Building a $150 Billion Company With Just 400 People | Adam Foroughi of AppLovin

So let me give you a little bit of context on when we went public and why this became a pretty big opportunity. We went public in COVID in April 2021. Company was worth about $28 billion. Went up to 40 billion first 6 months. We're all excited. Stock goes down from there literally every day for all of 22. We got to a floor of I think like $3.8 billion. We went from $115 a share to $9 a share. So you're running a business and the whole world is telling you your business is trash. Like, what do you do? At the same time, interestingly, we went out with $700 million of EBITDA in 21. We did a billion dollars plus of EBITDA in 22. So like fast growth, executing on the business, yet public market investors were telling us business is terrible. And it was what it was.

It is a tough space to understand. First of all, we're in advertising and we're in gaming and those are two tough places to be in the public markets. The other challenge was that we went out in COVID and there were just way too many IPOs. And once you learn the public markets, which I've learned a lot more as we've been public for now four 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. So on the one hand, you have this imbalance. You've got a flood of shares that are going to come to the market. And with all the co-IPOs, the big funds, the companies like Fidelity, BlackRock, etc., they weren't doing as much research on any new IPO because they couldn't tell the difference. There were just too much hitting the market. So, we ended up with a cap table that didn't have support. And then shares started selling into the market, stock crumbles. You start going down every day, people look at the company and go, 'This company's, something's wrong with this company. Like, what's happening?' And it's really hard to look past the stock price and go, 'Let me look at the fundamentals and try to assess what's going on.' And you know, you're out there. It's like catching a falling knife. Like, what do you do as an investor? So, we were thrown out. It's easy to go look, we're down 92%, hang it up. Like, what are we going to do? Start getting reactive, defensive. Instead of that, what we ended up doing was going two 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? And so we kicked off a really successful buyback. The company at the bottom was worth $3.8 billion market cap and we were generating over a billion dollars of EBITDA. So you think about the cash flow to market cap. It was about 1/5 that we were generating every single year. Well, in theory we could buy back 20% of the shares of the company just in the next year if we really believed in the path we were on. So we kicked that off. But we did it a little bit differently than what most companies do. Most companies go out and say, 'I'm gonna buy shares from the public markets and just take shares back.' But you don't know who's on the other side of that trade. On the other hand, we knew that we had a cap table where about 50% of the shares were going to sell at some point over the coming years. We had private equity investors that owned roughly 50% of the shares of the company alongside some other founders that were no longer there. So instead of going to the public, we went to the shareholders that we knew were going to sell and got them to agree to sell back to us over time. And so for the following 18 months, we ended up deploying somewhere around $6 billion of buybacks of our own capital and we leveraged some to buy back shares in the company. And over time, that ended up creating somewhere in the neighborhood of $50, $60 billion of actual proceeds from the buyback. One of the more successful buybacks in the history of companies.

We levered as well.

I mean, look, a lot of times people like to be conservative when it comes to cash. And so one, to lever up is scary to people, but then two, to lever up to buy your own shares when everyone's telling you your company is a piece of [__]. That's really scary to do. I never believed in saving cash for a rainy day. I feel like I'm a big believer in what we're building. I believe in where we're going. So if I believe in the future and we're a really high cash generative business, we should always be buying back our shares. So at a bottom point where the valuation became that juicy, there's no reason to be afraid of it. And the good news is, I mean, 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 five times cash flow and you go, okay, why don't we just buy all the shares, buy as much as you possibly can. And so because it was so cheap and we had a lot of conviction on our future growth prospects, we just hit it and hit it as hard as we could.

When we first started the business, I went out and talked to VCs to raise capital and I got turned down by all the top VCs. So, a million dollars over $4 million valuation some point in spring 2012.

All rejected. That's what I pitched. I would have given up a quarter of the company for a million bucks, would have been a big payday for those VCs and they said no.

Again, we're in advertising and we're in games and it was a tough pitch and this is my third business.

2012, because people hearing you say we're in advertising games. Now those are some of the most profitable businesses in the world. What was happening in 2012 though? What was challenging for VCs back then was, well, Google and Facebook and Amazon are in this space and so why would some goofy name little company that's trying to develop something be able to compete with the giants? I think the sort of failure in the logic is this is my third business in advertising. I had already had successes over a decade before in advertising. So, it's a failure on seeing who's the founder. So, bet on the person, a million over four million, you get 25% of the company. It's a pretty good deal. And then understanding that the space itself in mobile gaming and mobile apps at the time was nascent. It hadn't become as big as it is today by any stretch of the imagination. So, you had this like, well, where we got sort of lucky is we bet on that space, but this gaming space on mobile that became massive now was very little back then. And so those were misses on the VC side.

Yeah.

