And so you're always turning over people that don't meet your need, and you're going as lean as possible. Now, when you have an A player, you don't wanna cut those people. Those people are super powerful, especially as we go forward, and you're gonna need lean teams that know how to use AI. Your best people know how to use AI better than your mediocre people, and it's not by a m- some sort of linear function. It's, it's much greater than that. And so our team is constructed to have leaders who are A players or A+ players who can see the A players underneath and who have no patience for anything that's not and are very willing to fire on site. If they feel like you're not cutting it, you're-- this role is not one that you're passionate about... A- and most of our people, because we're lean, are very smart, but sometimes being smart is not enough. You gotta be really into building what we wanna build. And you're not cut out for it, y- you, you get a really good severance, and you go off along your way.
- DSDavid Senra
So this leads me to another thing that I find, uh, remarkable about you, that even to this day, if anybody wants to hire anybody in the company, they have to get approval
- 1:07:25 – 1:19:06
Why Every New Hire Needs His Approval
- DSDavid Senra
directly from you.
- AFAdam Foroughi
So this was a, a funny one. Uh, and, and the reason this came up is there's a period of time we went through turnover in HR, and I took over the HR organization, and I sawThat same period before we did the cuts, we'd become bloated, and I was like, "Why is the headcount so high? Why does it keep going up?" Well, it turned out every time we let someone go or someone quit, there was automatically just a new job placement that went up. It was a job placement as a quote-unquote backfill. So I had a role. This role disappears. I'm gonna automatically rehire, which means there's no way your headcount can go down. Your headcount's only going up 'cause you're still inevitably hiring other roles too. Now, what bugged me about that was we had hundreds of job postings, and in order to hire and train and get value out of a new employee, you're talking about six to twelve-month process. What happens in the period of time when that person quits and you don't have that person? Why do you need to backfill if you can survive without that person, without anyone in that role for some period of time? You probably don't, but it feels better to say, "I want the head."
- DSDavid Senra
Mm-hmm.
- AFAdam Foroughi
And so I took it over and I said, "Look, convince me that you need the person." So we went from somewhere in the neighborhood of hundreds of, of new hires that we're doing a year, um, or at least attempting to do a year to in the tens, 'cause people were so spooked about trying to convince me that they need the role, they wouldn't come to me. And like now it's like if they come to me, I know that they're desperate. It's everything's gonna break down around me. People are working so much that they're-- they really need this extra hire. Okay, go make it.
- DSDavid Senra
I really think what's remarkable about you is you just took this insight that everybody agrees on, right? That the, the value of your company is just the talent, the level of talent that you're, you have in your employees and your team. You only wanna work with A players. There is some kind of upper bound to it. I remember, um, the reason I asked you the question earlier is 'cause like Steve Jobs said that he had only ever seen one company in his entire, uh, history and his entire experience that was all full of A players. He says it was Pixar. He said, but they had four hundred employees, and at the time, Apple had like three thousand. So he says, "Of course, I have three thousand employees. They can't all be, be A players." But what's remarkable is everybody agrees on it, but no one actually does the, the, the difficult job of like making sure that you don't alienate these A players and, and essentially surrounding them with Bs and Cs and other, and other less talented people because you jump to the right conclusion. They're going to leave, and in many cases, they'll just go start their own company.
