Bootstrapping a Business to $5 Billion in Free Cash Flow | AppLovin’s Adam Foroughi

Tell me about the billions of dollars of stock buybacks you did.

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 during COVID in April 2021. The company was worth about $28 billion and went up to $40 billion in the first 6 months. We were all excited.

The stock went down from there, literally every day for all of 2022. We got to a floor of, I think, around $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. What do you do?

At the same time, interestingly, we went out with $700 million of EBITDA in 2021. We did more than $1 billion of EBITDA in 2022. We were growing fast and executing on the business, yet public-market investors were telling us the business was terrible. It was what it was.

Why did they think the business was terrible?

It’s a tough space to understand. First of all, we’re in advertising and gaming, and those are 2 tough places to be in the public markets. The other challenge was that we went public during COVID, and there were just way too many IPOs.

Once you learn the public markets, which I’ve learned a lot more about now that we’ve been public for 4 years, you need really big investors to start buying shares in companies early on because you have your private-company investors trying to sell shares. On the one hand, you have this imbalance: a flood of shares that are going to come to the market.

With all the COVID IPOs, the big funds—companies like Fidelity, BlackRock, et cetera—weren’t doing as much research on any new IPO because they couldn’t tell the difference. There was just too much hitting the market. We ended up with a cap table that didn’t have support, and then shares started selling into the market.

The stock crumbles, and you start going down every day. People look at the company and say, “Something’s wrong with this company. What’s happening?” It’s really hard to look past the stock price and say, “Let me look at the fundamentals and try to assess what’s going on.” You’re out there, and it’s like catching a falling knife. What do you do as an investor?

We were thrown out. It’s easy to say, “We’re down 92%. Hang it up. What are we going to do?” You start getting reactive and defensive. Instead of that, what we ended up doing was 2 things.

One is, the whole world doesn’t like our shares, so if no one’s going to buy our shares, why don’t we just start buying our own shares? We kicked off a really successful buyback. At the bottom, the company had a $3.8 billion market cap, and we were generating over $1 billion of EBITDA.

You think about the cash flow-to-market-cap ratio: it was about one-fifth, which we were generating every single year. 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.

We kicked that off, but we did it a little bit differently from what most companies do. Most companies go out and say, “I’m going to 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 going to be sold 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 who were no longer there.

Instead of going to the public, we went to the shareholders we knew were going to sell and got them to agree to sell back to us over time. For the following 18 months, we ended up deploying somewhere around $6 billion of buybacks of our own capital, and we levered some to buy back shares in the company. Over time, that ended up creating somewhere in the neighborhood of $50 billion to $60 billion of actual proceeds from the buyback, one of the more successful buybacks in the history of the company.

You bought back around $6 billion. You made about $60 billion on that $6 billion.

On the other side of it.

Where did you get the money? You said some of it came from earnings of the company.

We leveraged as well.

Where did you borrow the money from?

And was anybody telling you at the time that you were nuts for borrowing? You were down to a $3.8 billion market cap, right? Explain the difference between how you were thinking inside the company versus the world telling you about your business. There had to be a lot of people around you saying, “What the hell is wrong with you? You’ve got to be nuts going into debt to buy back—”

Yeah.

—your stock in this shitty company.

A lot of times, people like to be conservative when it comes to cash. To lever up is scary to people. But to lever up to buy your own shares when everyone’s telling you your company is a piece of shit—that’s really scary to do.

I never believed in saving cash for a rainy day. I’m a big believer in what we’re building. I believe in where we’re going. If I believe in the future, and we’re a really high-cash-generative business, we should always be buying back our shares.

At a bottom point where the valuation became that juicy, there was no reason to be afraid of it. The good news is, I don’t have a lot of experience with boards—and we can talk about that in a bit—but our board was very supportive because it’s not rocket science.

You look at a multiple of 5 times cash flow and say, “Okay, why don’t we just buy all the shares? Buy as much as you possibly can.” Because it was so cheap, and we had a lot of conviction in our future growth prospects, we just hit it as hard as we could.

Explain what you mean about not having a lot of experience with boards.

When we first started the business, I went out and talked to VCs to raise capital, and I was turned down by all the top VCs. I was trying to raise $1 million at a $4 million valuation sometime in spring 2012.

Wait, that was your first—

All rejected. That’s what I pitched. I would’ve given up a quarter of the company for $1 million. It would’ve been a big payday for those VCs.

And they said no.

They said no because, again, we’re in advertising and games, and it was a tough pitch. This was my third business.

What year is this, though? Because I think people—

2012.

2012. People hearing you say, “We’re in advertising and games,” now think those are some of the most profitable businesses in the world. What wasn’t happening in 2012, though?

What was challenging for VCs back then was that Google, Facebook, and Amazon were in this space. Why would some goofy-named little company that was trying to develop something be able to compete with the giants?

I think the failure in the logic was failing to see who the founder was. Bet on the person. A million dollars over a $4 million valuation gives you 25% of the company, which is a pretty good deal. You also had to understand that the space itself—mobile gaming and mobile apps—was nascent at the time. It hadn’t become as big as it is today by any stretch of the imagination.

Where we got lucky was that we bet on that space. The mobile-gaming space that became massive was very small back then. Those were misses on the VC side.

Your previous advertising business was desktop-based.

Yeah.

So, the advantage you had starting this other company, which is AppLovin, right, is that you saw the shift from traffic from desktop to mobile at the very beginning.

Yeah, we got lucky in that, too. I built a business on social media in 2005 in advertising with a few other guys, and then had another one in 2008.

When you’re on desktop and you’re in social, and then the mobile app store launches and you start seeing your traffic shift really quickly, but nobody’s talking about it, it’s a huge data advantage in a market.

What ended up happening was, in 2010, I had sold those 2 prior businesses with others and just went over to Palo Alto and said, “Mobile’s going to be big. I don’t know what we’re going to do in mobile, but mobile’s going to be big.”

Funny enough, because we’d had quite a bit of economic success, I didn’t want to do advertising again. Advertising is a tough deal.

Why?

It’s really hard to get excited about being an advertising person for 20 years. Now I’m sort of life-committed to it, and I’m pretty good at it, but at the time I thought, “Look, we succeeded in advertising. Go try direct-to-consumer something.”

Why would you want to go from B2B to direct-to-consumer?

The grass is always greener in everything. It felt to me like I’d already conquered advertising. Why do I need to do it again? That was so far from reality because I’ve obviously proven you can build a much bigger advertising business than I imagined at the time, but I felt like it was tough. You’re dealing with the client on the other side.

When you’re an advertising business or any B2B business, you’re trained that the client’s always right, so you’re on the other side of that trade. If you own the consumer, then you own your destiny.

I felt like it would be a lot more fun to build a consumer business, and we tried. In 2011, we launched a dating app and a fashion app. Both were terrible.

So, a married guy is building a dating app.

Yeah. Yeah.

And every time I see you, you’re in the same clothes.

Yeah. You made a joke about that earlier. I have about 4 outfits. I have zero fashion sense, and I was married at the time. Two terrible ideas.

They were pre-Tinder, though, and we launched the fashion app right around when Pinterest launched. They were down the block from us, so there was obviously opportunity in those markets.

We were not the right teams to do it.

Well, you just wanted to have an app because you saw everything shifting there?

Yeah, I wanted to have an app because I wanted to own the audience before we got into anything else. And so, actually, that transitions to the third app we launched, which was the first version of AppLovin. It was an app-discovery app, and I think it was in late summer or fall 2011. You and I would 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, potentially, this App Store is going to be bigger than people realize. There’s going to be a ton of content. This app stinks, but this recommendation algorithm is really cool.” And so, that’s what really turned into what we became: We took that recommendation algorithm and eventually launched it as an advertising platform on another app.

