In our journey, we've collected 160 million. I would say 90% of CEOs of big companies in Silicon Valley sleep on our product. Elon Musk has it, Mark Zuckerberg, all the top athletes in the world, Lewis Hamilton, Charles Leclerc, Prime Ministers, Kings... We make millions of dollars per employee.
He is Matteo Franceschetti, founder and CEO of 8 Sleep, a company that generates hundreds of millions of dollars in revenue, that went through Y Combinator and has among the most important investors in Silicon Valley. Their flagship product is a mattress cover full of sensors that perfectly monitor your sleep, your biometric data. It automatically helps you sleep better. The feature that made them famous is the ability to heat or cool the bed as desired. Then there's also the integrated alarm clock, the ability to reduce your snoring and an app to monitor everything. People like Elon Musk and Mark Zuckerberg use 8 Sleep, but also Formula One drivers and heads of state. All people who need to perform, for whom sleeping one hour more can make the difference, and for whom the investment of a few thousand dollars is worth it. So Matteo Franceschetti has lived in the United States for years, where his company is also based. But occasionally he returns to Italy and one morning at eight he came by my office in Milan and therefore I took the opportunity to ask some questions and have him tell me his story. In fact, Matteo's passion for performance started very early.
I started early with skiing because my father had done many ski races. It had always been his passion. Around eight years old, until twelve, I had done skiing. The ski school was super formative because I would go train in South Tyrol, where everyone spoke German, and sometimes my parents would leave me there for a couple of days where I basically just skied surrounded by these other children. They practically didn't speak Italian. The coach only spoke on the radio in German and so that was a bit traumatic, but actually... over time, it was something that shaped me. And then I started playing tennis and I did a lot of tennis between 12 and 17, at a competitive level, at the Italian level and some European competitions, and then around 16 years old I started racing in go-karts.
Why the desire to do sports?
Two things: one, I realize now, that I've always had that drive, that internal grit in me. But the original push came from my father. He was a lawyer, but he had always been an athlete. He had also raced in cars, he had been Italian champion twice in uphill car races, he had been in the junior national ski team, had played basketball, and I grew up with a father, somewhat with that mentality. And my sister had never loved, probably doing too many competitions. And then I came along. Instead I liked them.
What high school did you do?
And during school, are you more interested in sports or more interested in the academic program?
At school I was that typical student that teachers would tell my mother, 'the boy is bright and has potential, but doesn't apply himself.' In Silicon Valley there's almost a pushback against all those who follow the standard academic progression. It's usually considered too simple, too canonical, and instead they look for people who are nonconformist. We call it contrarian and right, so you have to be contrary and be right. But if you do what everyone else does, you get what everyone else gets.
This is the classic Silicon Valley mindset that you also find in Peter Thiel's book, 'Zero to One'. So, usually when you think something different from everyone else, you're the one who's wrong. In some cases we're the ones who are right against everyone else. And if you want to make a successful startup, what you need to find is a situation where you're right, everyone else is wrong, meaning contrarian and right. And Matteo has always considered himself a bit like that. In fact his entrepreneurial spirit was actually already there at a young age.
I've always been enterprising, right? Since I was 14 years old. I remember my father had a car accident, destroyed the car, the next day I went to dealerships trying to negotiate cars and see what cars were available. Also I seemed younger than my age, so if you see this tiny 14-year-old kid who comes and starts discussing to buy a car for his father, I don't know how much credibility you give him.
Then you went to university, you did law, why?
Good question. I was completely disinterested and so it was the most logical thing. The University of Ferrara is pretty good in law, my father and sister are lawyers. Probably the easiest choice because I was only focused on sports, even though at that point I had started to slow down and therefore I could never have thought that I would become so focused and obsessed with professional performance. My mom was a high school teacher in the science high school, I think on Fridays she would bring home this magazine, from TheSun24Hours. I would read it because I was interested. I read about these big law firms that do these really cool things like acquisitions, they do stock market listings. I didn't like the idea of being a lawyer like my father and sister do because I wanted something international, something where I could speak English, even though my English was terrible, I practically didn't speak English. I find this book, about this law firm called Baker McKenzie and I read it, basically I get passionate about it. I say: okay if I have to do law, have to be a lawyer, this is what I want to do. I don't want to work in my father's firm. But to become part of these law firms there are two conditions: one is that you must graduate with highest honors and second that your English must be perfect.
