The 10 Question Framework a $217BN Manager Uses to Make Investment Decisions

What was that moment? Well, so so the specific moment was I was on a a public market strategy. It’s called the long term global growth strategy. It’s a $50,000,000,000 public market strategy. And this was in 2014. I was working with three very senior investment partners within the firm, James Anderson, Marc Oculus, Tom Slater. And we were starting to see these private companies of real scale, sorts of companies that we’d always invested in. And back then, it was like, you know, businesses like Airbnb and Spotify. And Tom and Mark and James, like, they kinda had their hands full looking after these tens of billions of dollars of our clients’ capital.

And so we were sat in a a room and James said, well, like, who who’s who’s gonna do this? Who’s gonna look at these private companies? And I just put my hand up. I said, well, I’ll I’ll do it. That’s sort of how it all started. Were you nervous? No. Maybe I should have been. If I’d known what I was letting myself in for, I

That’s a really hard question because the the natural tendency there is to give advice that would help you avoid all the mistakes that you made. But the mistakes that you made are the things that have helped you learn. Right? So I’m not sure I would give myself specific advice about the craft of investing because I I I think that’s something you can only learn by experience. I think what I would say to myself is when it comes to thinking about how you can bring this capability and this offering to more of our clients, I would say to myself, be a little bit less purist.

You know, when we first started doing this, we were doing it from within these permanent capital vehicles, and we continue to do that. And it’s amazing for being super long term. But the result of that was that we had a lot of our clients who wanted to be investing with us in the kinds of companies that we were investing in, these kind of high growth, often quite large private companies, but they just couldn’t do these permanent capital vehicles. And they were sort of saying, look. Can you just do a more traditional fund structure?

And I wish we’d been aware of some of those trade offs earlier on. Why were you not? I think often when you’re investing, the things that give you some kind of edge or capability are the things that are different from how other people go about things. And there are some differences that you can have that are core to those advantages. And then sometimes there are differences that are not actually core to those advantages. And sometimes it’s quite difficult to distinguish them. So, I mean, just to give you an example, I mean, we’re a little bit different in terms of, like, how we recruit people, the kinds of people we bring into the organization.

We’re a bit different in terms of where we’re based. You know, we’re based in Edinburgh and Scotland. These are the things I think are really important. I thought that those permanent capital vehicles were also something that was really important. And in some senses, they are, but I think I probably overestimated how important they were as a difference. And, actually, as it turns out, I think we can do a perfectly good job for our clients in permanent capital vehicles and also in more traditional structures.

lots of investments we’ve made that have been painful experiences. But ironically, would say not all of our bad investments are necessarily mistakes. So when you invest, you are trying to predict what’s gonna happen in the future or estimate the probabilities of what will happen in the future. Sometimes you take a take on uncertainty when you invest, and the negative outcomes go against you. That’s part and parcel of investing. There are then other kinds of investments where they are mistakes, because there’s something you should have seen.

There’s something that you didn’t weight appropriately, and you lose money. And those are mistakes. So, like, I’ll give you two examples of both camps. Like, the first company we invested in that that went bankrupt was a company called Intarsia. It was a it was actually a biotech company that was developing a GLP one. I mean, imagine if that company had managed to stay solvent, it would have been an astonishing investment, but it didn’t. They had their therapy rejected by the FDA, and it went out of business.

That was a kind of known uncertainty, and that risk manifested, and it went against us, and we lost money for our clients. Still very painful, but I think kind of part of the business of investing. Another example that I would put in the second camp where there are things that we got wrong in our analysis would be, and quite topical today, Northvolt. Northvolt’s been a very bad investment for us. What was the mistake there? I think we were too enamored with the idea of a business like North Vault needing to exist for all the reasons of energy sovereignty in Europe.

But what we got wrong was the team’s ability to execute. They didn’t execute properly. They didn’t execute well, and that’s why that didn’t work. And that’s something I kick myself for because I think that is Were there signs? Look. There’s always signs with hindsight. I think there were signs that we started to see over the course of our investment. And when we started to see those signs, we pulled back on providing additional capital to the company.

down? We did make additional investments beyond our first investment, but there were times after that where we all asked for more capital. And for reasons around the execution, but also for reasons around the structure of the financing rounds themselves that we believe were going to lead to real misalignment within the cap table, we passed on putting additional capital in.