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You said you had 2 other advertising businesses. You sold them, so now you’re going to try direct-to-consumer. You’re going to build these apps, the precursor to AppLovin. Were you already rich at the time?

I was rich enough to not need more money, in my mind. Unfortunately, the line on that always goes higher 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.

Were you bootstrapping because you wanted to bootstrap, or because the VCs would not take 25%?

No, that predated that. I didn’t believe in selling to investors—

Okay.

—an idea that I wasn’t confident in. So, I figured 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 when I’m going to pivot a bunch, I don’t want to deal with investors.

So, we actually set it up as an LLC early on. The nice thing is, you put $1 million into an LLC, you lose $1 million, you get back $500,000. So, we had a tax-efficient way to bootstrap against whatever earnings we had elsewhere, and we did it. We covered the cost of the engineers at the time and 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 going to be an advertising business.

Were the other 2 companies you started before this also bootstrapped, or did you raise money for those too?

One had investors. I’ve had co-founders at all 3 businesses. In the first one, I had investors, and I was the junior co-founder. The second one, which I was a co-founder of, we had just bootstrapped because we’d launched an advertising business on social media, and it was profitable right away.

Okay. So, now you have this idea, this app-recommendation app. What happens next?

So, nobody’s using the app, which is shocking. People use apps with hot people in them, and this was an app of apps. But we realized that if you’re going to download at a really high rate based on a recommendation we can send you, we don’t need distribution on the app. Why don’t we just distribute our technology inside all these other apps that are coming into existence? It wasn’t rocket science back then. We just realized, “Let’s go build an advertising platform around this construct,” and so we did that.

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 2012. So, we scrapped the app-discovery app. AppLovin became this ad network. We launched it to market.

Now you’re back to ads.

Right back to ads. But what was interesting—full circle—one, I didn’t like to lose, and when we did direct-to-consumer, it was like, I had no idea what I was doing. The “not into dating, not into fashion”—all true. We had no idea how to take a direct-to-consumer business to market, 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 going to be big, there was no reason to shy away from ads. At that point, we were just like, “Let’s go.” We packaged up the technology, put it live, and then from the moment we got into the market, the business started growing really quickly.

How did you find distribution for it?

These other app developers were desperate for money. So, at the time—it’s like 2012—the App Store was full of calendar apps, fart buttons, flashlights, and the beginning of games. You had Candy Crush, Clash of Clans, and some simpler games at the time. Not many, though.

These developers needed money, and so we just went out and said, “Look, you’ve got 1 million users on this calendar app. We’ll pay you $10,000 a day. Just put our ad platform in there.” It was up to us to make it spread on there.

What was their alternative? If they didn’t go with you, what other decision could they have made at the time?

At the time, Google had bought this company, AdMob, in 2008 for—I think it was nearly $1 billion. 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 outcompete Google at that point in time.

How?

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 it in their mind that we’re just going to take money from brands, create a spread, place ads, and off you go. That’s what the AdMob business was back then. It’s a lot different today.

When we went to market, we didn’t want to sell to brands, so it was never a consideration for me. We could talk about it, but it was a one-week consideration. It is a tough thing to sell. I went over to New York in the early days. Everyone told us 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 who are wining and dining the client the most. I didn’t want to be in that business. I wanted to be in the business of no sales, high-value product.

And so, what was different about us compared to AdMob was that we went to the developers themselves. We said, “Look, on the one hand, allow us to place our ads inside your app. On the other hand, you need more users for your calendar app, your game, your fart button, or whatever it was. Run an ad on our platform, and we’ll get you users on the other side.”

The very, very beginning was—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, can monetize and create a spread, you effectively become a company that can arbitrage our platform. Then you can scale your business. And so, we built tools for the developer instead of building tools for the brand, and that really served us well at that point in time.

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? There was no other platform like yours doing what you were doing then?

There were a couple of other companies that were just starting to exist too. It was interesting because—

They had your same idea, though?

At the exact same time, a few of us had the exact same idea. So, you had this—

Independent of one another.

Totally independent. It’s also funny: the same VCs that rejected me put a lot of money into those companies, and that was very motivational. We had it as a goal to put those companies out of business.

Why do you think the VCs turned you down when you had 2 successful advertising businesses before, and yet they’re funding your competitor, which has the exact same idea without the previous success in advertising?

I’m terrible at sales, so maybe it’s that. But maybe it was that this market was a little bit further along at that point in time. I think VCs tend to look at a market, and they have to have high conviction in it. 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 going to grow pretty quickly.

Our revenue ramp, from when we launched in March 2012 to November, was pretty significant. We did an angel round, put our own money in, and that was it.

What do you mean, that was it?

We raised $4.25 million pre as a convertible note to common in November. The business by that point had gotten to a $1 million-a-month run rate. So, we went from launch to a $1 million-a-month run rate and were profitable in 8 months.

How much profit do you think you were making on a monthly basis out of that $1 million?

Barely. It was a little bit profitable.

Back then, to build a business in mobile and have it go from 0 to a $12 million run rate in that short amount of time was really phenomenal. Nowadays, ARR ramps are astounding, and so are valuations.

Once we did that, it was easy to recruit investors in November. It was more a round for a few folks that I’d known for a while, and a few other folks that I thought could be helpful to the business, and to put my own dollars in. We did that round in November, and then we didn’t raise another round.

So, back to the board point: we did raise another round that was for more liquidity later, but I didn’t have a board in this business until 2018.

6 years later.

Yeah, 6 years later, when we actually closed a round from KKR.

This story’s wild. We’re definitely getting to that.

Yeah. It was a messy path. I’d say there were pros and cons to not having a board. The pro was that I made every decision. On every share certificate, it was literally my signature as the president, the vice president—everything. I think I had 3 or 4 signatures on all the share certificates. 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’d had a board and people who understood a lot of the things that I ended up navigating poorly.

Can you give us some examples of that?

In 2014 and 2015, we were growing really, really quickly. In 2015, I think it was about 3.5 years post-launch, we were going to do about $50 million of EBITDA, roughly. That’s a pretty big ramp-up. Again, back then, I was wealthy enough, but the rest of my team wasn’t, and so this was 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 other tech companies to buy us, and we got an offer as high as $600 million in cash.

From Snapchat?

No. I cannot talk 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 the companies that we were engaging with might have been even tougher for me to imagine being an employee at.

At this point, the business was really— all roads ran through me—as a really hands-on executive. The challenge with that was we were still growing 100% year over year. So, when you’re going and trying to do a deal, and someone pushes a term sheet toward you and goes, “Look, there are a lot of zeros: $600 million,” you’re like, it is a big number, all cash, 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. 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.

What was the number?

It was quite a bit higher. It had to be around $1 billion at that point in time.

Still, only $400 million.

Yeah, it wasn’t that much.

Could you imagine if you would’ve made that mistake?

Yeah.

What’s your market cap today?

Roughly $140 billion today.

It would’ve left a lot of money on the table. Now, look, most businesses, when they sell, lose the opportunity to keep innovating. Had we done it there, none of us would’ve known what this could’ve become. So, it was a little fortuitous that I had enough conviction not to take an offer in that range.

I want to go back to the mistakes you were making—where you were just saying, the mistakes in the capital markets that you think you could’ve avoided if you’d had a board. I want to go back to that, but I want to take a small tangent because Raff, who maybe you should explain who that is—

Yeah.

He sent me a bunch of notes on you.

Yeah.

The reason it just came to mind is that he remembers getting an email. I think he actually sent me a copy of the email where you were like, “I’m pretty sure we can build a billion-dollar business here, guys.”

