E928 Adam Foroughi AppLovin: mobile game boom, bootstrapped to profit, 5G opp, app discovery unicorn

[Music] this week in startups is brought to you by Walker corporate law specializing in the representation of entrepreneurs

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this week in startups I'm your host Jason Calacanis an angel investor and entrepreneur sometimes journalists writer here in Silicon Valley I've invested in over 200 startups and done

10 years worth of this podcast over 900 episode in our tenth year we wanted to bring you a parade a stampede a gaggle if you will of unicorns and their

founders people who have built a start-up worth over a billion dollars why is that important because every year tens of thousands of startups are created and out of every 10,000 or so

here in Silicon Valley one will become a unicorn and that means they've reached in all likelihood over nine figures in

revenue back in July of 2008 Steve Jobs and Apple launched an app store back then the iPhone was in its 3g version the third iteration and they had a

whopping 500 apps in the App Store my guest today Adam Farooqi did I get it that's right you go okay thank the Lord

Adam Farooqi is the co-founder and CEO of Apple Oven now if your mind immediately went to McLovin you're not wrong that's his favorite character from super bad is it super bad super bad it was

super bad which is a great film have to rewatch it and Adam had a thesis he thought this app store would create a legion of businesses that were sustainable and that would need

marketing services and support and boy was he right the company since that time has come worth over two billion dollars and raised over a billion dollars and I'm assuming makes hundreds of millions of dollars I'm in the ballpark you're in

the ballpark it's gotta be nine figures if it's worth two billion right I always have to think that's a big number of a yeah yeah it's over a hundred million in revenue how many employees now we have about two hundred and thirty two hundred thirty so this is an efficient company

then yeah we're pretty lean we try to keep it that way what is what was your motivation when you go back to the twenty eleven you started we started around 2010-2011 we're tinkering in

mobile you're tinkering in mobile you see the App Store and what was your insight what led you to say Apple oven needs to exist I remember the moment yeah you know I'd started a couple

marketing companies on desktop and done really well there and so I was sort of in a mindset of traffic shifting to mobile get down to Palo Alto and just figure it out and so we started actually

building apps and the first couple things we did were apps on the App Store and I had no interest in getting into marketing services for a third time and when we built the apps we realized you know we're having a difficulty growing

these apps one reason was the apps sucked but really we were not app developers but the other the other challenge we had was there was no good solution to market your app back then

and so when I saw that and I saw how big mobile could become you were seeing the beginnings of traffic shifting to mobile and if you had a little foresight you could realize how big mobile was going to be I realized there was a need for a

marketing platform and so we just went back to what we knew and dumped the apps refactored what we were building and got into marketing what was the first app I'm curious yeah we actually had a

dating app called mingle mingle not very good or this might be pre tender if I had the foresight to build a good app yeah I might have been like tinder but

it was a terrible at yeah and what was the first product that app lovin came out with the first product that was Apple eV and v1 was an app discovery app and it was join a social network you and

your friends connect and you could see the apps that your friends were using and based on those you could find an app to go down oh wow that's does anyone yeah so you would log in or authenticate

and see what apps had been installed on the phone or do people put them in manually no you could actually if people gave you the permission you can see the apps that they were using so you and I would go connect on the social network and you can see the

music well at the time app discovery was a problem until today it is and the one thing we realized when we first launched the app is people still want to see pictures of fun things that are going on in their social graph not a bunch of

pictures of apps so the app itself wasn't sticky but that recommendation I'll go was and so that became sort of the v1 that we rolled into and our current platform well why is app

discovery such a hard thing for people to solve is it just because Apple was never good at social software or algorithms cuz it does seem like the

Play Store does a pretty good job of telling me what I need I think the real problem is the content is really fragmented and the cost of development is really low so if you get a hit there's gonna be a hundred other hits or

a thousand other hits in that same genre or maybe not hits but copycats and so at the time utility apps were big and you would flash light up before the Apple built in the flashlight under the device you needed to download a flashlight app well if you search for

flashlights there's a thousand flashlight apps which one is the credible one which one's the the the really low-quality version who knows and I think that's really the problem and it's not easily solvable by

the App Store yeah Apple has done a better job of the duplicate app concept than Google because it was a little more freewheeling right anybody can upload

anything without being approved in the Android store still to the States so Apple does police duplication and content that's a ripoff of other content Google is an open framework and open

platform so anything can get up there so Google's problem is even bigger than Apple's although Google has more search power yeah you know in history than Apple yeah it's a bit of a free-for-all

on the Play Store but now they have like Play certified or play review did they add a level to make it less chaotic they've had a level but with the millions of apps that exist today it's a

little hard to be less chaotic the chaos is only grown from 2011 to now huh and and the problems have been magnified but I think people have found alternative forms of app discovery than just the App

Store search well what is the main one is it this like I'm playing clash of clans or something and it's like hey you're playing for free we'll give you some mana or gold or whatever if you try this app

is that the main thing the sampling and cross pollenization is there a category for that which I think so and that's what we evolved into too and in gaming would end up happening is the ad ecosystem became really high value

because people started playing these free-to-play games and the free-to-play games a lot of times are challenging require a fair amount of skill but people would reach a point where they either had to pay to continue on or they

could watch a commercial to continue on and that commercial ended up high value and a lot of times it ends up a commercial for another app and that leads to probably the largest form of app discovery today and that's you

remain business people that's a part of our business yeah what do people pay to install apps I know that there's been this sort of bit of a problem in the startup ecosystem that I operate in as

an angel investor where the whales I guess the people who spend a lot of money on candy crush or clash of clans the people who are willing to spend a hundred bucks a month on mana coins or

whatever which I did on my backgammon app which is so weird I can't believe that I gave $100 to it backgammon app but I was like this backgammon app is so

good and there's so many players on it that I'm happy to give them a hundred bucks like twice a year and I think about like why am I giving them 200 bucks I just thought to myself I want to

see them succeed and keep adding quality to this app so to me it's like going to a backgammon club and paying 50 bucks to

be a member or something but what it how is that fact that there are these apps that are highly monetized impacted appids balls what does it call the cost to get an app install in the United

