The M&A by Hootsuite: how Massimo & Armando started, ran and sold AdEspresso

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Armando Biondi and Massimo Chieruzzi are Italian entrepreneurs that got tired of managing Facebook ads for their clients and decided to automate and optimize them via a SaaS product – AdEspresso. They grew AdEspresso to become world’s #1 Facebook ad tool and led the company to an acquisition by Hootsuite in 2017.  

On this episode of the Startup Exits Podcast, we chat with Massimo and Armando about:

  • Going through 500 Startups the second time around
  • Silicon Valley vs Italy: how different are things for founders?
  • What makes Silicon Valley the mecca for startups
  • What to offshore and what not to
  • The future of digital advertising: AI & automation
  • Marketing mistakes that founders make
  • Startup M&A: a step-by-step breakdown
  • Acquisitions are brutal, founders need to have leverage
  • Startups vs big corporations: a founder’s perspective

Armando and Massimo now advise and invest in startups, as well as further contribute to the community via content and their involvement in 500 Startups

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ANDREW VASYLYK: Hey everybody, this is your host Andrew Vasylyk and you’re listening to Startup Exits. Today I’m joined by the founders of AdEspresso – Massimo Chieruzzi and Armando Biondi. Welcome to the show, guys.

MASSIMO CHIERUZZI: Thank you. 

ARMANDO BIODNI: Thank you Andrew. It’s a pleasure to be here.

VASYLYK: AdEspresso is a SaaS product for managing, optimizing and automating Facebook ads. Over the years the company grew to become the world’s number one Facebook ad tool and was acquired by Hootsuite in 2017. 

And this is actually the first time I have two founders in the show – how did you first meet?

BIONDI: We met many years ago, at one of the first iterations of the Web Dublin Summit, which is not even called that way anymore and not even in Dublin anymore. We knew each other for a while before that but it was the first time we’ve met in person, because Italy is such a tiny country so every Italian in tech knows every other Italian in tech.

VASYLYK: And you were both in a similar sector. Massimo, you were a tech journalist and Armando, you were a radio host, so in a similar world of tech media. After you met, did you remain as friends or more as colleagues?

CHIERUZZI: I think it’s always been a mixed relationship of work and friendly relationship. So it didn’t change that much after the acquisition, just got closer.

VASYLYK: Armando, what was your first impression of Massimo when you met?

BIONDI: Well, I was fairly impressed back then by the product that they were developing as a side project. It was already called AdEspresso, but it was tiny in size because Massimo at that time was running his own agency. AdEspresso was born out of their need to actually have something that could solve the problem that they had back then. So they already were doing a pretty good job on that side which we further expanded when we spun-off company and started building and growing AdEspresso as an independent business in the US.

VASYLYK: Massimo, before AdEspresso you were running a marketing agency called CreativeApp, as Armando mentioned, and you guys were running a lot of Facebook ad campaigns for your clients and essentially it was just a headache to manage everything so you decided to automate all of this. 

Was the initial goal with AdEspresso to build a product for you to use internally or was the plan from day one to have a standalone product?

CHIERUZZI: A plan was to build a standalone product either way. We were a mix of marketing plus development, with the usual agency love-hate relationship with customers, at that point we were really in the “hate phase”. So we were really looking for an opportunity to get out of the agency/consultancy business so it was a perfect mix of solving a problem but also getting the opportunity to pivot our business. 

VASYLYK: And how did you build the product? You mentioned you have developers internally did you use those resources or did you a CTO right away that was building it?

CHIERUZZI: Yeah, it was a very lucky position to start a company because basically we had all the knowledge internally and that was probably also critical to success. A lot of the team members of AdEspresso were actually people that we had been working with for a very long time so it was a very strong trust relationship with all of them. 

VASYLYK: And once you had that first product – what was the launch like?

CHIERUZZI: We had no idea how to launch our product until Armando joined the team because we knew that Italy was not the gold market because it’s such a tiny market. But on the other side, we really had no idea of how fundraising, launching, etc. happens. The launch really happened when Armando joined forces with us and joined the company – it was totally critical for that part.

Going through 500 Startups the second time around

VASYLYK: Once Armando joined, it was that kind of the point where you guys started looking at accelerators or sometimes after that? 

BIONDI: To some degree that was also a way for us to validate the market. One of the things that you do when you start a new endeavor is you want to make sure that there is a need for what you’re doing. And so, to some degree you validate that with customers but also with investors and 500 Startups was a great way, particularly as an international founder, to get a foot in the door with the Silicon Valley. And that’s why we were curious to see whether we could be part of that batch. I was also already in the network with my previous technology company as well, so that helped.