- AFAdam Foroughi
Yeah, the, the challenge, I mean, like you see it in the, the software world today, the challenge that a lot of companies have now is bloated workforce a-and the talent's mostly mediocre, so what's the solution? You can't just fire people. If you fire half the people and everyone was not an A player, you're just left with half mediocre, and so what do you actually do? W-where we were lucky is that I've always felt I'm a cheerleader for, for the folks on the team. And like for a long time, I was making a lot of the decisions on the team, and I ran product and I was hands-on, but I still try to direct people and surround myself with people smarter than me. And I, I always felt like pretty reasonable IQ, but I'm not exceptionally high IQ. I just see really... I see patterns and problems really well, and I can typically like understand what that problem is and try to propose a solution and move forward. And if I'm wrong, I can pivot quickly and get to a good answer. And so maybe that was the, the skill that I had, but paired with that, I was always humble enough to know that when you hire, you always wanna upgrade yourself. You wanna hire better than yourself at something that you're not as good at. So like the Raf discussion earlier where, where he's exceptional at BD. Well, I don't remember the conversations I had a day ago, five days ago, five years ago, so I needed someone like that, exceptional talent in one-- a function could upgrade me, and so I can go, "He's much better than me at that." A-and so what, what's important in that is that I w-- took the humble approach to upgrade at every level and then be the cheerleader for these people and give them whatever they need to succeed, and that hasn't changed since we started the business. And I think it's very challenging to maintain that, 'cause a lot of times when you're building a business, you start hiring these executives, and these executives come in and they're trained to hire empire build, and they, they build up these teams. And all of a sudden, train leaves the station. You had this core group of eight people, and all of a sudden, you surrounded them with these professional managers and workforce gets bloated. And those really good people that you used to love working with, they get disillusioned. They churn out, and what you're left with is a miserable place. That, that function has held true in a lot of businesses. And because I was so controlling and hands-on, I never let it happen. To this day, we don't have a CRO. We're an ads business. I mean, anywhere you look, advertising business, who doesn't have a CRO? We don't have a CRO. We don't have a COO. We have today the s- the C-suite is myself, the CFO, the CTO, and we have a general counsel. That's it. And so you, you look at, uh, the structure of the business. I made sure that we didn't alienate A people when we found them, and I made sure that they had a perfect environment to grow, develop, and contribute so that they feel good. And if you give them a place to feel good and take ownership and learn as they go, really smart people love working with really smart people.
- DSDavid Senra
So we've now spent many hours talking about the way you think about building your business. The way I would describe it if I had to like distill it down to just a handful of words, I would say it's like ruthless efficiency and like hyper competence. Is this in response? 'Cause it's not common, especially in the startup VC world, where it's just like they just throw money at everything. They have thousands of people or over-hire and everything else. Is, is your like ruthless efficiency and hyper competence in response to something, or is this just how you've always been?
- AFAdam Foroughi
Maybe we got lucky in the, the VCs telling us no, 'cause when VCs tell you yes, they wanna put more money to work. So it's always like you took your round, use a round, hire more people, get to the next level. Don't worry about making money. When we started, I mean, we worry about making money. I didn't wanna put more money into the business. We were there-- I'd made enough not to worry about money, but I didn't make that much, and so we wanted to be profitable. And then once we started getting profitable, what I realized is one of the most important things when I hire and work with someone is I want them to believe that at any given time they're in the best role for them anywhere on the planet. And so I define best role as massive growth opportunity, professionally and personally. I think really good jobs where people become passionate and love their work give them an ability to grow. If you take that away, then they should leave. And a lot of times people get complacent and stick around, but in theory, you should just force them out. And soWhat that means is to give very smart people room to grow, you've got to maintain lean and efficient. I-if you don't, those smart people get bogged down with process, with other people. And I've also found a common characteristic of really smart people is they don't want to deal with other people. They just want to get shit done. And if in the middle of them getting stuff done, they're stuck with dealing with other people, they're gonna eventually get burned out and bail. And so because of this pattern recognition where I knew what would retain this type of talent, I never wanted to waver from the belief that we got to give very smart people plenty of room to own and operate however they want, which is in their own world, highly efficient, limited on process, and, and that kept us lean.
- DSDavid Senra
I'm curious what happened to your better-funded competitors that started either around the same time or after yours. The reason I ask is because I talked to Michael Dell about this. You know, there's a million people doing what he was trying to do, and in many cases, they were doing it in the same city that he was trying to do.
- AFAdam Foroughi
Yeah.