I I think as ever, when you’re investing, you you you try over time to narrow down your area of focus and lean into those areas where you believe you have greater competitive advantage. So today, we probably wouldn’t invest in a company like Intarsia. We’re we’re we’re much more focused today and have really been for the last kind of five or six years on companies that we define as being true growth stage companies. So where we’re not taking product risk, we’re taking business model quality and scalability risk.

And so what you what you’ve seen in our portfolios over the years is a continued refinement and a continued narrowing and a focus of the kinds of companies that we invest in because those are the kinds of companies that we believe we have the greatest edge.

Yeah. So we think about what we do in a quantitative and a qualitative way. So in the qualitative sense, we’re trying to invest in companies that have been de risked on the product side. And you’re then trying to analyze whether they can become exceptional businesses, meaning can they become many times bigger than their current size? And can it be a business that earns a high return on its equity? So I’ll come to your your question on like a tangible example.

But if you look at the the median company, when we invest, the median company in our portfolios is doing about $200,000,000 in revenue, is still growing at about 70 percent year over year, and is still very slightly loss making minus 14% EBITDA margins, but these are median stats. Right? So some are already profitable, some are still loss making. So, look, if a company is doing $200,000,000 in revenue, chances are it’s got a product that that works, that people wanna buy. So we’re not taking, you know, product market fit fit risk.

And that’s your entry point? Yes. So that’s when we’re first investing. Mhmm. And where we’ve done a really good job for our clients in investing, it’s where we found companies that are kind of in that sort of ballpark, and then they’ve gone on to become many, many times bigger than that. So take an example that’s close to home, Wise. Wise was actually a little bit smaller than that when we first invested. I think it was probably about 50 or $60,000,000 in revenue. It’s now a multibillion dollar revenue business.

It’s continued to grow in its core consumer to consumer FX market. It has this whole part of its business that didn’t even exist when we first started investing, which is their business FX transfer market. And it’s now a company that has a really high return on equity. But it was loss making when we first invested. What we got right there was like, yes, it was the, you know, the total addressable market and all this kind of stuff. But it was also a business model that was able to scale and at scale would be able to earn a large amount of profit relative to the relatively small amount of equity that was in the business.

And anybody that comes from the world of public markets, that comes from the world of trying to understand good quality businesses at scale knows that one of the single most important factors is the return that you make on equity. And this this notion, this concept is is almost, it’s almost an anathema within the venture world. It really is. And and I don’t think that’s necessarily a criticism of the venture world because by definition, right, if you’re investing in a company when it’s first being started, the the the question of return on equity is probably gonna be somebody else’s problem down the road.

So it’s it’s not necessarily a problem for their business model, but I think it is a problem for the quality of company formation. Because it distorts the quality of company formation? Because it leads to over capitalization of businesses, and it leads to companies being I sort of have this, like, sometimes this mental model in my head, and it’s not a very nice sort of mental image, but how do they make foie gras?

got the foie gras in startups coming in And pipe down. It’s like capital. And I think this has started to change, but I think that if you kinda go back in sort of, you know, the 2019, 2020, especially 2021, these companies just were given too much capital.

Yeah. I I think it’s happening in certain parts of the market today, but it’s not universally true. Like, I’m gonna use this as a slight kind of straw man schematic example, but, like, if you want to invest in an AI LLM company, then this challenge that you highlight certainly continues to persist. If you want to invest in an area or a sector that was really, really hot three or four years ago, but where everybody’s got a little bit bored and fed up and gone off and looked at looking at other things, like if you want to invest in a fintech company today, like, actually, a lot of these companies are making amazing strides towards profitability.

They’re not having, you know, everyone and their mother throwing capital at them. And you can find some really good businesses, either already profitable, making great strides towards profitable, still have enormous opportunities ahead of them, great products, great management teams, you’re not being asked to pay the earth. Or you can look even further afield, and this is where I think, you know, for us, we we we’re globalists, we’re generalists, so we’re not beholden to investing in particular sectors or geographies. And then you can find some astonishing businesses.