States today the costs are only going up so there's a wide range and it just depends on the genre of app whether it's games gaming huge range but I think what would end up happening over the evolution of our company is you saw a

huge expansion of mobile gaming happening both because of consumer experience that the handsets got better connectivity improved and games on mobile became really high-quality so the

gaming ecosystem started exploding in usage and everywhere you go now people are playing mobile games yeah the other thing that gave mobile gaming companies a big advantage is attribution on mobile

all their revenue flows through either Apple or Google or the ad platforms that exists on mobile so they could start buying in arbitrage model where they spend let's say $2 cost for install but they know if

they're going to generate more than $2 overtime and then you had all these traditional companies that have businesses cross-platform there's no really good way to tie all the revenue from the user together across platform

ah so they had a big disadvantage in marketing and so these gaming companies were able to really increase the cost per install over time and get to a very efficient point because they've got an arbitrage that's fully measurable

whereas other businesses have had had more of a challenge figuring out how to unlock the value of mobile marketing yeah if you're doing a photo sharing app or a note-taking app or a dating app it may not be clear exactly what your

revenue is gonna be or if you had a cross-platform game but for the people making clash of clans or candy crush it's extremely clear how they make money

they can model it perfectly yeah they can model it perfectly and and most of us at this point I've heard of candy crush and clash of clans but there's thousands to millions of other games

that people haven't heard of and the the 500th solitaire game in the App Store that creates a new spin on solitaire isn't known by anyone in the world yeah then they go spend some marketing

dollars they're gonna get no users or they're gonna get some users and when they spend they know the exact amount of revenue that they're generating against that's been and that model is really powerful at the peak I heard clash of

clans candy crush these were doing two billion dollars a year in App Store revenue does that sound right to you billion two billion three billion the numbers have gotten big and they've only grown over time what do you think it is

for the top for a top ten app in the App Store in terms of grossing revenue what do you put it out a year candy crush in the Kings suite of products are publicly reported and I think it's around a

billion dollars a year subsidiary three million dollars a day in revenue when you think about it that's incredible three million dollars a day day in and

day out what do you think those companies spend a year without naming them cuz they're probably some of them are your customers but what do you think one of those top groups spends on a percentage of revenue if they make a

billion do you think it costs them three four five hundred million to get that billion range sounds right so so King is since they're publicly reported I think their margins I think they're generating if there were standalone five six hundred million dollars a year

Aviva da so it's a very profitable business and what happens a lot of times is once you build your base of audience people start people have been playing candy crush for years every couple weeks

there's a new 50 100 levels added and so it's like waiting for your favorite sitcom to come out the next week there's these addicted players that will play for the rest of time and King is very good at adding content and because of

that you're left in this environment where these gaming companies that are scaled have a ton of revenue that's just owned and we'll just pour down to the bottom line and then they do market for new users as well so they're in a very

good position because of this huge user base all right one thing that I've been hearing over and over again is that we've reached peak smartphone that smartphones have

peaked in terms of usage in terms of the upgrade cycle in terms of the opportunity when we get back from this quick break I want to know based on data based on what you know being at the

Nexus of all of this spend on marketing I want you to tell us if Mobile has peaked or not when we get back on this

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at Walker corporate law comm okay let's get back to this amazing episode hey everybody welcome back to this week in startups my guest today is Adam for roogie he is the co-founder and CEO of

Apple oven which he founded back in 2010 2011 with a bunch of failed apps realized that he needed to figure out this discovery thing and here we are a decade later almost and it discoveries

still not solved it's still a disaster Apple seems to have made a ton of changes to the App Store like I can't find the rankings anymore why did they get rid of the rankings is it too easy

to game and they wanted to deprecate that concept of rankings they're still there and they're it's more of a popularity contest in terms of rankings what we've seen over time is the

percentage of downloads in terms of organic downloads has diminished a lot the majority of all downloads for companies that we see especially in gaming are paid acquisition and then the

remaining part end up being a lot of times Apple features their team does a very good job of hand selecting games that are fun to play or apps that are good to use and so that's that's a new

form of does that reddit Oriole that Apple does is so good now I mean they remember when com one of our investments got app of the year - if you remember that two years ago they got app of the

year and I was like wow that they wrote like this incredible article of it happened they have a decent editorial staff over there now huh it's really good and calm is a client of ours and

they yeah they've done a great job of scaling a business yeah with the subscription revenue that seems to have changed every in the AppStore what what is the impact

of Apple subscriptions 30% for the first year was a 15% of people renew what impact has that had on business we see clash of clans and those kind of companies move from this pay for gold

and usage and levels to just past 20 bucks a month and you're good it hasn't gone there much yet in gaming cuz I think what ends up happening a lot of times was something like that if someone has to crack the high consumer value

experience and then everyone starts replicating that experience so I know today a lot of the gaming companies are testing with hey here's a new part of the app you can only unlock it if you're a subscriber and you got like VIP

treatment if that takes off you can bet that a whole bunch of gaming companies will replicate and fast follow yeah I don't think subscription gaming changes the whole free-to-play movement at all though right free to use free to play

free to progress there's just a lot of consumer value in that when we right before we went to break I wanted to talk to you about the iPhone upgrade cycle

and smartphones in general as an opportunity because we're sitting here in whatever it is you're 11 of the iPhone and let's give a little credit to the people who came before it's probably

2 or 3 years of solid smartphone usage before that you know we're gonna be at two decades shortly has it peaked or if you were to pick what ending it's in

where would you put it in the nine-inning structure we're seeing a peak in developed countries in terms of adoption just because everybody now has

one to three mobile devices where can you get new new emerging markets are still growing so you're still seeing a ton of adoption in India and China and