- DSDavid Senra
All better funded than him. Some had raised, you know, I think over a hundred million dollars. Uh, he smoked every single one of them.
- AFAdam Foroughi
Yeah.
- DSDavid Senra
What happened to these competitors you mentioned earlier?
- AFAdam Foroughi
I mean, we're in a big market, so a couple are-- One, one of them is public today. A couple more will eventually be public, but no one's even remotely close to the scale that we operate at. And, and the private ones, like I said, the, the ones that the VCs had funded either sold for very little or are gone. And very common would be raise money, hire a bunch of people. And along the way, I've always gotten the, "You have a huge opportunity. You're doing really well. Why aren't you hiring people?" We have big business opportunity in front of us right now, where a-as we go forward, we're really expanding the platform that we operate in outside of gaming to service companies of any kind to come advertise on our platform. Well, most people look at that and go, naturally, "Why aren't you hiring a sales force? Why aren't you hiring a CRO? Why aren't you hitting it hard?" And because the reason I don't is that now with AI tools, one person who's really good can be as powerful as ten, twenty, fifty, hundred people. And so why would I go hire in advance of that versus go find those single individuals who could be really good, who understand how to deploy agents to tackle jobs that many people would have done before. And so I've stuck to this view with high conviction because I've seen companies do exactly that, hire into opportunity, dilute their IQ, and then you're stuck with a mess. And how do you unravel a mess? If you lose those eight people, there's no way to do it. You're just hosed.
- DSDavid Senra
You know if your Axon model is good or not immediately, right? Because you're like, essentially, you're in the business of selling revenue, I think is the way you put it, right?
- AFAdam Foroughi
Yeah.
- DSDavid Senra
So explain when you knew it was working the way it is now and what was happening before. Like, what was the, the model before that?
- AFAdam Foroughi
Yeah, I mean, so where we are today is, and, and this is where we wanted to get to, which is the product has to be good enough to sell itself. Otherwise, if we're begging for business, we don't have a good advertising solution that's scalable. We don't have the salespeople to go beg for business. And so what does that mean? Well, i-if you're a game developer today and you plug into our platform, you're gonna spend a thousand dollars. You're gonna know with certainty you made more than a thousand dollars on that spend. You may have a business model that says, "I wanna break even on that thousand dollars in a year, and by year five, I know I'm gonna make five thousand dollars." And so you put the thousand in, you get a thousand back in a year, in year five, you're at five thousand bucks. You may have a shorter cycle. You might break even on the thousand in thirty days, and then by six months out, you made two, three thousand dollars. Whatever your business model allows, you're gonna be able to price into our system and generate more money from the dollar spent than, than what you put into the system. Now, what's important about that approach is that they become an arbitrager. The only constraint on them scaling in our system is the money that they have in their bank account. 'Cause if you tell someone, "You're certain to make more money than what you put in. You're gonna know it. Our reporting is gonna tell you. Otherwise, you're not gonna scale," they'll put as much as they have in their bank account, and we will drive as much scale as we can before that arbitrage breaks down. When we took the e-commerce business to the market, and e-commerce is us accessing a billion-plus people playing games, but instead of just showing them game ads, we now show them e-commerce ads. This category started growing really quickly too. We took the exact same approach. Give them revenue for the dollars that they spend, make it measurable, make sure that they know they're making money, they're gonna scale. And if you do that in what I call performance marketing, is that make the advertiser an arbitrager. Very few people define performance marketing as that, and very few companies have executed it. Facebook's done a fantastic job of it. Google, part of their business does this. This is entirely what we're focused on. If they're making money they're gonna spend. And so the models themselves, when we go and create different iterations of the models, we're not a-- we're not a large language model, so there's no consumer interface. We don't need to go, "This is Axon two, two one, two two, two three." But every time our, our research scientists go and improve the model, the goal is, can you drive more spend to the advertiser at their return on ad spend goal? So are they making more revenue, and are they getting more reach? If a large language model gets more accurate, you prompt it, you're gonna get a better output. And so-- and, and obviously, the, the use cases go up. If we get more accurate, the prompt effectively is, advertiser has all the, the budget and has these goals, and can we deliver more accuracy for them? Can we get them more scale? Can we get them more spend? So we're constantly doing iterations on our work and doing tests in our experiment framework to try to extract more value. More value is get the advertiser wealthier. They get wealthier, we get wealthier.