Yeah, we sort of got lucky in that too. I built a business on social media in 2005 in advertising with a few other guys and then in 2008 had another one. And so when you're on desktop and you're in social and then the mobile app store launches and you start seeing your traffic shifting really quickly, but nobody's talking about it, it's a huge data advantage on a market. And so what ended up happening was in 2010, I had sold those two prior businesses with others and just went over to Palo Alto and said, 'Mobile's going to be big. I don't know what we're going to do on mobile, but mobile's going to be big.' Funny enough, because we had had quite a bit of economic success, I didn't want to do advertising again. Advertising is a tough deal. And so why... it's just really hard to get excited about being an advertising person for 20 years. So now I'm sort of life commitment to it and I'm pretty good at it. But at the time I was like, look, we succeeded in advertising. Go try direct to consumer something. And so why wouldn't we? And why would you want to go from B2B to direct to consumer? The grass is always greener and everything. And so it felt to me like I'd already conquered advertising. Why do I need to do it again? And it was so far off 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's tough. You're dealing with the client on the other side. And when you're in advertising business or any B2B business, you're trained. The client's always right. So you're on the other side of that trade. If you own the consumer, well, then you own your destiny. And so I felt like it would be a lot more fun to build a consumer business. And we tried. We built in 2011, we launched a dating app and a fashion app. Looked terrible.

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

So I'm zero fashion sense. And I was married at the time. Four. Two terrible ideas. Pre-Tinder though. And the fashion app we launched right around when Pinterest launched and they were down the block from us. So there was obviously opportunity in those markets. We were not the right teams to do it.

Yeah, I wanted to have an app because I wanted to own the audience before we got into anything else. And so actually like that transitionally that goes to the third app we launched was the first version of AppLovin. It was an app discovery app. And this was I think it was in late summer to fall 2011. You and I would go connect on this app, App 11, and it would tell you, 'Hey, Adam's playing Words of Friends. You should go play Words of 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're like, 'Okay, well, there's potentially this app store is going to be bigger than people realize. There's gonna be a ton of content. This app stinks, but this recommendation algo is really cool.' And so that's what really turned into what we became, which is we took that recommendation algo and just launched it eventually as an advertising platform on other.

I was rich enough to not need more money in my mind. Unfortunately, money, 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.

Predated that. I didn't believe in selling to investors an idea that I wasn't confident. 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 where 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. And the nice thing is you put a million dollars into an LLC, you lose a million dollars, you get back 500 grand. So, we had a tax-efficient way to bootstrap against whatever earnings we had elsewhere. So we did it and we did that for... we covered the cost of the engineers at the time. Did that for the year and a half until we landed on product market fit. I didn't go to VCs until I knew we were going to be an advertising business.

One had investors and these were both... I've had co-founders at all three businesses but one of the first one had investors and I was a junior co-founder. The second one I was a co-founder at, we had just bootstrapped because we launched an advertising business on social media and it was profitable right away.

So nobody's using the app, which shocking people use apps with hot people in them and this was an app of apps. But we realized if you're going to download at a really high rate based on a recommendation we can send you. Well, why? We don't need distribution on the app. Why don't we just go distribute our technology inside all these other apps that are coming into existence. So, we not rocket science back then. We just realized let's go build an advertising platform around this construct. And so, we did that. We hired a team to build what's called this software development kit, but just code that someone could put in their app to access an advertising platform. And we launched that in March of 2012. So, scrapped the app discovery app. App became this ad network. We launched.

Right back to ads. But like what was interesting. I mean full circle one. I didn't like to lose. And when we did direct to consumer, it's like I have no idea what I'm doing. The not into dating, not into fashion. All true. We had no idea how to take to market a direct to consumer business. And we didn't know what we were looking for. The product stunk. So it was really difficult to lose. And then second, when we saw how powerful these recommendations were and knew that this market was going to be big, there's no reason to shy away from ads. At that point, we're just like, let's go. And we packaged up the tech, put it live, and then from that moment that we got into market, business started growing really quick.

These other app developers were desperate for money. So, at the time, I mean, it's like 2012. The app store was full of calendar apps, fart button, flashlights, and the beginning of games. You had Candy Crush, Clash of Clans, and some simpler games at the time. Not many though. And these developers needed money. And so we just went and said, 'Look, you've got a million users on this calendar app. We'll pay you 10 grand a day. Just put our ad platform in there.' It was up to us to make a spread on it.

At the time, Google had bought this company AdMob in 2008 for I think it was nearly a billion dollars. Huge transaction back then. And so that was the alternative. Go with Google's ad platform or go with this new ad platform. Since they had bought it in 2008, when we started in 2012, there wasn't a lot of innovation there. So when we went to market, it was easy for us to go out-compete Google at that point in time.

When we went into market, we didn't want to sell to brands, so it was never a consideration for me. I mean, we can talk about it, but it was like a one-week consideration.

And so what was different about us to AdMob was 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 or for your game or for your fart button or whatever it was. Run an ad on our platform and we'll get you users on the other side.' So, the very 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 you can monetize, you create a spread, they become effectively a company that can arbitrage our platform, then they could scale their business. And so we built tools for the developer instead of building tools for the brand. And that really served us well at that point.

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

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

Totally independent and 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 as a goal to put those companies out of business.