Brazil so we're a global company only 30 percent of our users are from the US and that's the beauty of the mobile app ecosystem is it is global inherently the other function that exists at least when it comes to user experience and

consumption is as the hardware gets better and as connectivity shifts to 5g and improves in terms of speed you're gonna get more and more consumer consumption happening and intersected

with gameplay think how good games can become as Hardware improves well look back to the games that existed in 2012 to today the games that exist today on mobile dramatically better than what they were

and it's not because developers somehow got smarter designers got smarter it's just because of the hardware improving the GPUs that's the key right yes the graphical processing unit and speed you

have to be able to download a file that's bigger you have to be able to store a file that's bigger the original iPhones had tiny amounts of storage for you to uninstall an app in order to get something new on your device now that

doesn't exist as a problem and they also have this offloading of the apps I thought that was like a brilliant concept where if you don't use an app for a certain period of time they just put it in the cloud and they're like

yeah well redownload it if you need it what will 5g what impact will 5g have on all of this oh this is just positive yeah more speed more downloads heavier

file size more storage you're gonna get just more immersive user experiences and then connect that what they are and all new emerging technologies and you're gonna get just a world where people are

going to play more games on their phone it's the most affordable form and most accessible form of entertainment that we see as human beings today and that makes it really compelling and it's only

improving yeah it's interesting the games seem to be being released as part of maybe it seems to be maybe a year or

two later console games are now being released a phone like you can play fortnight on your iPad is that a good experience or is that a terrible idea like don't you in order to win at fortnight don't you need to have a mouse

and keyboard I don't know what's funny about me is I'm a terrible game or so I don't like getting my butt kicked all day long but yeah it's the mobile experience is more of a utility

extension of those games I feel like it's not where the core really great player is going to play and fortnight's a good example of what is mobile is a great add-on to it but it's more of a

console type game yeah mobile is actually predominantly woman majority of the players are female majority of the players are aged when you go on a plane and you sort of look around you notice who's playing those

mobile games and word games and solitaire games and puzzle games on their on their mobile device it's a lot of 40 50 year old you know let's say 60 65 % women

30 35 % men playing these types of games it's just quick to go much more casual in nature and so that's the type of games that we see played on just revealed one of my angel investing secrets I'd literally go to

the back of the plane you're not flying first class business class these days but you know let's be honest I will walk down to general pop in the back and I'll walk back to the front and I will look

at every single screen and I've been doing this for a decade even back when I was in Gen pop you know flying in coach in the last row and blue I walk all the way and I would check every screen just

to see what media it is amazing too you are exactly right the number of people that moved from being on their ThinkPad ten years ago playing the default window

solitaire game to being on candy crush clash of clans you know all of these other games is incredible I mean count next time you go on a flight count the number of people on that flight playing

word escapes or word stacks or some of the word games that are popular you go system it's crazy it's like 20-25 percent of every plane I go not going now I look around and I'm like playing a

word game you know that's addictive has been around for ages you have to be connected to that one so a lot of times some of the new games that have taken off are solitaire game play you could play offline and online and the

experience is great whether you're connected or not what impact has Apple allowing people to promote in the App Store

so they accept and they collect ad revenue now in the app store to promote that seems like that makes them sort of a competitor to you how does that stack up in terms of cost and efficacy versus

say app lovin it's high quality but limited the the beautiful part about an arbitrage based marketing model is gaming companies or any company in general that has a revenue model I can

track marketing dollars against that revenue model and make a spread will spend as much money as they have in their bank account so simple math if you know you're gonna make $3 on an install you'll spend a dollar 50 on that install

infinite times right it sure it ends on timing and cash in your bank account and that's your only limit Apple's App Store search results for ads or the probably the highest quality form of advertising

in the ecosystem today but there's a limit on the amount of volume that you can generate if people could spend unlimited dollars on Apple search ads that's probably where they would spend until they had no more cash but there's just

not that much search volume happening so the analogy would be like google search you have intent people are typing in

tower defense game or you know scrabble word game what's the other word game where they fill in them what's the one that people play on paper where they crosswords oh yeah this crosswords is

another one though that's a slightly different we Circle the words you know like you look for words in a pattern and they're circled you know what I'm talking about right

somebody knows the name of this anyway that type of game they would be so doing a word search type game but you you rely on people to be searching and they may

not be searching which means you don't get anybody who's passive whereas you can get people who are passive or engaged in another game kind of like an ad on television or maybe even actually

the better analogy would be Facebook versus Google Ads one is people have put their intent in a box and hit search and the other one you'd maybe know their psychographics yep search is always the

highest form of intent that we've seen in terms of marketing solutions because users telling you hey this is what I want right now give me an answer and if you go off of that the next form of great advertising on digital today is

what Facebook is done in social and a lot of what we do in the app ecosystem as well as I play certain types of games therefore I'm gonna be interested in these types of apps and you may be interested in other similar types of

games from similar genres you may be interested in calm or something else another type of app from another genre got it hey when we get back from this

quick break I want to talk about mobile phone banks and fraud because you must have to deal with this at some point and we've all seen these pictures now in

videos on the internet of in India and in China a thousand Android commodity phones on racks and a person walking

down and doing a behavior in an in so on each one to try to Fugazi and move something up the charts I want to understand how pervasive that problem is and how you deal with it

because you have a marketplace and a network and you must have to put in controls to deal with happens all fraud and fraud on mobile when we get back on this week in starters if