Yeah.

And then, a few months later, it was like, “Maybe it could be a $10 billion business.”

It wasn’t a few months later, but—

Can you describe who Raff is, though?

Yeah.

Because it’s a crazy story.

So, he’s a high school dropout. He started working for me at my old company when he was 16.

He’s worked for you, or with you, for over half his life.

Half his life. He’ll turn 34 this year, so, yeah, he’s worked alongside me for about 18 years. I consider him a little brother, like a co-founder—a person at the company who’s made a huge difference. When we started here, he was the first business hire alongside this other guy at the time.

Didn’t he try to hire you first, or what?

Yeah, he tried to hire me for some business he was working on, and I laughed in his face.

But he was how old?

He was like 19, right?

Yeah, he was 19. Then you tell him, “I’m not working for you. Your business is shit,” is the story I’ve heard.

And I spun it to him like, “I’ve got a good opportunity for you, though,” and he shut that down and came over. But he was great. For the first 6 months, he lived in the office, and we were in downtown Palo Alto.

But that’s not a figure of speech. He had a bunk bed in the office. I can’t remember where he showered. I think we had a dingy shower.

Yeah, he actually lived in the office.

He had a bunk bed in the office.

Yeah, he had a bunk bed in the office. But one day, someone tried to break into the office in the middle of the night. We caught him on video. It was hilarious, but I think that was it. He was like, “All right, it’s been 6 months. I’ve got to get the hell out of here.”

But he was there 24 hours a day. His super skill is striking deals and doing them better than almost anyone. He can sit down with you and have a conversation today, and 15 years later, he’ll remember every word in that conversation. I forget what I did yesterday. So, as a counterparty to me, he was great.

He ran our business development efforts, and he was really helpful in it. Now he runs marketing and growth marketing. That’s why you guys ended up intersecting.

We ended up with just this group of people who almost were outcasts from other places. One of the things I always looked for in hiring was someone who had a chip on their shoulder—someone who had a reason to push hard. I had that myself, and we can talk about that if you care. That was always what drove me. I had a reason to be driven, and so I always looked for that in people.

You have this kid who’s a high school dropout. Anywhere else, he’s not getting a job at a big tech company. But he had skills that smoked everyone else when it came to selling, with charisma through the roof. Seeing that, I knew: bring that person in, empower that person, and they’re going to be hungry. They’re going to push, and they’re going to push harder than others. That was a formula we always had.

Even today, he goes from high school dropout to a billionaire. Dude, I can call him at 11:00 at night on a Sunday, and he’ll pick up.

Yeah.

He’s still very, very hungry and pushing it.

He still talks to advertisers who laugh and go, “Dude, you’re asking me for an extra $5,000 a day. You’re a fucking billionaire. What are you doing?”

All of us are that way. Again, it comes back to you’ve got to have a chip on your shoulder. There has to be a reason, because it’s easy to go, “I have a lot of money. I’m not going to take that conversation,” but that’s not how any of us think.

I was watching this new documentary on Rupert Murdoch and the crazy shit that’s going on in his family. It’s on Netflix right now. They said that he had a chip on his shoulder, and he’s been holding a grudge for 45 years about these people who destroyed his dad’s media company. I was like, I don’t even have any grudges, but I don’t know if I could hold one for almost 5 decades.

Sometimes you don’t forget where you came from. Mine was that my family was uprooted out of Iran.

We ended up coming here when I was 4, but my dad had one of the most successful real estate development companies in the country. He was loaded, very successful back in the day. Thousands of people worked for him, and we got booted out of our country. Growing up, I could just tell a big part of him was lost, and he wasn't whole, and so I felt this obligation.

It didn't kick in for me until later, but I always felt this obligation that I had to do whatever I could to prove that I could have the utmost success, because he gave everything up to bring us over. That's never gone away. I still think to this day, one, this notion that you can reach a point of success—I don't know what that is, but it's a moving target. I'm nowhere near that moving target. And two, you've always got to be pressing.

And so, I always looked for people on the team who had some reason to have a grudge or a chip on their shoulder as something that would motivate them. If they didn't have that and life was really easy, those were not people that I was going to introduce to the company.

You strike me as a person who wakes up a little paranoid every day.

I feel like most successful people are. There was a long time—and I don't know if I'm past this yet or not, probably not—when I'd wake up every morning and go, “I've got to check stats. Are we going bankrupt today, or are we still doing well?” Certainly, at the scale we're operating at, we're probably not going bankrupt, but you check to make sure the lights are still on and things are still working. I wake up at the exact same time every day. I do the exact same morning routine every day. I check the same stats, and it just gets me going.

This is a theme on this show. Does anybody accuse you of being autistic?

Sometimes. My wife will accuse me of that. I think it's more popular these days. I don't know that I'm autistic.

No, I don't think you are.

Yeah, I can look people in the eye when I talk most of the time.

Although I didn't think Brian Armstrong from Coinbase was autistic, everybody who knows him is sending me messages like, “No, he's definitely autistic.” But he's got a great personality. He's a great storyteller.

Yeah, if you knew me 25 years ago, I'd be deemed a lot more antisocial autistic than I am now. I think a lot of good founders can follow patterns and figure out how to do things. There was a point in time when I never would have sat in this chair across from you. I would have been too nervous.

At my first interview out of college, I walked in with a suit, and I literally walked out just drenched. It looked like I got out of a rainstorm. There was a point in my life when I was a lot different, when communication was a requirement. Now I know that it's just a requirement to doing the job, so I've got to do it well. I think a lot of people, whether it's autism or just figuring out how to functionally be appropriate in the things that are necessary to get forward, have to solve that. People who do well in these types of roles have to solve that.

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So, let's go back to the mistakes you thought you were making. Go back to 2015.

Not taking the big offer was a bonus for me, because if we had a board of investors, I may have faced pressure to take the offer. Being able to make my own call on that was like, “Okay, this is great.” I didn't actually have that pressure. The downside was that the second you say no, and parts of your team know that you turned down that much money and can run the math and go, “I would have made this much,” you end up with a lot of pressure to do something.

This was late 2015, and I had a finance background. I was a derivatives trader out of school, so I understood multiples. I understood capital-markets arbitrage. In late 2015, what was going on in the markets was that you had Chinese investors buying a lot of U.S. tech companies because the Chinese capital markets had just opened up. The market over there, their NASDAQ—its H-shares back then—was ripping.

And so, you had these investors coming in and saying, “I'm going to deploy Chinese capital into a U.S. company and then go list that U.S. company in China, make a big spread, call it a day.” I went out to talk to some of these investors and ended up announcing—I think it was sometime in 2016; I don't remember the exact date—a private equity investment in the company of $1 billion, at a valuation of over $1.4 billion.

Who's this investment coming from? A Chinese company?

It was China-based, and Orient Hontai Capital was the name.

Okay.

This was a small team. I met 4 guys—really good guys. We hung out in China and got along, so I liked them, and they came in and invested.

What's the state of the business at the time they're investing?

We're still growing 100% year over year. I think at the time, part of the dollars were based on us doing 85 million of EBITDA in 2016.

Okay.

And so, the deal structure was: if you can beat this number, you get full value. Now, the structure of the deal was to clear out most of the cap table. Most of my shares would remain. Anyone else who wanted to roll could. And then we would take the company public in China.

Now, I speak maybe 5 words of Mandarin. I wouldn't have been a great China public-company CEO. They thought I'd be charismatic and appear well, but with no communication, probably not a good idea.