VASYLYK: I think it was two years prior to going through 500 Startups with AdEspresso, you went through the fifth batch of 500 Startups with your previous company, Pick One. 

Was the main motivation behind going through 500 Startups the second time around to get help with the launch, such the PR, and the validation from the batch mates and the access to capital?

BIONDI: Yeah, for sure. And it’s also one of the things that 500 startups does very well, still to this day, is the focus on the go-to-market. And it’s a thing which not a lot of first-time founders know or realize that even the best possible product with a shitty go-to-market strategy is actually not going to win versus an okay product with a great go-to-market strategy

So go-to-market is actually a critical piece of how you build a company. And so 500 Startups having a good focus on that always helps founders thinking about that framework as well. It’s a great learning experience besides the things that you mention, you know, access to a broader network and access to broader capital availability etc…

Silicon Valley vs Italy: How different are things for founders?

VASYLYK: When you got into the 7th batch with AdEspresso, Armando – were you in Silicon Valley at that time already or did you both moved for the program?

BIONDI: Yes, I’ve been living here at this point for almost 8 years. So I was in San Francisco already.

VASYLYK: And you wrote a very interesting piece a few years back, called “Sorry but Italy is no startup paradise”, where you analyzed the startup scene in Italy and you contrasted it with Silicon Valley. 

How is the startup scene in Italy now?

BIONDI: It’s better. One of the things that you see as one of the macro trends that we are experiencing in this particular life cycle stage of technology and the economic cycle is the biggest availability of capital ever in the history of humanity, pretty much. On the one side, you see this materializing within San Francisco and the Silicon Valley ecosystem with the biggest funds and rounds ever, with the Softbank coming in and pulling out a half of a billion cheque like it was pocket change, but on the other hand you also see other non-Tier 1 hubs starting to have capital, angels and funds. That’s true for Italy as well. 

Now you can raise one of $250-300k, maybe even half a million, with relative ease – it’s is not easy but it’s easier [than before]. There is a certain ecosystem with a sort of like a supply chain [issue] for when you need to raise a bigger round, and that is not to some degree special to Italy. It’s a kind of behavior that you see emerging in a lot of places at this point in time.

What makes Silicon Valley the mecca for startups

VASYLYK: I have somewhat of a similar experience with Silicon Valley, in a sense that I’m Ukrainian, I was born in Ukraine and I spent more than half of my life in Canada. And then I came to San Francisco because in my mind that was the mecca for startups. The Silicon Valley is essentially where every founder has to be – it’s like, if you’re not there, you’re like a fish in a forest. 

When I was in Silicon Valley I spent a lot of time thinking about what makes Silicon Valley, Silicon Valley. There’s a lot of places in the world that try to replicate it and try to be the new Silicon Valley. But so far there’s really only one Silicon Valley, at least today. 

What do you think makes Silicon Valley the mecca of startups?

CHIERUZZI: A mix of things, probably. Armando for sure has a more structured view on this. From my point of view, is that everyone is there and that kind of network, talent pool and presence of all the companies it’s fairly unique. Every other country, no matter what we do, is missing some part of the equation. For example here in Italy, as Armando was saying, the situation is getting better and there is a huge talent pool, but there is a lack of big tech companies that can acquire you. While Silicon Valley is a perfect mix of all of the factors the company needs, from beginning to end.

BIONDI: I totally agree. Silicon Valley is special because it’s a unique concentration of capital, talent, legal infrastructure in terms of sophistication, as well as bigger companies that, back to what Massimo was saying, can acquire you and put back liquidity into the system. 

Another one of the pieces that I wrote is around the fact that Silicon Valley is not that much a place for startups anymore, it’s more place for a little more advanced type of companies, like Series A or past that, because it’s also an expensive and a very competitive place. To stand out in such a place, you need to have more traction than the average guy. So to some degree nowadays it’s actually cheaper, more convenient and less competitive to get from zero to a million dollars in revenue and/or funding and then expand your scope to some degree and move to The Valley and have more of a global perspective. 

Back to what you were saying as well, the fact that there are many places trying to be the next Silicon Valley, but the reality is that the next Silicon Valley is going to be Silicon Valley, because at this point there is such a concentration of all these things and such a critical mass when it comes to talent. People that scale companies past thousand people and a million customers, or tens-hundreds of million dollars in revenue – these things don’t happen that often. And people that have been there and done that, you don’t find them everywhere, you find them usually concentrated in the really Tier One places, of which San Francisco is the best example.