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welcome back to this week in startups my guest today Adam for roogie Farooqi it's not Italian it's Persian we talked about it earlier that's right yeah it

sounds Italian but it's Persian and you have over 200 people to billion dollar valuation raised over a billion dollars that's kind of mind-blowing yeah that's been a lot that's a lot of money how

does life change as a founder when you go from having less resources to having let's face it perhaps too much and you're sitting there at this giant

buffet with unlimited calories how do you how do you stop from gorging and how do you manage that as the leader well I was a CEO and we were the company that that walked down Sand Hill and try to raise a million over four when we

started heard no from every single VC that mattered a million for 20% for 25% of the business oh I heard a lot of knows how many notes exactly I think I

went to about 8 to 10 V C's so Ted knows Ted knows I mean knows is in like get out of our office you tell people in 2011/2012 or even today hey we're gonna build a marketing platform there yeah

that doesn't sound exciting to me what why don't they like marketing platforms at the time there were some predecessors in marketing they had done a terrible job of building a business that grew and making it sustainable

so everyone looked at the industry is problematic you just didn't have good good ability to scale outside of the platforms and what ended up happening for us is we were able to evolve from a

marketing business to a much broader gaming business and that ended up being our compelling story that grew our evaluations a lot from that original turn down one over four yeah you saved

that 25 percent dilution wound up getting to what like 10 million in revenue before you even raised right you bootstrapped it all the way so we bootstrapped and we were fortunate enough to have our own money so we put a bit of money to work but we didn't need

to put much like 1 million bucks was a little less yeah we launched some March 2012 we try to raise in May heard the knows million over for we rolled in a few hundred thousand dollars rolled out forward to the end of the year million

dollar a month revenue run rate covering cost I just made a couple calls to angels for over 25 million dollar round closed it within a couple days move forward never raise another dollar and

so yeah it's it's crazy how times change for you as a start-up entrepreneur if your idea hits but was also crazy to me was although the nose around the one over

for given we were already ramping I was just shocked how you know the community in Silicon Valley likes to follow whatever is the hot trend but sometimes loses sight that founding team with past

successes is sort of a you know that's a positive mark and traction usually means positivity too so role with a great team great traction you know in a booming

market that is it wasn't booming yet so I think that Wow 2002 smart mobile gaming yeah at the time though the app ecosystem was a little messy so that

VC's didn't have the foresight to see mobile gaming becoming as big as it did I didn't even to be honest back then so there's more more a lot of junky utility apps it's one of the reasons why we

always as angel investors we never underestimate anybody and when we see a team that's worked together before and had success before it's just like short we'll put in 500 no problem like if I

had made sure that I might've been like yeah here you go boom let's roll and if that calm was exactly like that they couldn't raise money but they think I had 10,000 a month in revenue when I met them and we put three hundred seventy eight thousand and when it was a five

million dollar company or somebody bad and liked you they were able to skip rounds of funding because they were cashflow positive so you teach your

first round and you only diluted whatever remembers on 17 percent for four million dollars at the 25 million twenty nine post amazing yeah oh my god

that's saying update off pretty nicely for those investors too but yeah the 25 percent I saved was a nice one well if you think about that as a fact just as a founder saving 25 percent of your shares

if you wind up if you have co-founders you own 25 percent of each or 30 percent each 25 percent of your shares that's a lot of money yeah it works yeah the other thing that forced us to do was pay

attention to the dollars we spent that's what we've maintained the Saleen attitude but also because was your right to profitability yeah I mean when you're spending your own money you don't wanna burn cash so when we started out it was like operate as lean as possible work as

many hours a day as possible staff up only when absolutely necessary and immediately get to revenue and profitability and when your vc-backed the the mantra you operate under is start spending

dollarz staff up ahead of growth raise the next round in the next round before you know it you own a couple percent of your own business and you're depressed as it gets I was the only board member until nine months ago let's say so that

was great too I was operating on my own making all the clouds yeah it makes you a lot more quick it makes you quick about decision-making well it's like that to lab books get in the game have you read this yet no you should get skin

in the game the same guide to Black Swan we have to get him on the podcast Jackie it's a must get guest at some point anyway basically he talks about there's a lot of people in the world right now making decisions who have no

skin in the game like politicians or etc or people who don't have kids in the school but are making decisions for the school you get the idea and I know with inside.com when I started putting my own money into it I put a half a million

dollars of my own money into it I was like you know what this product is not good enough I am going to roll up my sleeves and take over the editorial group and make it better because I have skin in the game like massive not just my name on it

so you guys raised that that 25 million that one was the next raise after that the next raise after that was a billion over one point four oh yeah so it was a pretty big step up and that was almost

like one of these going public rounds it was a heavy debt financing we ended up taking an alternate route to most Silicon Valley companies just because of you know our background and not being

able to raise so I can valley money so I ended up going out to China in 2016 seeing it as a booming ecosystem for our own business but also seeing the markets as booming over there

we took 70% sale of the company to a Chinese private equity firm a billion in billion for evaluation at some point the original deal structure that we'd contemplated we can get approved and

confirmed by the government and so what we ended up doing was refactoring it doing a convertible note round not dissimilar to my angel investment originally and did the same amount of

dollars just in debt format got it what was the what was it like to get the government to call you how does that work the government who called you from the government and do they call you or

your attorney enough no I by the way we're not going to approve your financing with China because its trade see it's a good I mean what is their rationale it's like trade secrets to install clash of clans

I mean you know it's it's without diving - and do it it's it's what was interesting was you never expect that to be a reason why ideal derails as your your concept in a deal yeah and especially when you're in an industry

where like you said who cares you know we were pushing a solitaire game to a device big deal right but but it did happen and times are changing in the world and what was interesting about it to me was it's the State Department

right would be the Department of Justice yeah the DOJ runs the department but what was cool was when you start your small you don't expect to ever have experiences outside yeah your purview

and to this day what drives me is just new intellectually stimulating concepts being exposed to DC and politics and yeah trying to deal with that process it's actually pretty fun and then I got my MBA and my banking degree and

everything else trying to figure out okay how do you navigate this turf how do you take a company that's sort of stuck in the sand because we're stuck in the steel process and bring it out of it and then also operated along the way so

we were able to grow the business three times while that was going on that we were locked up for about 15 months which was in start-up land an eternity by seven not giving options you can't hire

people no one knows what's going on everyone's asking you as a CEO and you can't talk about it and people lose focus people lose focus people start thinking oh the deals gonna collapse we're gonna go bankrupt it's like

everyone's negative you're like all right just relax I got this it's hard to convince people of it so we came out of it great we did the deal in November 2017 who you dude the same people it was

with the same fund because they had their government I capital yeah so it was a billion with them and then when we closed that around Thanksgiving 2017 we

came off of that and I feel well knew that Chinese IPO was off the table so I had to look for a u.s. investor and I met the partner over a kprs technology Media Group Harold Chen in December in