The other thing I didn't know—and this is where a board would have been helpful—was that, at the same time, President Trump had just been elected to his first term. This was actually fall going into winter of 2016. President Trump had just been elected, and the geopolitical climate was getting worse. With China and the U.S., there was a lot of suspicion around what these Chinese companies were doing buying all these U.S. tech companies.

I felt like it was just an arbitrage. It was like, “Whatever, people are trying to make money. Who cares?” I didn't even know what a state-owned business was at the time. It turned out that after we announced the deal, you still had to go through regulatory approval, and we were doing a cross-border transaction. The regulatory body that governs cross-border transactions is this committee called CFIUS.

This committee exists to ask, “Is there a national security threat with this foreign money coming into the U.S. to invest in a U.S. company?” I didn't even know what this was, but 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 that you had to go to D.C., and you had to convince this committee made up of every government agency. There was the NSA, CIA, FTC, DOJ—everyone was in the room.

Why? Is it just because it's China?

Because it's China, for one, and because, at this point, we're a large-scale data platform. We're sitting on a lot of mobile devices.

Oh.

And I'm like, “Okay, what do we know about people? People play solitaire games—who cares? But I guess the belief would be that if someone nefarious gets access to your technology, they could do worse things with the data than what we had access to.” That was the general idea.

But I marched into D.C., and I'm like, “I don't know what I'm doing.” I hire a law firm—no board, no one's guiding me. Everyone's just like, “A billion dollars, get the cash, just call it a day.” On the other side, I got this Chinese investor, and these 4 guys I was working with seemed like great guys. They get their billion dollars out of China, so I'm like, “Okay, you're doing your part; we're ready to go.”

But we walked into D.C., and it was just icy. It was cold. First of all, I'm a Persian CEO, and at the time, our CTO had just transitioned to being one of our first engineers, this Russian guy. So, I'm like, “This Persian guy and this Russian guy...”

Are selling to a Chinese company.

Selling to a Chinese company with 4 Chinese investors. I'm like, “This might not go well.”

At the first meeting, the government agencies told us, “Get the Chinese people out of the room. Let's talk to just you guys.” And so, we went through this process, and I just realized this took the better part of—I think it was over a full year, actually—just going back and forth with D.C., trying to navigate this process with our lawyers. They're just like, “This is just not going to work. There's no way we're going to get over the finish line.” I don't want to be made an example of for trying to do a Chinese deal and getting blown up.

What are the regulators specifically saying to you? What are their concerns that they’re voicing? Are they trying to couch it?

They don’t voice concerns, but I’m pretty good at reading a room. 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: in the wrong hands, a platform that’s as large as ours could become risky.

But they’ll never specifically say it.

They won’t specifically say that.

Okay.

That’s what they’re trying to assess. Now, 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 partially state-owned private equity fund. Again, I didn’t even know what that meant, but it turns out to be partially state-owned. They’re going to invest this money into us, and they’re going to get 70% control. So, what could they do with that control?

Whatever they want to.

Who knows? I mean, it’s very hard, right? It’s not like they’re engineers on the front lines, but can they exert pressure on an American to then go against Americans’ best interests? That becomes the concern, right? What can they do for that kind of money? These are things I wasn’t aware of whatsoever.

So, again, I had no one to turn to. There was no one to talk to about this stuff. Not having a board, you’re going through this, and I’m thinking, “Okay, well, had I had a board, I probably wouldn’t have made this mistake. I would’ve saved some time.” 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 1-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, I think, 2017. You’re talking well over $100 million 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 $1.4 billion valuation now.” On the other hand, I’ve always felt like if anyone bets on me, especially as someone who’s just always had a “you’re not going to bet on me” mentality—and I’m going to prove to you how wrong you are—I feel like if anyone bets on me and takes an investment in our business, I’ve got to be loyal the other way.

These 4 guys bet on us. They made an investment, or thought they were making an investment, and so I didn’t want to leave them hanging. I also didn’t know what happens to a group of people from China that take a billion dollars offshore and then the deal blows up. What happens to the money? What happens to those people? I didn’t want to deal with any of that, and so I ended up finding a way to get them a deal that we could then unravel later.

We ended up doing it so that instead of their billion dollars being an equity investment for 70%, where they would get control—which is what triggers this scrutiny—we pivoted it to a billion-dollar convertible note. If, on conversion, we paid them back the money plus interest, they would get 10% of the business. Under 10%, there’s no control, and then they can come along for the ride.

We did that deal. We paid out a billion dollars in dividends to shareholders. Think of it as a liquidity round pre-IPO. I knew that, okay, we’re going to get 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’ve got to 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, Herald Chen, and his team looked at the company. I think he would tell you he got an email that came across his desk that said, “This company, AppLovin, is looking to raise some private equity. My valuation looks good.” He would’ve said, “Just based on the name, I wouldn’t have invested,” and run the other way.

But his team rolled up their sleeves. They started looking, and then Herald rolled up his sleeves and started looking, and we all realized this is a good idea. Bring in traditional U.S. capital, get some debt, clear out the Chinese convertible debt, give them their ownership, and off we go. Clean cap table.

And so, we did that, I believe, in the summer of 2018, and we had to build the first board that I’d ever been part of. We had myself, Eduardo Vivas, who’s Raff’s older brother, and then Herald Chen: this 3-person board.

Where are your co-founders at this time? Because AppLovin had—it was founded by 3 people, correct?

Yeah. One of my co-founders, John Krystynak, was in charge of technology.

He was CTO, or no?

He was CTO originally.

Okay.

So, he built a really good team. I would say a really good manager’s job is to build a really good team and eventually get replaced. The first engineer, who was the lead engineer at the time, Basil Shikin, just became so good that in 2016 we swapped him into the CTO role. John then, at that point, was transitioning out.

Out of the company completely?

Yeah. I’ve always had this belief that 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 going to leave and start a new business.

So, 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. Fast-forwarding to just last week, we announced that Basil is going to shift gears to a different role in the business. One of the people he hired, who’s built a whole bunch of our new technology and now runs the team, is going to transition into CTO.

So, the same concept.

The same thing happened again.

Okay.

This always happens at every role I’ve seen. If we were complacent and said, “You’re a VP because you’ve been here 10 years,” the person underneath who’s been here 2 years, who’s just much better, and isn’t getting into that VP role, is going to leave.

I don’t want to 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. If you don’t do that trade, it’s really depressing because you end up with these really long-tenured people in all these really important seats, but all your fresh blood is churning despite having more upside. You could have given them room to grow, and you could have transitioned. We do that every chance we can get.

The other co-founder was a head-of-product-type person, and I think he transitioned out about 3 or 4 years ago. Really, what changed over time for both of them, and generally for a lot of the people who were early at the business, was the transition. When you go through this transitional period from private, fast growth, and a small team to “we’re going to go public, we’re going to be a bigger company,” it changes the types of people that you may need for that next chapter.

There was just a transition on the team across the board, where we were constantly changing those 50- to 100-person-company people who wanted to hustle with no structure to people who could actually continue to hustle with less structure than what most public companies have, but more than a 1-person startup.

You have a lot of very interesting ideas on retention of talent, approving every single hire, and how you actually retain a culture of A players, because you have a couple hundred people. I think 98% of your EBITDA comes from people now, something like that.

Yeah, that’s right.

So, we’ll get to that in 1 second, but I need to understand this. You go back—you almost sold the business for $600 million, right? Again, we’re talking about a business—

I didn’t almost.

You were $400 million off.

Having discussions. Having discussions.

So, how much of the business did you sell to the Chinese then? Did I understand—you sold them 10% for a billion?

So, the way it worked—actually, I sort of calculate it to my ownership today. After the convertible note round, we diluted about 50% to 55% until today. I own, I’d say, about 12% of the company. I owned back then about 24% to 25%.