And that's how his goal shifts from sports to studying and so everything changes.
And from there I start studying, applying myself and start getting many top grades that will then lead to graduating with highest honors. And then I also have a company with my best friend, I was racing go-karts. I have this idea to take photos directly at the circuit. We create this company and start making tons of money.
At that time the way it worked was that you went to the circuit, there were some photographers, they took photos and then sent you a package home three weeks later with cash on delivery and if you wanted to keep them you would send them the money.
I don't know, I saw the opportunity. He was the more technological one and it was the time when real digital cameras were starting to appear and then we had bought an Epson, you know, just like the printers, for €90. The funny thing is that we didn't have the money to buy the camera, I think it was €1,000. So I go to my parents and ask them, 'would you give me half, and Enrico finds half?' My parents tell me absolutely not. This is one of your usual stupid ideas. Focus, study, graduate. His parents also say the same thing. We go to his grandmother and his grandmother signs us a mini loan to buy this camera that we would have to pay in 18 months. We repay the camera in 18 days and the reason is that we go to these go-kart tracks where I used to race, so I already knew a bit, we take photos and print them directly with this Epson and sell each photo, I think, I don't know, maybe the equivalent of €10, which cost us two, and people go crazy for this stuff. So from there we expand, start making posters, start making stickers and so on. We could make 10,000 euros in a week.
And you managed to study and do these things simultaneously?
Eh... if there was, I don't know, the criminal law exam, the majority of my friends would prepare it for three months, I try to do it in twenty days, but in twenty days I do it 22 hours a day.
So you wouldn't go out to take photos for go-karts, you would do twenty days of criminal law exam.
Exactly, but I had lots of gaps, there were the semesters, between April and May, there was this space and there all I did was this thing called Imago, and that's where I made the majority of the money that then took me to the United States, plus a series of sacrifices from my parents who put in the difference. So I graduated and afterward I went to San Diego for almost a year.
After graduation his friend goes to study in China and so they close Imago, also because Matteo's family was absolutely against it.
It was a complete pushback. For what I know today about Silicon Valley, that could have been the beginning of a startup.
So Matteo goes to San Diego and studies at university taking a language course and economics.
And then I did an internship at an arbitration center which was the topic I covered in my thesis.
Basically instead of going before a judge to resolve a dispute, there are a series of extra-judicial solutions where you go to an arbitrator or there are mediations. And that was what I had done in my thesis.
This first work experience shows Matteo's parents that he can make it perfectly fine on his own, without necessarily having to work in his father's firm.
Imagine that my father had his firm in Ferrara, a good firm, but normal, a lawyer from a city. So I remember that one day my father, between the lines, basically the concept he tells me is: realize that I have no contacts, I don't know anyone. Try it, we'll help you as we can, but realize that it seems like a somewhat impossible dream. I'm in San Diego and from San Diego I start making applications like crazy, write to 20, 30, then return and do the interview and get hired, and it's funny because basically I make from day one more money than my mom made as a high school teacher.
Did you like life in the firm?
In the end yes, it was Freshfields Bruckhaus Deringer. Day two of my life basically I enter at 9 in the morning and leave at 7 in the evening the next day. Actually my boss gives me one hour to go home to wash up at 6 in the morning and says, 'I'll only give you 45 minutes because otherwise you risk taking a nap and then you won't wake up. So you have to go home, take a shower and return as quickly as possible.'
What did you have to do for all that time?
We were working on a super important transaction with an Italian company.
You had the goal of entering these big firms, once you succeeded though, at that point, what was your goal?
At first it was to climb there, and it happened.
I did the first two years at Freshfields, then my boss became head of finance at Allen & Overy and I became a lawyer a few months later. He brought three or four people with him and I was the only trainee he brought. And then I became associate at Allen & Overy. And so let's say the most obvious trajectory for me was either to stay there and try to become a partner one day or potentially at that time I started looking at MBA or learning to become a solicitor barrister in UK.
But were these things that excited you? Was it something that made you say, 'this is my big dream in life', or was it contingent? Was it because you found yourself there?