Tahoe we just met up casually got to know each other hanging out parks camps chillin funny enough yeah and a bunch of I'm looking at a Mars camp plants right

now it is really nice with kids and arguing I literally I went to sugar bowl which is delightful and old school have you been to Sugar Bowl at all

I have a long time ago yeah super like delightful in like old school but then Oh yum yum the martes camp I got a bunch of friends over there that's like that buttery the awesomeness if you went this

year it's hard not to buy a place and the snow was great but yeah then why am i twice in the blizzards this year and I have wood you get stuck in the we did too but we beat it by driving out super early in the snow so we'll just leave a

4 a.m. before the roads are full right

4 a.m. before the roads are full right after they plow that's the trick you had to put chains on we get all wheel drive drive all wheel drive the Model X yeah it works it's great you know what we

have a Tesla Model X with the all wheel drive but we didn't have the snow tires on it because you have to have the snow tires as well yeah and so we're like I mean there was an avalanche so we got

stuck there both times I went skiing this year with my daughter both times I got stuck in a blizzard that's my luck it's incredible I mean it's still a good thing I don't mind being a Tahoe in its blizzard conditions but see this has got me thinking I need

to I was debating getting the martes cam place versus like a place outside of Marta's camp but now if deals are going down in Mardis I may need to pay a spend the extra 300 bucks a square foot and

get myself some artists there's a perk if you're not looking to save on taxes moving to Nevada go to Marta's camp it's great and and really the the best part about it is we start out we have five kids and we started all of them skiing

at two years old and they're amazing skiers now they love it yeah alright when we get back I'm gonna answer this question about the want to answer this question about fraud because we didn't

get to that in the app ecosystem privacy all those other things that are sort of coming to people's mind and also you know what I read some of your blog posts

and you've got some interesting ideas around employees with kids being great

for culture and hiring from within and building talent within as opposed to bringing in experts so I want to talk to you about those two philosophies that you've applied in your startup when we

get back on this week's service I want you to take some time to replace all that janky horrible software that is super frustrating and I want you to do

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kaptara see AP ter are a.com slash twist ok let's get back to this amazing episode ok welcome back to the speaking service my guest adam Farooqi he is the co-founder and CEO of app lovin like

Nick lovin amazing that a company with a goofy name can be but like Google Yahoo BRR it sounds a lot goofier when you're not worth billions of dollars yeah funny

we got made fun of a lot go out past the jokes and we were fortunate enough to do that we talked a little bit about this these banks of companies doing all this

weird like click fraud oh is that something you have to contend with do people who run your ads in their games then try to you know play this game because they have an incentive and

how do you fight that yeah so when you talk about fraud really you got about constituents evolved and the only reason for fraud to exist is someone's trying to steal money effectively out of the system sure in an untraceable manner

and in our environment we work with the game publishers then we work with the game advertisers and we connect to two pieces we know who the publishers are because we run through a sign-up process we have to authenticate them we make it

pretty difficult so that they go through a two-step authentication process and then sign up and we know everything about them so the odds of a publisher being fraudulent in our system is not

high but there still could be people who who sneak in and then a couple years ago when we noticed that people were starting to be take fraudulent steps in mobile we to build systems to detect hey

is the download percentage ratio from a single app more fraudulent and appearance than another app ah and the reason it works for a platform like ours is and this this is a little bit

different than what traditional desktop advertising was where fraud runs rampant we don't sell impressions we don't sell clicks we sell installs and then we sell installs with post install activity so

we actually know like I said you know the example of you spend a dollar fifty you made $3 with all of our advertisers we know the amount of money they generate and fraudsters are not willing

to spend money to generate fraud then they lose money what's the average app game installed these days in the United States what's the cost to get some totally varied it depends on the

vertical bunny box yeah so that's if you take a much more complex game which is more narrowly targeted you go as high as 50 hundred dollars Wow yeah but those aren't mainstream games and they

monetize incredibly well so I'm talking like a core game that is very nice and audience what would an example of something like a fighter type of game like game of war back in the day was a good example of a game that was very

highly targeted to an audience and it's just hard to market so the costs go up I don't know what the the rates are but they just skyrocket over time because you can't find users but the users you find are really valuable then you've got

now these mainstream titles that are what we call hyper casual and if you remember casual yeah like Newton you johner but if you there's the jargon watch you're hyper casual you ever heard

of flappy birds which you probably have when they blew up yeah that wasn't it Angry Birds press the button you go between the two it was the most frustrating freaking game ya will ever play scored like a -

and you felt like the world's biggest idiot and then you're sure a neighbor in your office scoring a 15 laughing at you yeah so anyways that kicked off this trend where you start getting these mainstream sort of office viral games

that took off and those games have so much popularity that you can get tons of downloads for like 15 20 30 cents and install so there's a huge spectrum it

just depends on the type of that and so if somebody were to do fraud in today's day and age the person paying for the install is not just looking at was this installed and you have you know the

phone that installed it right there some ID there's an ID for advertisers yeah then you could just say well did the person open the app ever again or not

and then charge a different rate for those users or they can net it out in there well it's all performance so the advertisers are only spending when they make money so automatically fraud is less of a problem if everything is

measurable you only spend when you make now you're optimizing percentages because you do want to get rid of fraud 100% of the way right and then the other part of that is our systems once you get data and technology you can offset you

