Luca Ferrari cannot run an $18 billion balance sheet on cuts
By Klaus Berger · Reporting from Frankfurt ·
On Sequoia Capital, Luca Ferrari outlined his strategy of acquiring legacy software companies to hold forever, but squeezing headcount and rewriting code cannot protect Bending Spoons from the laws of capital depreciation.
On the Sequoia Capital podcast, Luca Ferrari delivered a sharp verdict. Graduating from Harvard or Stanford scarcely predicts whether an employee will perform. Ferrari, the co-founder and chief executive of Bending Spoons, told the host Brian that elite diplomas offer only a marginal edge. Entitlement often cancels it out. Instead, his Milan-based software acquirer screens candidates using quantitative models and idiosyncratic signals. Last year, it received 800,000 applications and hired fewer than 300 people. Unscripted interviews, Ferrari argued, produce useless noise. In their place, his team deploys mathematical testing to identify high-aptitude generalists rather than seasoned industry veterans.
Screening out pedigree does not eliminate balance-sheet risk
Ferrari’s operational philosophy rests on an audacious financial design. Valued at $18 billion in equity at its initial public offering, Bending Spoons rejects the private equity model. It buys digital software companies—including AOL and Vimeo—directly off its own balance sheet to hold forever. Once acquired, these businesses cease to exist as independent entities. They are stripped down and replatformed onto a single proprietary cloud architecture. Fluid engineering teams replace 200 previous employees with 20.
The ablest advocate for this approach has a formidable case. Silicon Valley carries heavy administrative bloat and executive vanity. Bending Spoons buys mature products with sticky user bases and prunes overhead. It compounds capital without the debt-fueled flipping common to buyout funds. Operating out of Milan allows Ferrari to hire exceptional European engineers at competitive wages. His core team records negligible regrettable turnover while rebuilding neglected codebases.
Yet this structure violates the core ordoliberal rule: the liability principle. When private equity houses stumble, losses remain ring-fenced within individual fund vehicles. By housing acquisitions on a single balance sheet, Ferrari concentrates structural liability. Replatforming disparate products onto a shared technological foundation creates immediate efficiencies. But it also creates a single point of failure. If an architectural defect or systemic security breach hits that core platform, the entire portfolio carries the contagion.
The conglomerate discount always collects its due
The long record of serial acquirers reveals what follows. From diversified conglomerates to modern holding companies, acquiring mature cash cows to finance further purchases inevitably collides with capital depreciation. Legacy software assets like AOL do not suffer merely from bloated payrolls. They suffer from structural obsolescence.
Replacing 200 staff with 20 produces a sharp, one-time margin expansion. But cost-cutting is an exhaustible arithmetic exercise; it cannot manufacture organic revenue growth. To sustain compounding at an $18 billion valuation, Bending Spoons must acquire ever-larger targets. As the portfolio expands, the premise that twenty-something generalists can rewrite codebases and manage dozens of disparate consumer products will inevitably dilute. For this model to escape the conglomerate discount, software engineering would have to be infinitely fungible across every market. History shows it is not.
European policymakers looking to Milan for a digital industrial model should not confuse operational triage with enduring capability. Arbitrating transatlantic wage differentials and extracting margin from aging American software properties does not build a durable technological base. When cost reductions are exhausted and underlying user bases erode, the liabilities accumulated on Ferrari’s balance sheet will demand a reckoning. No quantitative hiring filter can avert it.