- DSDavid Senra
I remember seeing a graph that's like inflection point.
- 1:19:06 – 1:21:15
The Axon 2 Inflection Point
- AFAdam Foroughi
The business itself inflected big time in, I think it was April 2023, when we rolled out Axon 2. The Axon 1 model, I mean, the first version, like I told you, was just a rules-based system. Axon 1 was more traditional machine learning. Axon 2 was a deep learning model, much more complex, much higher ability to create these predictions of value for advertisers. So it went from the point of, like, no ability to do what this value proposition was that I had in my mind, which is turn the advertiser into an arbitrage marketer, to Axon 1, they can get there, but they have to spend a lot of money. The model has to learn. They have to do a lot of manual labor to get to that point.To Axon 2, any advertiser can just plug in, get going, spend money, get revenue on the other side, and make a spread. When you have that product and it's very, very scalable, the business can grow a lot. And so we, we went in from, m- I think it was April 2023 was when the stock was nine, ten, eleven bucks, to we peaked, uh, it was probably six months ago or so, at seven hundred and fifty bucks. So the valuation went from under four billion to a peak of two hundred and fifty billion. Now, we've come down some since, but the business is still doing phenomenally well. And the only way we could have grown like that on market cap was if the business fundamentals grew as well alongside it, and it truly did. Our growth has been phenomenal over the last three years because this Axon 2 model was so powerful in delivering this kind of value for advertisers.
- DSDavid Senra
When somebody might have heard you say, "Hey, you know, we, we're not-- we don't, we don't have, like, specific market cap goals, but we do have a plan in place for some of the key players for compensation that goes all the way up to, like, a trillion-dollar market cap."
- AFAdam Foroughi
Yeah.
- DSDavid Senra
Might sound a little crazy, but not if... It seems like you just have a ton of, uh, tailwinds, like A-AI tailwinds for this specific business, not only the actual pro- what the product is, but h- your, like, ruthless efficiency and hyper competence with only, uh, like, having a small team of A players. Obviously, you have somebody who's really gifted. They could be... It's not one employee. You don't really have four hundred employees. You could have four-- you know, them doing the work of four thousand.
- AFAdam Foroughi
Yeah.
- DSDavid Senra
Explain, like, how just even the last, like, three or four years, how AI has transformed the way you're running the business and the impact on the business.
- AFAdam Foroughi
Uh, I mean, for sure, like, the, the tools that are available, and I'd say, like, w-
- 1:21:15 – 1:26:22
One Great Engineer Now Beats A Hundred
- AFAdam Foroughi
as we've all seen, there's been breakaway speed on the, the potency of these technologies over the last few months. Y-you've got small teams can do much, much more. So it's huge. I mean, we, we over, I, I think it was about a year and a half ago, over eighty percent of our code was LLM written, and now it's much higher than that. And so you've got the ability for the LLM paired with really exceptional engineers to create more output. And this isn't like, like, if you lived in a world of B players, your one X engineer might be two X more efficient, but your ten X engineer might be a hundred X more efficient. Not only can they go out and accelerate the rate of speed that they can create experiments and improvements on machine learning models, th-the LLM can also process all the research in the space. These are research-oriented sectors, open source. But five years ago, us humans couldn't have gone and read all the research and understood it. Now, very smart people who understand math and research can go use the LLM, pair with it to create the future experiments off all the research that's out there, not, not believing they're missing anything because the LLM is scraping everything in. So massive amount of potential for efficiency gains, and we're built on a deep learning model. So as these technologies get more powerful, the predictive value goes up. Now, what does that mean? Well, for us in our business, on, on one hand, we have a billion users who are playing games, billion-plus users who are playing games every single day around the world. In the US, it's over a hundred and fifty million, only adults. So penetration into the world is high. The power user who plays games is not the same twenty-one-year-old who's on Instagram for six hours a day. The power user who's