can look for patterns oh you start seeing some abnormal behavior and you eliminate it and as simple as that so we'll go suspend a partner that's detected or fraud automatically and it just runs through the system and all the big companies and mobile advertising do

that now yeah and what do you think about privacy now today with this sort of iPhones always listening always doing your location is that actually an issue for consumers that you worry about or it

depends impact your business and well the iPhone or any mobile device you have to consent to share certain forms of data and when you play a game you don't share anything really you're not there's

no location turn on your microphone a given location to do that but the app stores themselves do you say don't don't ask for things that make no sense with your business model let's say you download the weather app and you share

your location with the weather app the onus is on the publisher of that app to make sure they're not sharing your location data with other sources behind it when we operate in games games there's just no data transacting there's

no PII we don't live in a world yeah I personally identifiable information it's an individual male or female the all you basically know is IP address and ID for advertisers and you use the app

and the app graph to make a better advertisement that's it yeah interesting so you took the time to write some blog posts what are you thoughts on creating a parent friendly culture and why is

that a focus yeah I mean obviously you got five kids as we discussed I got three kids yeah what have you learned though you seem to think it's an advantage I think what happens when I

started my career I was hyper focused I worked a lot of hours and I had no kids but I wasted a lot of time - I mean I'd lay around on Sundays watching football all day yeah I lost the ability to screw around once I had a bunch of kids yeah

you get much better at time management you get much more organized and structured about thought and so what I found is people mature in their life is they just mature they process problems better they figure out different

outcomes it faster and they can make decisions and parents end up working less absolute hours but tend to do a lot more with those hours that's not to say parents are more efficient than folks

without children it's just to say even though there's less hours in the day there's nothing wrong with being a parent while you're in the startup environment if you know how to manage your time just like there's nothing wrong with being single in a startup

environment I think overall I will say that parents are more efficient than non parents I know that maybe that would seem controversial but all the evidence

I see is that the people I know with kids and now that I have them I look back are ruthless about their time management and when you're younger you have more time than money or things to

do and you're looking to fill your time once you get the kids they just suck every waking hour that's not work from you and you're just gonna have to be

ruthless about it it is absolutely a trend I see yeah for sure another thing we do is meeting free culture so we try to have pretty much no meetings but this is aligned with just managing time yeah

if I'm in a meeting nowadays it's not relevant to me I walk out five minutes in there's no point for me to be there wasting time and when I started my career that felt rude but we don't want to have that feel rude in the company we want to structure

it so that people aren't wasting time there's no reason for people to sit around in a meeting waste an hour just for the appearance of being in that meeting and so we try to foster this behavior throughout the

company whether his parents or not I think me as a parent got me to a place where I had to learn how to manage my time better and I build processes in the company to try to foster a good price what's your secrets how did you level up

in terms of efficiency I'd say my wife is probably the the secret sauce there she helps take care of the kids right and and then I can focus on the job but really it is that

there's 24 hours in the day - whatever you sleep you just learn how to use all those hours efficiently yeah I always tell founders you better have spousal

buy-in because if you're going to go on an entrepreneurial journey I mean you could at some point it just takes over your life and you've got a competitor or you're running out of money or your deal that got frozen because of State

Department or Justice Department like looking into it or whatever like it's intense and if your partner doesn't buy in oh boy that can cause real serious problems

what are your thoughts on hiring from within and developing talent is that a function of how terrible the market in here Silicon Valley is another competitive it is that you like to grow talent you know we know so we've been

able to do really well in business so I've gotten resumes from all sorts plenty of people who have progressed in their career but I found a couple things one is we're in an industry that's just evolving really quickly and brand new

didn't exist ten years ago right people with a resume and a history and an MBA from the top school aren't any more advanced at knowing our industry and learnt being able to learn the products

that we operate with then someone who's coming out of high school and so I looked at that and went huh I can either pay up and get the person with a lot of experience and flip a coin they may earn that may not be better than the person

who graduated high school and dropped out of college and so you know we fought land somewhere in between but as a company what we ended up doing was we haven't hired any MBAs because they try

to come in and want the senior role and want the incremental pay and I just can't justify it so we end up hiring a lot of undergrad graduates with top grades or pre-college dropped out of college or high school and and just got

into their career but no the space and then we bet on them over time and so my head of one of our publishing arms line Studios he's now 20 six I believe started with us in

nineteen and my head of Corp development is now 22 or 23 he's VP of Corp dev he's been working for me for a few years now and is dropped out of high school to get into the space so what I found is take a

bet on really bright hard-working individuals grow their talents teach them how to manage teach them out of scale and you've got the best best people in those roles versus hiring from

outside and so you have to take a chance on the folly of youth maybe a little more mentoring but they're more available and you probably get two for one or three for one versus the MBA I've

just found they're hungrier hungry they're scrappy they want to prove themselves you get an MBA from Harvard you proved yourself in a way to society with that Harvard MBA you let everybody

know you want Harvard and got an MBA absolutely you dropped out of college you're not telling people hey I got a college we don't broadcast the universities of our exact team I mean

there's nothing to talk about there it's not the Harvard Stanford MIT group but every single person on my exact team and down everyone scrappy everyone works really hard

everyone's a good person and if you combine all those skills you end up with a really strong team yeah the entitlement that can come from hitting one of those big schools and you know

graduating from it can be tremendous for people they just think that they know better and even if they haven't done it before because they've performed at a high level but you're kind of got to prove it all over again when you're

going into a field that you don't know the answers to right everyone starts at the same place the same way you're born day one you got to learn how to walk you got to learn how to talk you're starting the same way to start up doesn't matter

if you got an MBA or not and if you start with less you tend to work harder to gain more yeah I had Patti McCord on she was the HR person from Netflix which

has got a cutthroat culture and they were just like we want adults who are willing to take ownership adults means you act like an adult you could be a 20 year old adult or a 40 year old or a six

year old we don't care but we want people who want responsibility and who want to own the outcome as opposed to what I see a lot is people think they're working hard