It was a mix. I always wanted to make it big and so at that moment making it big was: either I become partner or I go to Dubai and work in a big law firm managing Emirates. Then what happens... the 2008 crisis arrives and our work just stops. So I go from working 16 hours a day because we worked like beasts to being bored. If I get bored I start looking and doing other things and so with another guy who would then become my co-founder, we start making a non-profit association to connect people, explore opportunities, because he was very involved in politics, and then from there we realize that there's this opportunity in solar. It was probably the only economic bubble of the last 60 years in Italy and I managed to ride it. An incredible stroke of luck, otherwise I would still be a lawyer. And basically there are private equity funds from all over the world that want to rent lands, particularly in southern Italy to create large photovoltaic plants. What happens is that my firm and the firm where the other guy who was also called Matteo worked are the best firms in Italy for doing what's called project finance. So we start to understand a bit of this stuff. The majority of these private equity funds speak English and have to interact with people in Puglia, Abruzzo, Molise where they don't speak English at all, so we find ourselves practically in this position where we are the intermediaries. We can talk with these big guys, we can find the landowner in Puglia who has n. hectares that he wants to rent. So I worked in the office until 9, 10 in the evening and then I would meet with Matteo from 10 to 2, 3 in the morning and we would work on this thing. At first the way it works is that I find all these funds and start almost bringing them to the law firm. But the message I'm given after a while is: Matteo, you've just become associate, just become a lawyer, you need to focus on learning the craftsmanship, so the legal details. It's not your time to bring clients... and to me it seemed like bullshit... sorry if I can bring you funds that want to invest hundreds of millions here, why not? And basically I think the feeling was a bit that that's more of a partner job, let the partners do it, they know how to do it... Sure, you do your thing. I become a lawyer that year, at the end of November and then my father dies at the end of 2008, at the beginning of 2009, by mid-2009 the company we were managing overnight starts making enough money to pay me the salary equivalent to what the law firm could pay me.
Because you took those clients that your law firm didn't want to take basically.
And we weren't giving legal advice, there was nothing competing. I was a service provider who identified the lands, validated them for photovoltaic development, managed all the permits part for you.
And how did these clients find you?
Once we understood how the first one worked we started contacting them and so we created this brand that seemed a bit cool. I remember once someone came from Spain, we went to rent a BMW because I had a Punto, Matteo had a beaten up Smart and so we said we can't go pick up the CEO of this Spanish company with this broken thing and so we rented a BMW like from Europcar, but the key had, you know, the keychain and so we had to hide it from him so he wouldn't see it.
Yes of course it had to be yours.
By mid-2009 we made enough money, I can pay myself a salary, so I go to my mother and tell her... she said actually, no you're doing well you can become a partner, partners in this law firm earn a lot of money, you're crazy. Basically in September 2009 I quit and my plan was if this thing fails there was money for a year and my bet was that my boss in my opinion would take me back, in a year I return with my tail between my legs. For many years I had the dream at night that things weren't working and I had to return to the law firms and it was like my nightmare, even though I had always been good there, they treated me very well and relationships were excellent, but I thought about the concept of failure. It's a bit like when one dreams about high school finals.
And so how does this first real activity go? You manage to make enough money to pay the salary. After that you scale it.
I don't remember if in one or two years we manage to make more than 1,000,000 euros in revenue and we start hiring, then the whole regulatory landscape changes and it becomes... a disaster. So at that point we find a way to sell the company making some money and finding jobs for the whole team.
You sell it off because of this thing or you could sell it well?
Looking back I still consider it selling well.
What was the revenue when you sold it?
Between 1 and 2,000,000 approximately.
When you sell these companies there's a bit of upfront but much has to happen with what are called earnouts, so the potential was still very big if the earnouts had materialized. Then those who bought us didn't do well and behaved very badly, there were also legal problems and so the earnouts by now... the earnouts never came. No, they still owe us money.
So in just over a year Matteo quits, returns to Italy and creates this company that helps American funds deal with Italy taking advantage of the very Italian boom in solar, which those who lived through it remember well, in a short time manages to sell this company and so decides to exploit the same opportunity in the United States.
So Matteo and I move. We join the other partner in America, take an office in New York and from there the first American adventure begins.
You saw the opportunity to do the same thing in America, so you opened another solar company in America that did the same thing?