I mean, look, 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. Like, I think VCs tend to look at a market and they have to really have high conviction in it. And you had in early 2012 things were just starting to form and we were just getting to market with our product. By the time these other companies were raising in later 2012 and 2013, it was pretty clear this thing was going to grow pretty quickly. And then our revenue ramp at the point in time when we launched in 2012 from March to November when we did our... we did an angel round and we marked our own money in and that was it.

So we raised four over $25 million pre as a convertible note to common in November. The business by that point in time had gotten a million dollar a month run rate. So we went from launch to a million dollar a month run rate and profitable in a matter of 8 months.

Barely. It was a little bit profitable, but I mean back then nowadays like ARR ramps are astounding, but and as our valuations back then to build a business in mobile and have it go from zero to $12 million run rate in that short amount of time was really phenomenal. And so once we did that, it was easy to recruit investors in November. I mean, it's like, okay, looks pretty good. It was more a round for a few folks that I had just known for a while and a few other folks that I thought could be helpful to the business and to mark my own dollars in. And so we did that round in November and then we didn't raise another round. So back to the board point and we did raise another round. There was more liquidity later but back to the board point, I didn't have a board in this business until 2018. So from...

Yeah, 6 years later when we actually closed a round from KKR and I can talk about like what went into actually...

It was a messy path. I would say like pros and cons to not having a board. The pro was I made every decision on every shareholder certificate. It was literally my signature as the president, the vice president, everything. It was like the... I think I had three or four signatures on all the share certificates and so I can make all the decisions for the business and it all flowed through me. That was nice. On the other hand, I ended up making some mistakes, especially in the capital markets and raising capital that I wouldn't have made if I had had a board and people who had understood a lot of things that I ended up navigating poorly.

Yeah. So in 2014 and 15 we were growing really really quickly and we got to a point where so 2015 call it some period I think it was about three, three and a half years post launch we were going to do about $50 million to be roughly that's pretty big ramp up again back then like this is I was wealthy enough but the rest of my team wasn't and so this 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 so got as big as an offer for $600 million cash.

No. I'm talking about the companies on the other side. But there's a reason why I like running my own business. It's tough for me to imagine being at the company on the other side and the companies that we were engaging with might have been even tougher for me to imagine being an employee at. And so at this point in time, the business was really all roads ran through me as a really hands-on executive. And the challenge with that was we were still growing 100% year-over-year. So when you're going and trying to do a deal and someone pushes a term sheet towards you and goes, 'Look, there's a lot of zeros, $600 million.' You're like, it is a big number, like all cash, like life-changing for a lot of people on the team. The problem is between the time of seeing that number and getting to a deal, your business has grown a ton. And I'm a finance person. I would have had a number I would have done the deal at, but it was not that number. And so I ended up walking away from it.

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

Yeah, it wasn't that much. I mean, in hindsight, obviously.

140 billion roughly. It would have left a lot of money on the table. Now, look, you may... most businesses when they sell, they lose the opportunity to keep innovating. And so had we done it there, we made... none of us would have known what this could have become. So it was a little fortuitous that I had enough conviction to not take an offer in that.

It wasn't a few months later, but so he...

So he's a high school dropout. He started working for me in my old company when he was 16.

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

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

He was like 19, right? Yeah, he was 19.

And I spun it to like, 'I got a good opportunity for you though.' And he shut that down and came over. But he was great. He for the first 6 months he lived in the office and we're in downtown Palo Alto.

He had a bunk bed in the office. I can't remember where he showered. I think we had a dingy shower. But one day someone tried to break into the office at 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 got to get the hell out of here.' But he was 24 hours a day. What his super skill is is he strikes deals and does them better than almost anyone. And he can sit down with you and have a conversation today. 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. And so 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. But we ended up with like just this group of people that almost were outcasts from other places. Like one of the things that I always looked at for hiring were find people who have a chip on their shoulder. Someone who has a reason to push hard. And I had that myself and we can talk about that if you care, but that was always what drove me. I had a reason to be driven. And so I always looked for that in people. And you have this kid who's high school dropout like anywhere else. He's not getting a job at big tech. But skills that smoke everyone else when it comes to selling, charisma through the roof. And so seeing that I knew bring that person in, empower that person, and they're going to be hungry and they're going to push and they're going to push harder than others. And that was a formula we always had.

He still talks to advertisers who laugh and go, 'Dude, you're asking me for an extra 5,000 bucks a day. You're a [__] billionaire. What are you doing?'

I mean, but again, it comes back to you 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 I think.

Yeah. Sometimes you don't forget where you came from. I mean mine was that my family was uprooted out of Iran. And we ended up coming here when I was four. But my dad had one of the most successful real estate development companies in the country. So he was loaded, very successful back in the day. Thousands of people worked for him and we got booted out of our country. And so growing up, I could just tell a big part of him was lost and he wasn't whole. And so I felt this obligation and it didn't kick in for me till later, but I always felt this obligation that I got to do whatever I can to prove that I can have the utmost success because he gave everything up to bring us over. So that's never gone away. I still think to this day, one, this notion that like you can reach a point of success, like I don't know what that is, but it's a moving target. Nowhere near that moving target. And two, always got to be present. And so I always looked for people on the team that had some reason to have a grudge or a chip on their shoulder, 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.