And I know that you had you had Luca Ferrari, the founder of Bending Spoons, on the show a little while back. I think that’s an amazing example of this company that largely bootstrapped, has created the most amazing scalable business model, profitability like most companies would give an arm for. And they did it by sort of circumventing that world of over capitalization.

We we don’t look at it and say, no. We don’t wanna be part of this. We look at it and we say, where do we think value is going to accrue? And if we’re going to own a business for the next ten years, what is going to define the right to win in terms of revenues, but also in terms of profits over the long term. And that comes down to things like competitive advantage, culture, these kind of quite intangible things. So we we have companies that are part of this, you know, this revolution, these amazing products in the AI space.

We’re shareholders in Databricks. We are shareholders in business of a company like Tens Torrent, which is working at the the sort of chip and the infrastructure layer. And so we’ve done tons of work on this area. We haven’t taken the plunge into any of the big AI LLM companies, not because they’re not amazing products and they don’t have big revenue bases, but because we still are trying to define what we think competitive advantage will look like at the large language model level. I think we know what it looks like at the infrastructure level.

I think we know what it looks like at the distribution level. But when you have these, like, forces of commoditization within the LLM space, such as open source models, such as deep sea.

A disciplined investor mindset doesn’t mean you should ever just not look at certain areas or not look at particular entries. Because if you can build conviction on why one company can be a breakout success, then you really should lean into valuation. Like, being a disciplined investor doesn’t mean I will never pay more than x multiple. Because when you find a really special company, you should lean into valuation. Now the danger is that you can tell yourself a story that every company is a special company, and then you would you you lean into valuation too much.

But the the trick is not paying high prices. It’s being judicious and selective about when you choose to pay a high price.

I think there’s a possibility of that, but I would say that there will still be companies that are from that sort of pre AI era that will still be exceptional companies because they have a particular way of building a product that is just very difficult for AI to replicate. And again, I think coming back to financial technology, I think this is quite a good area where the difficulties and the nuances of of those kind of companies is know, a lot of it is about, like, how you manage regulation.

And, like, will AI sort of have an impact here? Yes. I’m I’m I’m absolutely sure it will. But there’s still foundational problems in building those kind of products that I don’t think are just going to be totally blown apart by the fact that we now have these incredible AI tools.

value in a company? So, yes, we do. And this is a framework that actually goes right the way back to when I was on the long term global growth team that came out of that team. We call it our 10 questions framework. The questions basically break down to four areas. The first couple of questions are about the growth opportunity over the next five years, but also over the next ten years and beyond. So trying to look really far out. The next set of questions are about the enduring determinants of success.

So product is one of those, but competitive advantage, and then importantly, how competitive advantage will evolve and change with time and scale. And then the third is probably the most intangible, but I think you could say the most important, which is organizational culture. And within that, we would, of course, include your management team and their ability to execute. And I think the important thing to note here is that it’s not about, like, good cultures or bad cultures. It’s about the alignment and the integration of the culture of an organization with the particular ambition or mission that that company has.

So those enduring determinants of success at the second camp. Third camp is financial analysis. Like, can this be a high return on equity business, trying to look at precedents for high returning businesses in industries? What is it in a given industry that means a business versus a business in a industry can earn a high return on capital or a low return, and then valuation. And our valuation methodologies probably look a lot more like the sort of public market valuation methodologies because we’re trying to find companies where we think we can have very long term intrinsic value, which is much, much greater than the market price that we’re willing to that we’re able to pay today.

I think it depends whether the competitive advantage lies in products or in something else. Often, the most enduring competitive advantages don’t lie in a particular product. Yeah. They don’t lie and sort of like this my mug is better than your mug and I’ll continue to be able to sell more mugs than you can. And again, like, risk of sort of overusing the example. What is the competitive advantage of bending spoons? It’s not any of their particular applications. Right? It’s not So it’s a playbook for M and A?

It’s it’s a business strategy. It’s an approach to how you are able to integrate a business that you’ve acquired into a shared set of services and tools that you’ve built out to enable those businesses to grow and become even better products, and to be able to generate free cash flow from those. And then the competitive advantage often is also deeply integrated into the culture and the character of the founders and the kind of organization that they built. So can that erode over time? Yes. It can absolutely erode over time.