VASYLYK: Yeah I definitely agree. I mean, there’s a lot of benefits of Silicon Valley and also a lot of drawbacks, such as competition and cost as you mentioned. 

With AdEspresso, you had a team in Italy and then you moved for the batch of 500 Startups. Did you hire people in San Francisco or was the team mostly based in Italy?

BIONDI: It was mostly based in Italy. We had a few people in the US, but in San Francisco there were only the founders. And this goes back to the consequence of what we just said. Because San Francisco is more expensive and more competitive and there is more turnover, you can actually do an arbitrage-type strategy when it comes to talent. 

You can find very good people with a lot of expertise pretty much anywhere, and in Italy as well. We had a bigger network in Italy so you can find and hire great people at a fraction of the cost, half of it or a third, even by paying them very well above the local market rates. And they will stay with you for years [in Italy] versus having to hire very expensive resources and very expensive office space and having a very high turnover in San Francisco, because [SF] is a very liquid and a very exciting market.

What to offshore and what not to

VASYLYK: AdEspresso grew by a large degree because of content, and that’s something that I found pretty interesting. You guys had an incredible content strategy and the entire team, or at least the majority of the team, was in Italy. I feel like there are certain roles that are a lot easier to offshore, such as development and design. To a large degree, and I may be a little bit biased because I run a remote agency myself, but I will go as far as saying that having the whole tech team in San Francisco is probably not a good idea at all. 

There are some roles, however, like content writers that are very difficult to offshore, because beyond the fact that you have to have a deep understanding of the product, the market, what the company is doing and its value prop, but there is also a certain degree of cultural understanding that you have to have. Certain jokes that may be funny in Italy but people in the States won’t get them. 

Have you had any issues with the fact that you had Italian copywriters writing content for the American market?

CHIERUZZI: Yeah, that’s one of the parts that we never offshore. Most of the content writers have always been US-based. Even though our editor in chief is actually Italian, she mainly did the coordination part. I would say when we worked with offshore content writers, we did it because they were people with a stream of knowledge of the matter. So they were either Facebook ads expert or top AdEspresso users. In that case, we relied on them for the quality of the content, but we always paired them with an American people doing the content review. So [non-Americans] would write the draft with good ideas and then someone else would make it in a very good and readable blog post.

VASYLYK: And did you run any Facebook ads at all?

CHIERUZZI: Yeah sure. At least we have put the product.

The future of digital advertising: AI & automation

VASYLYK: Massimo, what are your thoughts on the future of digital advertising? Where do you see us in 10 years?

CHIERUZZI: Ten years is far. I think the big trends for the next five years, let’s say, are artificial intelligence and privacy. Artificial intelligence because AdTech is becoming a black box, there are a plethora of startups that were born out of performance optimization, which are probably gonna die if they don’t upgrade their business model, they are going to be eaten up by Facebook and Google, which have access to a huge talent pool in terms of artificial intelligence and also have access to [enormous] data sets. 

So I really think that in three or four years we won’t have to bother with the audience, “what are my keywords?” and “what’s my age range or demographic?”. We’ll just tell Facebook and Google: “Hey, this is my ad, this is my product, I want to run ads.” and they’ll find the best audience for you. 

Privacy is another big trend, because everything that is going on with Facebook and Google and with all the increasing regulation across the world, a lot of things that are possible now won’t be possible probably one or two years from now. Things like third-party data and even conversion tracking will be made much more complex and that’s going to change the industry. I don’t know how, yet.

VASYLYK: Do you foresee any sort of technological paradigm shift like new hardware that’s gonna be released, something along the lines of AR or something like that, that will have a big impact on advertising and marketing?

CHIERUZZI: I don’t know. But marketers are very unique animals, they have a great skill at adapting to every new technology or media that can draw attention. So that doesn’t scare me that much. 

But I think we’ll just see more and more mobile and probably the other question mark is the AR and VR. Even though it’s been a couple of years now that everyone is announcing that revolution, which hasn’t happened yet and it’s not clear yet if that’s because the hardware and infrastructure is not there or if it’s just because right now people don’t like it. But if you look at VR and existing products, it’s still for gamers and has very limited use cases.

BIONDI: [VR and AR] is improving but it’s not mainstream just yet. And I would also argue, adding on top of what Massimo just said, that while it is true that these new “revolutions” are taking time [to hit the masses], it’s also true that advertisers or marketers don’t need another major paradigm shift, Because advertising, and online advertising specifically, is still to some degree in its early days. It has been an industry for the past 10-15 years, not much more than that.