So, that dilution is all the dilution we’ve had between the convertible note conversion to the Chinese, paying out the Chinese, converting them to 10% equity, bringing in KKR, and eventually going public.

There’s nothing between KKR and the IPO?

Nothing else.

Okay.

The IPO, if I recall, was about—I think we sold about 7% to 8%, which was really low and probably a mistake in hindsight.

Why?

You want to sell more float. If anything, you need float to lower volatility. We’ve been one of the more volatile companies. If you push up valuation to where your round at IPO is just like a Series D or Series E—for us, it was our Series B—but you end up doing the IPO, and we did $2 billion, 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 10% to 15% 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 fewer blue-chip investors, and you’re signing up for just a much more volatile time in the public markets, which we saw.

So, after you do this deal with KKR, was there a chance that you were going to look for another acquirer, or did you know, okay, the likely outcome here is we’re going to IPO?

No. Since then, I don’t think I’ve had a single acquisition discussion with anyone.

And by that point in time, I’d realized, first of all, we paid a dividend, right? So everyone was much wealthier than when they started—me too. And it’s more money than I know what to do with. We were past the point of worrying about liquidity, and we were much more in the mode of, “Okay, let’s run this long and see what we can do.”

Is this when I’m reading the email where you’re like, “Okay, I think 6 years in, maybe this could be a company”? Now you’re thinking, “Oh, it could be a $10 billion company.”

Yeah. Every level that we’ve gone up, I voice something aspirational, but I’ve got to believe it to voice it. When we were ripping in 2012, 2013, and 2014, I think I first said, “We’re going to be a billion-dollar company in 2014.” When we did the Chinese round and announced it, I did an all-hands where I said, “Look, we’re still growing super quickly. We just did a print over a $1 billion valuation. This is going to be a $10 billion business, period. Now we have to do the work to get there, and we’ve got a plan.”

When we went public, there was a point in time—I mean, first, we were down like 15% on day 1, and I was like, “Buckle up.” One, it’s going to be volatile. Investors don’t tend to like our story. Apparently, I suck at selling it to investors. But beyond that, it was, “Look, this shit motivates me. I love it when people tell us we suck. They tell us we suck; let’s prove them wrong. The business is going to be much bigger. We’ve got a plan to get to $100 billion.” So I laid that out.

You said that when?

This was after we went IPO. The stock dropped like 15%. I was trying to rally the troops, but I also believed it. I had a plan to grow the business.

So, let’s say the market cap’s around what, $25 billion? Okay.

$25 billion.

So, it’s a 4x, so it sounds reasonable.

When we went to under $4 billion, I was like, “Shit, 25x is a lot further away.” The people who were working on the business and I believe there’s a path to a $1 trillion outcome. And we don’t set a time. It’s just that this business can be as big as you would need it to be as a business.

We actually just did a comp plan for some of the key people that is built on triggers to give them much bigger payouts, but the highest one is $1 trillion. At every moment in time, if I believe in a future plan and think that it could get to that big, I want to voice that to my team. Because I know that, at least in my past, they’ve seen that if I voice something big and I’m still working my butt off, they follow, and eventually we’ll get to a good place.

In between the deal for KKR and IPO, there’s what, 3 years? What’s the timeframe?

We closed the deal in 2018. Yeah, we went public in April 2021, so it was about 3 and a half years.

What does the business consist of at that point?

It changed a lot. So, when we first started, we grew really quickly, and I mean, we cleared over $100 million in EBITDA, and we had a very simple algorithm. In the advertising business, the algorithm is key if you’re doing performance ads. Our very early algorithm was: if you play Solitaire and you play a poker game, people who play Solitaire and poker also play these games. And it just pushed games to you, and you’d see game, game, game, game, game. Eventually, you download off a simple algorithm like that.

What we realized as machine-learning technologies really evolved—and Facebook built this fantastic platform—was that, over the 2010s, once they got their mobile marketing platform out, they really did turn ads into content.

What does turning ads into content mean to you?

If you have a very powerful algorithm for showing users ads that are really good for them, the consumer’s going to discover products that they want to 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.

What I saw, and inferred, was that their algorithm was way more potent than what we had at the time. Obviously, the simple, rules-based algorithm wasn’t going to cut it. And so, in 2018, we started realizing we’ve got to upgrade to 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, included the social graph, but their pixel was 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, if you’re a consumer and you’re on different sites, browsing for different products, and you buy 4 in the last year, that’s a very good data set to predict what you’re actually interested in.

Which Facebook has and you don’t.

Facebook had it. We didn’t. And so, if we were going to go build a much more robust model, it’s very hard to just do it with Solitaire and poker data and whatever other games we had in the system. We needed advertiser data. 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 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 a small startup, just this other company in the space that didn’t have a need for the data because we didn’t yet have the models.

In order to solve that problem early on, I went out, and we just kicked off buying some gaming studios. So, actually, the business from KKR’s investment to IPO ended up looking wildly different than an advertising business, because we ended up owning 14 or 15 different game studios across all categories of gaming. That allowed us to 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 bought the studios. We launched our first AXON 1 model. That AXON name is the name of our advertising model. The first one was more traditional machine learning, but a 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.

How long was it from the idea that we’re going to essentially—you’re vertically integrating, right?—and so now you’re buying gaming studios? These gaming studios all own a bunch of different games—

Yeah.

—I assume, and they’re producing. And so now you have the data of what people are doing inside the games, right? So how long was it from the time you had that idea until you started buying your first gaming studio?

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 what it is we’re doing.” It was like, “Adam’s got an idea. Let’s go behind him. We just made this investment, so we’ve got to believe he knows what he’s doing.”

And so, it was from the idea to the first acquisition almost right away. We had a studio to go buy. It was a studio called PeopleFun, and then we were building up our own studio internally too. Everyone was supportive because the logic was really, really sound.

Now, the fear of why a bigger board might have said, “Hey, we don’t want to do this,” is that we’re a platform servicing gaming companies. Everything I’ve done in my career has been about being transparent all the time. Our reputation and trust can break down at any moment if you violate trust on the other side of things.

I’m a very transparent person, and we end up in this space where we’re servicing gaming clients, and we’re now going, “We’re going to compete with you.” In their mind, it was, “Okay, the ad platform is now becoming a vertically integrated competitor.”

The proof for this was Amazon does this all the time, right? Why wouldn’t the distribution platform build its own brands? In our case, it was building 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’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.

You could make the case to them that what you actually wanted was not the economics of the game. You wanted the data because you still thought the advertising business was better than the gaming business. That was what ended up over time.

Did you think it might have changed?

There was a moment in time where a lot of people stopped trusting us 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 1 platform were our own games. Then you start seeing our games growing.

On the one hand, you had companies that said, “You’re competing with us,” and just chose not to work with us. We said, “Fine.” That’s not only logical, it’s okay, because we made this bet, and we’re going to live with it, and it’s really good for our business potentially.

On the other hand, you had smaller businesses, small to medium-sized businesses 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 data with your model. We’re going to share our data with your model and help us grow our business.”

Yeah. Because if I’m them, I know your product works because you’re using it to grow your own games.

Yes and no, right? You go, that’s great, but then if I feed you data that’s helping your own game, am I fueling a competitor to become better?

Oh, because you could just clone their game.

That's what the concern would be, right? 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 that growing up, I played games, but as an adult, I hate games. I don't spend a minute playing games.

Wait, you hate games?

It just consumes time. It's addictive. For me, I don't have the patience to get good at games, so 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 what they really had to realize was that 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 going to be a good game developer. This is clearly a strategy; it's a means to an end," it started changing things.