Vaguely yes, in the sense they were still large photovoltaic solar plants. Instead of selling to private equity funds in America it's the municipalities, so the townships that buy this energy where they repay a discounted price and then distribute it.
What services did you offer?
We identified all the areas where you could develop these plants and put together all the advisory part, always advisory... yes.
And this one was going well too.
We got some investors and then it was bought by a Panasonic company.
Here too let's say few years. Quick, and how did you raise money this time, to scale quickly? To scale quickly and because in this one you didn't make much money from the start.
So much of the money was postponed because here we were no longer an advisor, but literally developing these plants.
So you had to wait for the project to finish then.
And so we had to pay ourselves money to live on.
How many people were you doing this?
There were the founders and then all engineers expert in permits, same also on the Italian one, on the Italian one I think we became about 30.
And what was your revenue with this one?
We sold this one before having revenue but we had raised a couple million from a Luxembourg investor.
Recapping, if the first company in Italy was advisory, so it generated revenue from day zero, like any consulting firm, the company in the United States instead worked with engineers to design plants which, as happens in many cases, the projects last years and the bulk is paid upon delivery. Matteo despite this manages to sell to Panasonic in two years even before starting to generate real revenue, but clearly exploiting the value of existing contracts. And it's in these years, before the exit, that Matteo meets Alex, his wife, with whom he then created the idea of 8 Sleep.
I met her in Miami, on a trip. I had gone to New York with Matteo for work. We stopped for Halloween in Miami. I met her there which is the most incredible story because I'm not one who goes much to clubs, that kind of thing. Neither is she, she's Mexican. I'm Italian. I wasn't living there yet. Then we met and from there we made it work.
Matteo and Alex would come up with startup ideas on weekends. What ideas came to you in your weekend sprints?
At the time there were lots of those startups that did... it was called Blue Apron in New York and so they would send you a food package and how to cook it, and I had made one with Italian food and then we had made another one where we made personalized jewelry 3D printed in plastic. That's where we met Max, who then becomes the co-founder of 8 Sleep.
The idea of 3D jewelry convinces them. They try to get it started with Massimo, another startupper they had met in those years who however seemed much more interested in another idea, that is 8 Sleep.
Max is in New York, has just been dumped by his girlfriend. We go out to dinner, him and I, and he starts talking about this idea I have that comes from sports origins. I've always been obsessed with efficiency and body recovery.
This even when you worked in the law firm or when you worked in solar, did you stay fit?
No, there actually very badly, but when I turned thirty something clicked.
So there's still hope for me.
I remember I went running at thirty, practically couldn't run five minutes and there I thought, 'it's disgusting, this is not me', it's not me, and from there I started getting back into it. Now I'm obsessed with body hacking and so I talk to him about this idea. I tell him why Elon Musk is taking me to Mars, but I still spend eight hours a day, which is about 30 years of my life, on a stupid piece of foam, with no technology. I go there, I have to fall asleep, wake up, pretend to be fresh as a rose. These stories are the same for 50 years and despite there being the craziest innovations in high tech, these things haven't been renewed. One of these was sleeping. The tech bed basically didn't exist.
You get this idea, you tell it to Max.
I tell Max, who tells me, 'why don't you come to San Francisco tomorrow? Let's build something in my garage.' So I went to San Francisco the next day, we built it in the garage. He built it, because Max is the genius who builds anything, and then we had a pajama party where we invited people, six, seven friends, and what happened is I call Alex, who was in New York, and tell her there will be a presentation here with some marketing material to explain.
What was her specialization, what did she do?
Marketing communication in fintech company. She puts this stuff together for when the others arrive, they go in the bed, try this first thing, do all the experiences... before leaving, one of them, Simone Brunotti, Italian, now he's moved back here to Italy, comes to me and basically gives me a check, says, 'I would like to invest $25,000', which usually, it's the cut done in Silicon Valley.
Exactly, and I say, 'Simone, we don't even have a company', I mean, we hadn't even incorporated yet, I was in the process of selling the other company. 'No, no, in my opinion you have to try, this stuff is super cool.' I talk to Max and we say we want to do this thing, he had sold his company three, four months ago, he was working for those who had bought it... let's try. And from there basically 8 Sleep starts.
How did Max make the prototype?
At first it was just a cover that you put on, that only heated up.
How did he make it by himself?