Back to what Massimo said, it is also true that when it comes to automation, we will see more and more [change] in the definition of “great advertisers”. Up to now, the best performance markers or advertisers were the ones that knew how to create believers in a most efficient way compared to the average Joe. That’s going to be more and more done by the platforms

The ad channels that become kind of a black box, as Massimo was saying. [The benchmark of a great marketer] will then be understanding and knowing which data you need to provide to the ad platform to enable them to automatically pull those levers by themselves and provide you with the best possible outcome for what you are looking for. Things always have, as one would say, upsides and downsides. The downside [of dealing with] a black box is that you won’t know too much about what’s happening and you may want some visibility in that. The upside is that it would be a significantly simpler type of exercise. So that will open up the market further.

Marketing mistakes that founders make

VASYLYK: Armando, you do a lot of start-up advising and investing. What are some of the biggest red flags or biggest mistakes that you see founders make when they’re marketing their product? 

BIONDI: Good question. I would say two things when it comes to go-to-market and marketing, either spending too much money too soon or not spending enough money for where they are. It’s always about having some product-market fit and spending some money to validate the go-to-market and to gather some feedback. And then as you do that, you expand your efforts and you double down on what works versus leaving on the table what’s not really working. And you see founders not experimenting or you see founders experimenting too much and finding something that works, but they keep experimenting and they don’t really double down on the thing that works. So they still keep trying new stuff even if they found something that actually is performing or they focus too much on product and not enough on marketing and sales. Those are very common things that you see.

VASYLYK: I feel like there are a lot of investors that are pretty cautious about startups that are overly reliant on paid advertising or if paid advertising is their main growth channel. As investors would you guys agree with that?

CHIERUZZI: I mean, yes and no. I think it really depends on the unit economics and the space. Paid advertising is important. Overall, I would be very cautious of any startup that is reliant on a single marketing channel to acquire customers, because that’s always risky. 

It is just a different kind of risk. I mean, paid is more expensive and you could be outbid by a competitor with more money. If you are doing SEO or content marketing, you are very dependent on Google and their algorithms changes. So I think the key is always to have a diversified approach where you can pull different levers to keep growing and to protect yourself from changes that always happen.

BIONDI: The way I look at it, advertising is an accelerator. Advertising is a way to give you more exposure and to get more reach – that’s a healthy way of doing it. And if that’s true and you have a healthy relationship of CAC vs. LTV, you can spend as much money as you want, as much money as you have. But you know that needs to be true as a condition.

Startup M&A: a step-by-step breakdown

VASYLYK: I definitely agree with that. It’s a great way to accelerate your growth given the fact that you have a balanced marketing strategy and that you have certain infrastructure in place. 

Let’s talk a bit about the exit itself. Armando, you wrote a very detailed article about how the whole acquisition happened. I encourage everybody to go out and read it, it pretty much describes everything from A to Z, but for those that have not seen that article – how did the initial talks with Hootsuite begin?

BIONDI: It’s funny because of that article I still receive emails where people say “Hey, I read this thing, It’s awesome, it’s super hard to find anything related to M&A”. Which is kind of one of the reasons why we wrote it. And we’ve been very open and transparent with the community, since the beginning, on learning some things that we found along the way that we thought were interesting for other founders as well. 

M&As are one of the least understood and least talked about areas of the startup industry, and there is a reason for that – it’s because it’s super rare. Generally speaking, even when it does happen, there is a very high level of confidentiality around it. And so people are not super comfortable explaining the details, but knowing more about things gives you leverage because what’s going to happen and so you can prepare for it.  

When it comes to us, M&A conversation really came out of an event where we were both at SaaStr, the SaaS event here in San Francisco, the one funded by Jason Lemkin. Hootsuite was very up-front, they approached us saying “Hey, we are looking into the space we are looking either to partner or to buy a company in this space. Would you guys be interested?” – and, of course, the answer was “Yes”. So we started talking about a potential M&A situation but we didn’t come to an agreement around the price and valuation, and that’s when the conversation turned into a partnership. After that, we worked in the partnership for about 4 to 6 months, we deployed the product and they came back to us saying “Partnership is great, but we would really love to resume that M&A conversation” – and so we said “Great, let’s do it”. And we actually ended up finding something that worked on both sides and so we moved forward.

VASYLYK: Between the point where you guys agreed on the business terms and you received something in writing, like a letter of intent, and the point where the company was actually sold – what sort of things needed to happen between those two points?

CHIERUZZI: Thousands!