Who was telling them that story, though?

I know a lot of the game developers in the space. A lot of us are now quite close, and over time—over the last decade—a lot of us have grown up in this industry together, so we've become close. It just required a dinner, a lunch, or a sit-down: ask me whatever question you want.

I'll say, in hindsight, the mistake I made is that 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." People started finding out on their own.

Oh, yeah.

Then they started thinking there was some malicious intent. But once they sat down with me, it was like, "Okay, now we can overcome that and get down to business. How are we going to grow your business?"

As a company, we've always had a belief that if our clients are improving their business, we're whole. We're good to go. In the mobile gaming space, there's very little VC funding. A lot of these companies are bootstrap businesses. The founders are the key people, and the founders are the marketers.

Most of the companies we work with aren't even in the States. They're in Europe and Asia. These types of businesses need partners that are there to help them. For a moment in time, because I wasn't proactive in talking about what our strategy was, I broke trust down. Then we got back together, sat down with the companies in the space, and trust comes back really quickly when you realize it's a communication error, not a desire to deceive.

We ended up going forward, and all of these companies, from when we launched the AXON 1 model in 2020 to today, work with us on a much bigger scale. Our platform has become the dominant one in gaming. We're probably—I don't know how big—but maybe even over 50% of the marketing dollars in the space go back to our platform, because the developers on the other side are seeing the best returns they've ever seen in their existence on the dollars they're spending on our platform.

Their businesses are growing at really healthy rates. It's been powered by this desire from us to build this technology the way we did, and interest from them to trust us as the platform to do right by them. That evolved over the last few years, but it's gotten to a really great place.

So, you sold off the gaming studios?

That was aligned with the fact that we were never going to 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 to our models and work with us the right way. Once we got to that point, we realized we didn't need these studios. It's a distraction.

As you said, our core team in advertising is only 400 people. To run studios is a huge lift. You need a lot of headcount. There were 1,500-plus people in those businesses, and they were distributed over the world. So, we got to a place where we said, "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."

We ended up selling it off to this company whose founder I've known for a very long time. He's a great guy. This company, Tripledot, is out of the U.K. They bought the whole thing, and that was important to us. We didn't want to go through and say, "We own 15 studios. We're going to sell off one at a time just to make a profit."

Instead, we just priced it down enough to make it enticing to a company like Tripledot to take the whole thing off our hands, and we did that. I believe it was about a year ago.

So, how many years did you have to own these gaming studios?

From beginning to end, I want to say roughly 5 years.

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 35 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 want to 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 employee-to-market-cap ratios. So, how are you able to run a $150 billion company that's making, what, a couple billion a year in cash flow?

More than that now. Quite a bit.

Run-rate-wise, I think Q4, which we just announced in Q1, was $1.3 billion in cash in a single quarter.

Okay, so $5 billion or thereabouts.

Yeah.

That's a little bit more per year, with 350 to 400 employees in the main business.

Yeah.

How are you able to do that?

A couple of things happened. When we tanked in 2022—

Why'd you tank in 2022?

This is when the stock collapsed 92%.

Okay. Because you went public in '21.

'21.

Okay, got it.

The stock collapsed in '22. That's when we ended up under a $4 billion market cap.

One thing is, I needed to make sure I retained my team, but by "team," I don't mean everyone on the team. There are certain people who are just doing functions and are replaceable. There are certain people who are critical to a business, and you really need them in with you for the long haul.

What I realized was, when building a business, you feel like everyone should be a shareholder. I was one of those founders who was like, "You're the janitor. 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 who were like, "Man, we're way down on our equity this year. Our comp is way lower. Are you going to true us up? Are you going to give us stock on the other side?"

That was super frustrating for me, because you think about the trade on the other end of it. When the stock goes up, are you going to give your shares back to me? You're not going to do that, right? You're going to be happy, and you're going to get overpaid.

We had these 4-year grants that we distributed to everyone on the team. What I realized was that it's unfair for me to judge, because some people just need compensation. If you're getting paid $150,000 a year and $50,000 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. You really depended on that equity.

On the other hand, if you're a critical engineer and you're paid $1 million a year, and your $600,000 of stock-based compensation goes down to $100,000, you're still getting paid $500,000 a year. There's enough money to make ends meet and to ride out the volatility.

What we did at the low point for the team was say, "Some people, we're just going to 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 who have lower total compensation, so they can just go to cash compensation.

We then said, "Who are the people who are critical to the business? Your key engineers, your key product people." Again, remember, we don't want to do brand advertising whatsoever, so this wasn't mostly the business people or the sales team, because 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 going to be able to scale the business. So, we took it down to a little over 100 people who we give equity to in the business.

Why this was important was that it forced me to ask, "Who are the people who matter? Who am I really in this with for the long term?" 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 about having A players, A players don't like to work with B's, C's, and D's. I mean, D's, you're going to just burn your A's out. Anything that's worse than an A player on the team means you're distracting your best people by having them work with those types of people and trying to bring them up to speed. It is a huge loss, because eventually you end up churning out your A's.

So, I had to not only understand who the key people were, I had to go through this period of time where, in '23—or I think it was about '23 or '24—even though the business was ripping, we were firing a ton of people.

We let go of about 40% of the team. I think it was 2024. The business grew nearly 100% year over year, and we fired about 40% 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, and key roles were getting equity. They had a lot of upside and support around them, and then we were a lean and mean organization.

Wait, go into more of this thinking, because it sounds like it went over several years, from 2022 to 2023 to 2024. We’re only talking about the ads business. We’re not talking about gaming studios. We’re not talking about the other businesses. You own a SaaS company that I think has another—

Yeah, we’re not talking about those businesses.

Let’s just focus on this. So now you have 350 to 400 employees today. What were you back then?

We had more.

Double that?

I’d say probably close to double that. Giovanni, who just started as CTO, joined in November of 2022. He and Basil, the CTO I talked about, basically worked together on the AXON 2 model. Giovanni led it, built out the team, and runs the team.

The reason I raise his name is that he came in and started asking me interesting but difficult questions, such as, “Why do we have this person? Why do we have this team? Why do we have these processes?” As a business, you sort of go—

When I first started, I didn’t want any process. I had almost a no-meetings rule. I wanted everything to be as highly efficient as possible. But over a decade-plus, you inherit some process. You go public, and you’re told you need these processes and these people.

Well, you get someone in who’s fresh blood, really hungry, and insanely high-IQ. He’s one of the smartest people I’ve ever met—much smarter than I am—and he’s grilling me with these questions every day: “Why is this person in this role? Why is this person here? How come this person is a VP over this person, when the person underneath that person is much better than the VP?”

I kept getting these questions, and I thought, “Either I’m going to have to address these questions, or I’m going to risk losing talent like this person or the other people who are talented like him.” In doing that, I ended up changing my philosophy about culture and how a company is structured.

You start a business, you have culture, you have cultural values, and you hope those hold true forever. Well, the world is changing really quickly, technology is changing, and companies are evolving. If you consider it static, where your culture from day 1 is going to hold true over time, I think it’s a mistake.

So what we did was, 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.” You started having LLMs at that point in time, a lot of automation was coming, and we also had a business where we had these key contributors who were killers, and then we had support around them.

But we had a lot of bloat and process, even though we had low headcount relative to revenue, because of 10-plus years of operating and just the way it was. So I challenged it again and said, “If I were starting the business today, what would I start it with? What is it going to look like? What is going to be automated away in 1 or 2 years? How am I going to 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?”

I went in and said, “We’re going to kick off a whole bunch of cuts all over the board, and we’re going to do it in the hope of getting leaner, but more importantly, keeping A people from getting contaminated so that those A people can be retained and feel like the organization is theirs.”