playing casual games, Candy Crush, for two to three hours a day, as an example, is more of like a middle-aged person who has more time and is just getting relaxation here. That's the framework. So we have this really good audience, a billion-plus, good amount of time spent, and they're willing to watch an ad, and they're willing to watch an ad for a long time. Our average ad is over thirty-five seconds long. It's like a television commercial on the mobile device. So the framework is really good. What we show in that ad is only gonna get much better as the technologies get better and we service more customers. And if you think about a couple of years ago on our platform, we only served gaming ads. We used to take a user and say, "Game, game, game, game, game." If you weren't in the business of switching games, that's a pretty bad ad format to show you. Well, now, as we've gotten into product ads for e-commerce businesses, and really, as we go forward, it'll be for any kind of business in the world, the diversity will go up. The technology is already capable to do it, and then the value to the end consumer will go up. And that whole thing I said earlier of the ad becomes more like content. The hope we have is that we can get the local laundromat discovered by someone playing a game because we serve a really good ad to someone who needs their clothes washed. If that happens, and we get to that level of scale, this business is gonna be much, much bigger than it is today, and the opportunity for us to really impact economic growth for businesses that are small to medium-sized is gonna be much bigger than it is today.
- DSDavid Senra
So you go from gaming to e-commerce. Th-you literally just-- my next question was gonna be like, "Well, what other kind of businesses do you want to expand out to?" You really believe that you can do this for every single segment?
- AFAdam Foroughi
When you have this many people who are playing games, and they're middle-aged, the only limit is the technology for targeting and the customer on the other side. And I fundamentally believe the biggest opportunity we have in-- as a business is help the small to medium-sized businesses. We don't have a sales force, so eventually we'll get the large enterprises because they're gonna come to a platform as big as ours. But we're not out there selling them. We wanna help those small to medium-sized businesses. What made us really successful in gaming was going to the companies that really didn't have much support at most of the other businesses and going, "Look, you're ten people. Let's work together. Let us grow your business." There's a company that recently exited out of Turkey in mobile gaming that I believe was, like, ten, fifteen people and sold for a billion dollars. They sold under one year from launch for a billion dollars. Almost all of their business growth on the marketing and monetization side was built on our platform, and they had a fantastic game that was super innovative around that. But because our platform's built for this, we were able to help a company like that, and that makes us feel really good. So if we can translate that into these other categories, to the local laundromat or to the company that spins up a Shopify store and is selling lipstick and has some cool spin on selling lipstick, and they launch on our platform, and they can really ramp up, we'll feel really good about ourselves.
- DSDavid Senra
Is this targeted for, like, direct to consumer? Do you, do you think you'll be doing this B2B as well?
- AFAdam Foroughi
Eventually, we hope to tackle the consumer market and the enterprise market. There's no reason not to because, again, on the other side, if you have a billion users, and they're adults, they have jobs as well. If we get to the point where our technology can do the targeting across every consumer category, I'm pretty sure it's gonna have no limit when it comes to the enterprise side as well.
- DSDavid Senra
Like the way you run the business. This conversation had no fat on it. Thanks very much for making the time, Adam. This was awesome.
- AFAdam Foroughi
Yeah, thanks for having me. This was really cool.
- DSDavid Senra
I hope you enjoyed this episode. Please remember to subscribe wherever you're listening and leave a review, and make sure you listen to my other podcast, Founders. For almost a decade, I've obsessively read over four hundred biographies of history's greatest entrepreneurs, searching for ideas that you can use in your work. Most of the guests you hear on this show first found me through Founders. [outro jingle]
Episode duration: 1:26:23
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