because they put in hours but they're not looking at their efficacy and results and I'm trying to change everything I do right

now to just reward people on outcomes and get them out of this delusion that because they feel their feelings which

are worthless make them feel like they're working hard that doesn't mean anything what matters is what was the outcome of the effort you put in if you put it in an hour and you got 10x the effort of

somebody who put in 12 and they feel exhausted Mazel Tov to the person who put in one hour for sure I mean if my team could work one hour day at the same level productivity by all means go do whatever you want outside of that yeah but the

other key is making sure you take care of those who shine regardless of where they start at because what I found is a lot of companies just promote on a schedule and promote as you reach a certain point you're going to the next

logical step but we'll never pluck a star out from the bottom and move them to the top and we live that all day long I a lot of my managers are started at the company showed a couple years of

excellent and I promote four levels up because I don't care all that matters is you're putting the best talent you've got in the most impactful roles and you deal with any ramifications of that and we don't play politics internally which

I think the rails a lot of the productivity that could be gained otherwise yeah I'm a no politics guy whenever somebody starts getting political I just stop them in Isis politics makes me coming to work

miserable I can retire at any time so please don't make it miserable for me to come to work it is the greatest threat ever people are like that makes total sense it's just like politics is I don't

know what people are hoping to gain from politics in a start-up because the goal of a startup is to grow fast and delight customers there's no room for politics all they should care about is I want to

put myself in the place to learn as much as possible and then I know that for the rest of my life I'm gonna make more but then don't play politics in the middle otherwise you're not gonna survive you know what I don't understand what it must be that they I think the people who

are into politics like probably in their childhood had to navigate their family situation or had some experience in their youth where politics actually

benefited them it was a survival technique right like between mom and dad or sisters and brother aunts and uncles whatever it was they must have gotten this weird signal that

being political either let them survive or thrive or they worked at a big company and it was a requirement to survive and thrive right and so we've stayed away from that too we've hired

nobody from big companies yeah that's total death big company people are well you know what the thing is having been on the board of a lot of

companies like they you always have this moment you've must have had it where somebody brings in the resume this person is amazing and then you bring them in and you get three months sitting

you realize they're leaving to go play golf they're not driven and everybody else is doing the work and this person's like outdated and kind of punching a

clock a few times and yeah it never works no it doesn't it never works and then all these boards and VC's I'm on the board with some of these VCS sometimes we're like oh yeah this person

they have you know they did these four companies they were at Sun Microsystems they're you know you're like Sun Microsystems what yeah like really is that applicable for this company I think

so all right so wrapping up here and great job today on the pod by the way just tons of great information want to check off a couple of important things you

started lying studios so you sucked at making apps you built the marketplace wraps and now you started making apps again oh publishing is and in really gaming is really analytical in nature

and what we do in the publishing side is we work with a whole bunch of app developers who build the content and we put it through a testing environment and then an optimization environment so we

test hundreds of games a month and then you find the ones that resonate with the consumer audience the crazy thing of being a marketer myself for over a decade is I still have no idea what

consumers want you never know and that just means test test test and so we foster this environment of testing and that comes out in this publishing arm we test a bunch of games

find the ones that resonate take those publish those and then iterate them on them going forward and you own them or you're in partnership with leadership with the developers yeah wow that it not

that's a smart business because you have all the data of what works we can get generate we have the knowledge of what could work and we have a frameworks to test and improve what would sit there there are still Indy app

developers out there two or three people all over the world all over the world making one you can imagine really yeah like three people living in Kyoto and they just crash it maybe making ten

million bucks here what and then you just say to them will underwrite the paid marketing what's happening around the world is developers have such a high amount of opportunity to make money off

games one two people just launched a game and then they don't know how to scale it they don't have the funding to scale it so they look for a publisher will partner with them and then do or do a revenue and profit share and they're making immense amounts of money off

these relationships and then you have some exclusive for some period of time for that game for a lifetime of the game publish it under your iTunes handle over there it's all published under a lot in

wine studios yeah cuz then you does that help like having the benefit of like a studio stammers start recognizing the brand over time yeah you know what I'm addicted to this liked our Madness games

and I'm always looking at these independent publishers like I play Kingdom rush I don't know if you know that game yeah like there's it's some Brazilian company and then there was this limbic studios which does tower

madness I just looked tower defense game genre I love it but it's sort of diminished and utilization on mobile there I know I'm trying to figure out I would like literally pay these people I mean this sounds nuts but I would pay

them five hundred dollars to make a new version like there's so many addicted people to these I consider it like this new version of chess because I like playing backgammon chess poker all these games yeah but tower defense to me is like a

and that's why I think I liked Age of Empires when that was out it really feels like some like more advanced version of chess because is moving objects so it's sort of my own super strategic I mean it's old school like

civilization yeah these strategic games do exist they're just more niche still today but it's a genre that's growing amazing hey uh you're not public you

haven't filed what's the story I mean they've got this great amazing market here you've got the investors who likely would want you to go public how do you think about an IPO at this stage of your

company well the funny thing is I've made my original investors a huge return and KKR we closed around with them last summer so it's less than a year so we've got you know typically investors do you want their

star companies to go public but they're in at a point in time and we've grown so much since that point in time that they're looking at it on a long-term horizon typical investor horizon is five

to seven years as you know on a return and so we're early in the cycle of bringing on and this is yes sir yeah I mean this is still your one so they've been in for not even a year yet and so we're exploring the options but kakie

are so good at the capital markets both public and private we've been able to raise as much funding as we need private we just raised another four hundred million dollars of debt just to put some powder on the balance sheet and have

more acquisition capital and so they've been so helpful there that we look at it like okay IPO is just a fundraising event when we need to go access billions of dollars will go public but in the

meantime we've got a good story good growth and we are still growing so quickly they just keep a private keep running it and then see where we go yeah so that makes total sense if you think about people are writing a little bit

like this taking your time going public but if you figured something out going public means you need to turn over your cards like in poker you got to show your cards and showing your cards on the flop

is a little bit dangerous because people can start doing the odds and being like you know what I have pot odds to call you right so you know you turn over your set but the other person's got a flush and a straight draw and they're like I'm