BIONDI: There is a checklist of stuff, which is crazy. There are 2 or 3 main blocks in an M&A. So the first block is – how do you get to a term sheet or a letter of intent? When you’ve got to the letter of intent, the so-called “diligence phase” begins. Within the third block, the “due diligence phase” which looks at the company’s past, comes to an end and phase 3 is looking at the future – how the relationship is going to work and what’s going to be the role of the founders, if the team is coming on board (all of it or some portion of it) as well as how the next couple of years are going to look like.

Acquisitions are brutal, founders need to have leverage

VASYLYK: 2017 was a pretty crazy year for you, Armando. Besides the fact that AdEspresso was acquired, your previous company (Pick One) was also bought out in the same year. How different were these two M&As? 

BIONDI: You did your research. It was significantly different.

I’m going to speak generally about this. So the thing that makes the conversation entirely different in M&A context is whether the founder has the leverage or not. And leverage really means two things from a founder’s perspective – it is whether your company is growing or not and whether your company is profitable or it’s running out of money. If you’re running out of money, you have an “expiration date”, you either need to raise more money or get to profitability or money is going to run out of the bank account, so that’s kind of the strong forcing function for founders. And the growth trajectory is what dictates the valuation multiple. 

The best possible place where you can be as a founder approaching an M&A conversation is – your company is growing and you are profitable or close to profitability. That’s where the interesting stuff happens when you have only one of these elements or none of these elements, things can be good as well, it can be a good M&A conversation. [However], it’s a tricky and more stressful type of experience. And, granted, M&A it’s stressful at any point in time for any founder that went through it. Any founder that I engaged with and a few other founders that went through M&As themselves or those that I advised over the past couple of years – it’s always a brutal experience. It’s the worst experience a founder can go through. It’s also justified because if you think about it, for the vast majority of the people the experience of selling a car is a really big deal, and it’s a few tens of thousands of dollars, and the next thing is selling a house which is a huge deal for the vast majority of people and it’s a few hundreds of thousands of dollars, maybe a million. Selling your company, if you’re doing things right it is a few millions, if not a few tens of millions or a few hundreds of millions, so for the vast majority of the founders, unless they are really serial entrepreneurs, it’s going to be the biggest transaction of their life. So, it cannot be anything else than a sort of a brutal experience. So, if you can navigate that from a position of strength, by having healthy growth projection and a healthy Profit and Loss Statement, that’s even better.

VASYLYK: Besides the financial side of things, you’re also selling something that you’ve put pretty much everything into for the past 5, 10 or 15 years. Massimo, when you first had the idea of AdEspresso so when you were running Creative Web and you saw that you were doing pretty much the same thing over and over again so you thought “OK, we got to automate this thing”. 

Did you have any sort of thoughts around an exit strategy or ideas of where you could potentially sell this idea to if everything worked out?

CHIERUZZI: I think when you start a new business, unless it’s a lifestyle business or a family business, the moment you are accepting money from investors – you are thinking what’s the exit strategy because it’s in everyone’s interests. So, probably not in the early days. I mean in the early days we were just thinking about solving a problem. But when we saw that the product was real and we saw that there was interest from people, we immediately started thinking about an exit strategy. We knew from the beginning that Facebook or Google were not buyers even for a Facebook that was not an option. So, we had always been looking at companies trying to get in the paid space or marketing automation companies as a very likely target for acquisition.

Startups vs big corporations: a founder’s perspective

VASYLYK: My last question is about where you yourself in the next 10 years. You’re both now involved with Hootsuite, you’re also both advisors and startup investors and just very embedded into the startup scene, in both Italy and in Silicon Valley. Do you see yourself starting a new startup?

CHIERUZZI: Probably! You never know.

BIONDI: Probably. One of the things that are very common for founders that experienced bigger organizations, is that you kind of always are a square peg in a round hole, to some degree. This is another observation that I find really fascinating and want to share with you guys. So every startup is built on the assumption that founders are somehow special. They have some kind of special insight or some special skills that make that startup likely to succeed or make success possible, at least for that startup, while bigger organizations are built on the assumption that no one is special. Because every process, every person, every role needs to be readily replaceable when someone leaves the company, and also every role needs to be super specialized, while in a startup you’d find all kinds of people that wear many hats and are at the intersection of main things. In a bigger organization though, being at the intersection of many things and being able to wear many hats is kind of an aberration to the system. And you see all the time founders spending the rotation period within the bigger organization but then leaving and going on to the next thing.

VASYLYK: That’s a very interesting observation. I feel like founders after their exit take some downtime, whether it’s with the acquirer or advising or investing. But the vast majority of these founders will start another company again. 

Armando and Massimo I want to thank you both for joining. It was a pleasure to chat with you.

BIONDI: Thank you so much. Glad you’re on our side as well.