We ended up turning over a lot of tenured people who had been here for a long time. We ended up turning over people whose roles I felt were eventually going to get automated by LLMs, and if we felt that way about their role, I wasn’t going to keep them in a dead-end job. I want people to go and do whatever is best for them, and usually professional and personal growth leads to what’s best for them. If we didn’t have that, we were going to move on from it. So we just leaned everything up, and it ended up working really well for us.

That’s excellent. Do you think there’s a certain size—a limit to how many employees you can have—if you’re running a company and you want a team of all A players?

You have 2 types of employees. You need some support functions, right? At the end of the day, as a public company, not everyone can be an A player because they’re not in roles to innovate. Let’s say there are some people who are just doing roles to keep the lights on. That’s a requirement, so set that aside.

Then you’ve got your core people, especially in product and engineering. We expect our engineers to be product people, so we don’t have much of a product organization. Let’s call it core engineering. We expect them to be A players.

To have a team of A players, you’ve got to be able to recognize A players. I know that Giovanni’s an A-plus player. I know that he has no tolerance for anything that’s not an A player. He goes, and he’s very quick to say, “You’re either cutting it or you’re not on my team. You’ve got to be at this level, or you’re out.”

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 going to enable talent that’s not qualified in these key roles. So you’re always turning over people who don’t meet your need, and you’re going as lean as possible.

Now, when you have an A player, you don’t want to cut those people. Those people are super powerful, especially as we go forward, and you’re going to 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 some sort of linear function. It’s much greater than that.

Our team is constructed to have leaders who are A players or A-plus players, who can see the A players underneath them, who have no patience for anything that’s not, and who are very willing to fire on sight. If they feel like you’re not cutting it, or this role is not one that you’re passionate about—

Most of our people, because we’re lean, are very smart. But sometimes being smart is not enough. You’ve got to be really into building what we want to build, and if you’re not cut out for it, get a really good severance and go off along your way.

This leads me to another thing that I find remarkable about you: even to this day, if anybody wants to hire anybody in the company, they have to get approval directly from you.

This was a funny one. The reason this came up is that there was a period of time when we went through turnover in HR, and I took over the HR organization. I saw that, during that same period before we did the cuts, we’d become bloated, and I thought, “Why is the headcount so high? Why does it keep going up?”

It turned out that every time we let someone go or someone quit, a new job posting automatically went up. It was a job posting as a so-called “backfill.” I had a role, that role disappeared, and I was automatically going to rehire, which means there’s no way your headcount can go down. Your headcount is only going up because you’re inevitably hiring for other roles, too.

What bugged me about that was that we had hundreds of job postings, and in order to hire, train, and get value out of a new employee, you’re talking about a 6-to-12-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 headcount.”

So I took it over and said, “Look, convince me that you need the person.” We went from somewhere in the neighborhood of hundreds of new hires that we were doing a year—or at least attempting to do a year—to the tens, because people were so spooked about trying to convince me that they needed the role that they wouldn’t come to me.

Now, if they come to me, I know that they’re desperate, that everything is going to break down around me, and that people are working so much that they really need this extra hire. “Okay, go make it.”

I really think what’s remarkable about you is that you took this insight that everybody agrees on: the value of your company is just the level of talent you have in your employees and your team. You only want to work with A players, and there is some kind of upper bound to it.

I remember—the reason I asked you the question earlier is because Steve Jobs said that he had only ever seen 1 company in his entire history and experience that was full of A players. He said it was Pixar. But they had 400 employees, and at the time Apple had 3,000. So he said, “Of course, I have 3,000 employees. They can’t all be A players.”

What’s remarkable is that everybody agrees on it, but no one actually does the difficult job of making sure that you don’t alienate these A players and essentially surround them with Bs, Cs, and other less talented people. You jump to the right conclusion: they’re going to leave, and in many cases, they’ll just go start their own company.

Yeah, the challenge is that you see it in the software world today. A lot of companies have a bloated workforce, and the talent is 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.

What do you actually do? Where we were lucky is that I’ve always felt I’m a cheerleader for the folks on the team.

For a long time, I was making a lot of the decisions on the team, and I ran product. I was hands-on, but I still tried to direct people and surround myself with people smarter than me. I always felt like I had a pretty reasonable IQ, but I’m not exceptionally high IQ. I see patterns and problems really well, and I can typically understand what the problem is, try to propose a solution, and move forward. If I’m wrong, I can pivot quickly and get to a good answer.

Maybe that was the skill that I had, but paired with that, I was always humble enough to know that when you hire, you always want to upgrade yourself. You want to hire someone better than yourself at something that you’re not as good at. So, the Raff discussion earlier, where he’s exceptional at BD—I don’t remember the conversations I had a day ago, 5 days ago, or 5 years ago, so I needed someone like that, with exceptional talent in a function that could upgrade me. I can say, “He’s much better than me at that.”

What’s important is that I took the humble approach of upgrading at every level, then being the cheerleader for these people and giving them whatever they need to succeed. That hasn’t changed since we started the business. I think it’s very challenging to maintain that because 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 build up these teams.

All of a sudden, the train leaves the station. You had this core group of 8 people, and all of a sudden, you surrounded them with these professional managers, and the workforce gets bloated. Those really good people you used to love working with get disillusioned, they churn out, and what you’re left with is a miserable place.

That pattern 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. Anywhere you look in the advertising business, who doesn’t have a CRO? We don’t have a CRO. We don’t have a COO.

Today, the C-suite is myself, the CFO, the CTO, and we have a general counsel. That’s it. I made sure that we didn’t alienate A-players when we found them, and I made sure that they had a perfect environment to grow, develop, and contribute so that they feel good. If you give them a place to feel good, take ownership, and learn as they go, really smart people love working with really smart people.

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 distill it down to just a handful of words, is ruthless efficiency and hyper-competence. Is this in response to something? Because it’s not common, especially in the startup and VC world, where people just throw money at everything. They have thousands of people, or they overhire, and everything else. Is your ruthless efficiency and hyper-competence in response to something, or is this just how you’ve always been?

Maybe we got lucky with the VCs telling us no, because when VCs tell you yes, they want to put more money to work. It’s always, “Take your round, use the round, hire more people, get to the next level. Don’t worry about making money.”

When we started, we worried about making money. I didn’t want to put more money into the business. I’d made enough not to worry about money, but I didn’t make that much, and so we wanted to be profitable.

Once we started getting profitable, what I realized is that one of the most important things when I hire and work with someone is that I want them to believe that, at any given time, they’re in the best role for them anywhere on the planet. I define the best role as a massive growth opportunity, professionally and personally.

I think really good jobs, where people become passionate and love their work, give them the ability to grow. If you take that away, then they should leave. A lot of times, people get complacent and stick around, but in theory, you should just force them out.

To give very smart people room to grow, you’ve got to remain lean and efficient. If you don’t, those smart people get bogged down with process and with other people. I’ve also found that a common characteristic of really smart people is that they don’t want to deal with other people. They just want to get shit done. If, in the middle of getting stuff done, they’re stuck dealing with other people, they’re eventually going to get burned out and bail.

Because of this pattern recognition—because I knew what would retain this type of talent—I never wanted to waver from the belief that we have to give very smart people plenty of room to own and operate however they want. In their own world, that’s highly efficient and limited on process, and that kept us lean.

I’m curious what happened to your better-funded competitors that started either around the same time as yours or after yours. The reason I ask is because I talked to Michael Dell about this. There were a million people doing what he was trying to do, and in many cases, they were doing it in the same city where he was trying to do it.

Yeah.

All better-funded than him. Some had raised, I think, over $100 million. He smoked every single one of them.