32% and I got two cards to come so I'm actually kind of like sixty four percent and there's some kill cards whatever they start doing the math they you make it copied you don't have to turn over your cards you can stay whatever private

for another five years while they fund you and they know the public market so they're willing to take on that risk of privately funding well we're so big now I'm not I'm not as worried about copycats because there's so many copycats and marketing and gaming yeah

we've had to surpass all that but the way I look at it is we're making a lot of money we're growing quite quickly we're still growing 50% plus year over year pretty close to triple digits here over here and our level of scale if you

can pull off those growth rates and you're making money along the way you have an option yeah if we were burning cash and we needed to go raise like some of the IPOs that are coming here right now of course playing to the hot market

but for us it's all about just building a business that I could see lasting decades plus and then I have a lot of confidence I could sell it to the public which I do today when there's a necessity to raise billions of dollars we'll go out there

all right and you know closing up here you're an angel investor you made 10 investments 20 about 25 or so 25 look at you you got the bug no take a couple of the take me through a couple of my

winners ended up friends who just started businesses yes and I got in seed round but I'm coming in like game time is doing really well I also got in with Brad at the beginning epic stories with

this guy's friend who started it these are you know four million dollar valuation rounds seven eight years ago and that was what you were raising up yep I got to a point where I think out

of my twenty five four or five or a hundred X plus at this point so I had good returns and there's no way board they're not they're not 500 X so portfolio but then like of the other 20

I'm not good like you know they're all senses they're a bunch of zeros so of course what ends up happening is I thought I could get in and influence the outcome the good ones don't ping me the

bad ones were pinging me far too much rich rich rich or hey any device any device what do I do I'm like how my god I'm wasting all my time on these losers the winners are pinging me so I stopped

the welcome to my I gave up yeah I don't know this is my life is basically and we I have right I have come to peace with

it because what I tell everybody is like we are hospice workers at times not to make light of cancer and like that I know people are very sensitive these days but literally sometimes you're with

a founder and it's like you're going to die it's over we're going to pull the plow the bandage we're gonna realize band-aid take it edible take some mushrooms you're gonna die it's this is it this is the end it's terminal cancer but here's

the good news you put another quarter in the videogame and you start over it's not real life it's your startup dying and you get to do three more this is your third startup this is my fourth

third third major third successful don't count the I don't mention the losers yeah yeah somebody was trolling me Alexis Ohanian and from read it was I they did that thing where you pushed her five jobs so I listened my five jobs and

Alexis a little obsessed with me and like he's like what about Mahalo and Netscape like your failures and I was like oh I don't count the failures Alexis that's a blackout period and yeah come on why would I count any failures nobody can

so they didn't win the championship one year all that matters is what championship she did I mean nobody's gonna remember LeBron lost whatever not I think I lost LeBron most more championships and he's won yeah for sure

and nobody's like LeBron so loser they remember the block that's it there are the good moments yeah you're like it's guy won twice in Miami once in Cleveland and he retired in LA good for him all right listen continued success

congratulations and thanks for sharing your wisdom Adam for roogie for roogie and uh check out app lovin I'm assuming

you're hiring we're hiring yeah app 11.com slash job huh yep careers I think jobs go get a job where you guys based Palo Alto San Francisco and then Oliver

international you are you rocking the remote work you believe in that we're spread globally and I've even been to a couple of our offices so yeah I believe in it what about working from home you

in really into that yeah I see that's it's a hard one for me I think some for some companies it works if you go full remote and then for other companies like my investment company like you need to be in the off the pens on the person

I've found some people can pull it off but some people don't work when they're working from home and I don't like that it's like one out of I think three or four people are the type of people we should work for moms like journalists

we're great from home because they don't want to take a shower they want to sit there and write yeah and what they do is a solitary pursuit the more they're interrupted the worse it is then you go

to somebody like a developer again it works because they don't want to take a shower the one just get to work they may work odd hours and they don't want to be interrupted but sales or investing or

product or design these are things where you have to collaborate and being interrupted is actually part of the process is having a debate about it so I don't think it works for those categories we're not well but the tools are getting

better I have to say like I was doing slack the other day and they did the I've ever done like a slack conference or like zoom or Google Hangouts like the stuff is really starting to work it's great yeah and I used to be totally I

refused to take any investment meetings over these web conferencing things for a while and because I was just like I just want to look into somebody's eyes but now I'm starting to do it in like the quality is so good there's something to

be said about reading someone's body posture see them in person though cards I used to predicted yeah I was a derivatives trader out of school so my training was poker you want play poker tonight have a seat up and absolutely

not Texas Hold'em I got a addicted and I don't play listen we're gonna play down in palo alto yeah that's very close to us you're telling like a ex-alcoholic

like hey we're having drinks tonight let's go I'm a compulsive gambler we're both founders for both angel investors ever say we play a little cards we spread a little bit and put a little I

would have been down that dark hole again audience I think this guy might be playing in the game you might you might be coming to the big game that doesn't exist

please don't ask for a seat at the big game it's filled up if there was a game but there is no game it's not the game you're looking for I continued success Adam and thank you Emmy Award reproducer Jackie thanks sir Charles killing it and

master dick great job also to our sales team grant and Matt thank you for delighting our partners and sponsors great job there and we'll see you at

launch festival Sydney in June and launch festival Sydney calm and we'll see you at launch angel summit if you're an angel investor or early stage seed investor or early stage VC launch angel

summit calm in Napa three days in Napa with me eating at all the great restaurants drinking wine and playing pétanque maybe shooting some guns would a good time all right we'll see you all next time on this we can service bye bye

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