But is it something that can be destroyed by AI? I’m not sure. I think it’s more enduring than that. If if we were saying, well, the competitive competitive advantage for business x y zed is, you know, their widget is better than somebody else’s widget, well, could AI make a better widget? Well, maybe.

much better than non founder Yeah. I mean, I I think that these numbers will be a little bit off. It’s something like nine out of nine of our 10 biggest investments are still founder led. So overwhelmingly, we still skew towards founder led businesses even at these levels of scale that we’re operating at. Right? And that’s largely because if you’re looking at companies that are doing $200,000,000 in revenue, if a founder isn’t able to get to that level, often you’ve seen the churn before you’re even kinda getting to our stage.

And then we’re still, like, selecting very positively towards businesses that are founder led. That doesn’t mean there aren’t some great businesses out there that are led by nonfounders. You know, think Vinted is a good example of that.

He’s

project Europe, but it’s amazing. Yeah. You guys invented business. Yeah. Oh, wow. Yeah. I mean, the a nonfounder that’s totally transformed that business. So Unbelievable. Think it’s the It’s like a refounding of Vinted, to be fair. It sort of is.

Yeah. So we we are very consistent in how we model upside. For every company we look at, we try to model to a five times upside. So we’re being consistent in the levels of upside in our modeling. But then what we are testing is the probability and assumptions that you need to make to get to that level of outcome. And that’s so that you can kind of have a mental you can have a mental comparability across investment cases. Of course, we are also looking at longer tail, greater levels of upside in the companies we’re investing in, but the base modeling is always to that five times.

And the probability that’s

high as that. And if you think that there’s an 80% chance of making a five times return in in investment, like, you’re probably deluding yourself in the levels of probability and confidence that you can have in a a long tail or sort of, yeah, high outcome scenario, like a five times return. So for us, if you there’s a long answer to this question, which is looking back at thirty years of public market data. But the short answer to the question is the probability of any given company going up five times if you were just picking randomly is something like 5%.

So if you can find a company where you think there is something like a 30 or 40% probability of it going up fivefold, well, actually, those are really good odds. So And we’re not looking for 80% probability of a company going up fivefold. If something is in the range of 30 to 50% probability of going up fivefold, well, then we’ll take those bets every time.

It it slightly depends what funds fund you’re talking about. We have some funds where we’re able to recycle capital. And so within those funds, we are able to trim from companies that have gone public that we first owned privately and recycle that capital into new private businesses. And we do that when we think that there is greater upside to be made in whatever the new companies that we’re investing in from continuing to own that additional capital in that public company. In other more traditional fund structures that we manage, they are more traditional limited life fund vehicles.

We can do a little bit of recycling. But there, I think the important thing is just about always keeping your bar high and being patient. So the last fund that we raised, we did a we closed it in 2021. We deployed very little in 2022 and 2023 because valuations were still too high. There were all kinds of games being played with convertible notes and everybody sort of pretending that companies were still worth what they were in 2021. So we deployed very little in 2022 and 2023.

And it was really only as we got into last year that we started finding great businesses, but at great prices. And some of the games around valuation and structure starting to diminish a bit. And so we started to play more in 2024.

So it depends where you look. If you look at the data, multiples in series c and beyond in The US are below 2021. But still at elevated levels.

I I think you’re totally right. I think that there is, like, a herding into a much smaller number of names. I think there’s quite a a sort of understandable, like, human psychology here. Right? The the industry is still digesting the trauma of 2021 and the pullback in 2022. Like, what happens when an industry or an ecosystem goes through a traumatic period? You look for safety, and you you look for safety by not being too different from what your peers are doing. Like, like we’ve always been

Yeah. I I think that’s true. And so, look, this is where trying to have as broad a universe as you possibly can means that where appropriate, you can kind of dip into, like, those hot areas if you find something of good enough quality, but you can also look elsewhere. Right? So our universe consists of probably something like two to 3,000 companies. You know, as a team, we can cover that universe. And if you look at what we did last year, we invested in six different countries.

That’s not because we were, like, trying to be exotic. It’s just that we were finding great businesses all over the world, and a lot of them, like, really off the beaten path. So, you know, obviously, Bending Spoons, Milan, but we invested in a Portuguese business last year, invested in a Brazilian company, an Indian company, an Israeli company. That’s really interesting.