Yeah.

What happened to these competitors you mentioned earlier?

We’re in a big market, so a couple are still around. 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.

The private ones, like I said, the ones that the VCs had funded either sold for very little or are gone. A very common pattern would be: raise money, hire a bunch of people, and grow from there.

Along the way, I’ve always gotten the question, “You have a huge opportunity. You’re doing really well. Why aren’t you hiring people?” We have a big business opportunity in front of us right now. As we go forward, we’re really expanding the platform that we operate in outside of gaming to allow companies of any kind to advertise on our platform.

Most people look at that and naturally go, “Why aren’t you hiring a sales force? Why aren’t you hiring a CRO? Why aren’t you hitting it hard?”

The reason I don’t is that now, with AI tools, one person who’s really good can be as powerful as 10, 20, 50, or 100 people. Why would I hire in advance of that instead of finding those single individuals who could be really good and understand how to deploy agents to tackle jobs that many people would have done before?

I’ve stuck to this view with high conviction because I’ve seen companies do exactly that: hire into an opportunity, dilute their IQ, and then get stuck with a mess. How do you unravel a mess? If you lose those 8 people, there’s no way to do it. You’re just hosed.

You know if your AXON model is good or not immediately, right? Because you’re essentially—and you’re in the business of selling revenue, I think is the way you put it, right?

Yeah.

Explain when you knew it was working the way it is now, and what was happening before. What was the model before that?

Where we are today—and this is where we wanted to get to—is that 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.

What does that mean? If you’re a game developer today and you plug into our platform, you’re going to spend $1,000. You’re going to know with certainty that you made more than $1,000 on that spend.

You may have a business model that says, “I want to break even on that $1,000 in a year, and by year 5, I know I’m going to make $5,000.” You put in the $1,000, you get $1,000 back in a year, and in year 5, you’re at $5,000.

You may have a shorter cycle. You might break even on the $1,000 in 30 days, and then by 6 months out, you’ve made $2,000 or $3,000. Whatever your business model allows, you’re going to be able to price into our system and generate more money from the dollars spent than what you put into the system.

What’s important about that approach is that they become an arbitrageur. The only constraint on them scaling in our system is the money they have in their bank account. If you tell someone, “You’re certain to make more money than what you put in. You’re going to know it. Our reporting is going to tell you. Otherwise, you’re not going to scale,” they’ll put as much as they have in their bank account into it, and we’ll drive as much scale as we can before that arbitrage breaks down.

When we took the e-commerce business to market—and e-commerce is us accessing more than 1 billion 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, and make sure that they know they’re making money. They’re going to scale. That is what I call performance marketing: make the advertiser an arbitrageur.

Very few people define performance marketing that way, and very few companies have executed it. Facebook has done a fantastic job of it. Google does this in part of its business. This is entirely what we’re focused on. If they’re making money, they’re going to spend.

When we go and create different iterations of the models, we’re not a large language model, so there’s no consumer interface. We don’t need to go, “This is AXON 2, 2.1, 2.2, 2.3.” Every time our research scientists improve the model, the goal is to determine whether they can drive more spend to the advertiser at their return-on-ad-spend goal.

Are they making more revenue, and are they getting more reach? If a large language model gets more accurate, you prompt it and you’re going to get a better output.

And so, obviously, the use cases go up. If we get more accurate, the prompt effectively is: the advertiser has all 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 means getting the advertiser wealthier. They get wealthier, we get wealthier.

I remember seeing a graph with this inflection point.

The business itself inflected big time, I think, in 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, with a much higher ability to create these predictions of value for advertisers.

So, it went from the point of having no ability to do what this value proposition was that I had in my mind, which is to 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. Then, with 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. So, we went from, I think it was April 2023, when the stock was at $9, $10, or $11, to our peak, probably about 6 months ago, at $750. So, the valuation went from under $4 billion to a peak of $250 billion. Now, we've come down some since then, but the business is still doing phenomenally well.

The only way we could have grown like that in market cap was if the business fundamentals grew alongside it as well, and they truly did. Our growth has been phenomenal over the last 3 years because this AXON 2 model was so powerful in delivering this kind of value for advertisers.

When somebody might have heard you say, “Hey, we don't have 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 a trillion-dollar market cap,” it might sound a little crazy.

Yeah.

But not if it seems like you just have a ton of tailwinds—AI tailwinds—for the specific business. That's not only because of what the product is, but also because of your ruthless efficiency and hyper-competence, with only a small team of A players. Obviously, if you have somebody who's really gifted, they could be—it’s not one employee. You don't really have 400 employees. You could have them doing the work of 4,000.

Yeah.

Explain how, even just in the last 3 or 4 years, AI has transformed the way you're running the business and its impact on the business.

For sure, the tools that are available—and, as we've all seen, there's been breakaway speed in the potency of these technologies over the last few months. You've got small teams that can do much, much more, so it's huge. I think it was about a year and a half ago that over 80% of our code was LLM-written, and now it's much higher than that.

You've got the ability for the LLM, paired with really exceptional engineers, to create more output. This isn't like, if you lived in a world of B players, your 1X engineer might be 2X more efficient. But your 10X engineer might be 100X more efficient.

Not only can they go out and accelerate the rate at which they can create experiments and improvements on machine learning models, but the LLM can also process all of the research in the space. These are research-oriented sectors, open source. Five years ago, we humans couldn't have gone and read all the research and understood it.

Now, very smart people who understand math and research can use the LLM and pair with it to create future experiments from all the research that's out there, without believing that they're missing anything because the LLM is scraping everything in. So, there's a massive amount of potential for efficiency gains, and we're built on a deep learning model. As these technologies get more powerful, the predictive value goes up.

Now, what does that mean? Well, for us in our business, on one hand, we have a billion users who are playing games—a billion-plus users who are playing games every single day around the world. In the US, it's over 150 million, adults only. So, penetration into the world is high.

The power user who plays games is not the same 21-year-old who's on Instagram for 6 hours a day. The power user who's playing casual games, like Candy Crush, for 2 to 3 hours a day, as an example, is more of 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 people—with a good amount of time spent, and they're willing to watch an ad. They're willing to watch an ad for a long time. Our average ad is over 35 seconds long. It's like a television commercial on a mobile device.

The framework is really good. What we show in that ad is only going to get much better as the technologies get better and we service more customers. 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, going forward, it'll be for any kind of business in the world—the diversity will go up. The technology is already capable of doing it, and then the value to the end consumer will go up.

That whole thing I said earlier, of the ad becoming 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 going to be much, much bigger than it is today, and the opportunity for us to really impact economic growth for small to medium-sized businesses is going to be much bigger than it is today.

So, you go from gaming to e-commerce. You literally just answered my next question, which was, “What other kinds of businesses do you want to expand into?” You really believe that you can do this for every single segment?

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. I fundamentally believe the biggest opportunity we have as a business is to help small to medium-sized businesses.

We don't have a sales force, so eventually we'll get the large enterprises because they're going to come to a platform as big as ours. But we're not out there selling to them. We want to 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 saying, “Look, you're 10 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 10 or 15 people and sold for $1 billion. They sold within 1 year of launch for $1 billion. Almost all of their business growth on the marketing and monetization side was built on our platform, and they had a fantastic, super-innovative game around that.

Because our platform is 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 can really ramp up, we'll feel really good about ourselves.

Is this targeted at direct-to-consumer? Do you think you'll be doing this B2B as well?

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 going to have no limit when it comes to the enterprise side as well.

The way you run the business, this conversation had no fat on it. Thank you very much for making the time, Adam. This was awesome.

Yeah, thanks for having me. This was really cool.