Yeah. Look. So I think that when it would be naive to say there isn’t more macro market risk, but you then need to make sure that you’re being you’re paying a price that rewards you for taking that risk. And in a sense, that is our job as investors. Investors. It’s to price risk appropriately. And as growth investors, we’re trying to price the risk and uncertainty around companies becoming many times their current size. On the the sort of path to exit and path to liquidity, look, I think this is where having a very long term time horizon, like, you know, we we are willing to take a little bit more risk there, again, just provided we are being paid to take that risk.

So, yeah, we we certainly plan ahead, think about what capital we should reserve for companies.

Yeah. We do we do think about it. We want to make sure that we have an appropriate balance of of kinds of capital needs. But, you know, last year, you know, quite a few of the companies we invested in, they were already profitable or they were all turning profitable this year. And then the question of dilution becomes much less of a risk to the investment case because companies become self funding. Terrible. They’re clearly not growing fast enough. Back into growth. We don’t see these. In the black

I think this is the misnomer of our industry. Again, right, like, everybody sort talks about, like, this trade off between growth or profitability. It should never be about growth or profitability. It should be about incremental return on invested capital. It should be about long run return on equity. Does Amazon play into what

I mean, I think Amazon for us as a firm was a formative investment. We first invested in Amazon as a firm in, I think, 2004, and we saw the growth of that through many, many years of unprofitability and then into many years of profitability. Tesla, another example of that. You know, we first invested in Tesla in 2013. We we’ve been on the journey of these companies that have not been profitable when we first invested, where we’ve been considered, in many cases, daft for owning those companies for really long periods of time.

But we’ve seen that scalability and that growth, those enduring competitive advantages manifest themselves into scale and profitability.

End it all. Shut down TikTok. Doesn’t make any difference with ByteDance. I mean, ByteDance is the most astonishing revenue and profit generation company in China. The users, the profit that they make in China is just off the charts.

So, I mean, there there are two main applications in China. Taotiao, there’s not really a direct comparable, but, like, a better version of Apple News, and Douyuan, which is like TikTok in China. They’re the market leader in online advertising in China. And I think at the moment, they’re about number three in e commerce in China. It’s enormous. It’s an absolute monster. And look, so TikTok has a big user base. And it’s it’s you know, I don’t want to sort of dismiss the the impact it could have on the investment case if it were to remain in The US and go on to become very successful.

But our investment in ByteDance is predicated on the business in China. And, yeah, the quality of that business is is quite something to behold.

I mean, like, our our base case is that it does get banned, and we still see a path to making at least five times our money even with TikTok not being part of that investment case. Wow. When did you get in? 2019, I think. So we weren’t super early in it, but it’s grown astonishingly since we invested. How do

I think it’ll be public at some point, either in The US or Hong Kong. Obviously, one of those is probably a little bit more likely than the other.

I can’t rule anything else out out at the moment with with US and the things that are happening there. But, I mean, the company is also this is sort of publicly reported. Yeah. They buy back their own shares. Yeah. They’re so profitable.

windows we have for capital markets? I’m not sure I particularly have a good question to that answer either, and that’s why I’m a private company investor and investing in private companies on behalf of my clients. But that being said, you know, I I do this from within a large public market organization. Has that changed for you? So no. It’s it’s, I think, it’s just continued to accentuate. Because of the excess supply of cash now or the cash in private markets, meaning you don’t need it? I think it’s more subtle than that.

I don’t, I don’t think it’s necessarily about capital cycles within private markets that is leading companies to stay private longer, though, of course, it matters. I think what people realize today is that you can build a better business by staying private for longer. And Why do you think that is? It’s really hard to be a public company. It’s really hard. It’s not just the reporting requirements that you have. It’s you you can have people owning your shares for all sorts of reasons that are misaligned with what you’re trying to do as a as a company.

You have to do everything in the cold light of day. All your competitors get to know pretty much everything about your business because you have to tell your shareholders pretty much everything about your business. It’s just really hard. And I mean, I I say this is I have the most enormous amount of respect for companies that go public well and are and are able to flourish as public businesses because it’s really hard. So I think companies realize they can have greater focus by remaining private for longer.

Now I think there are some some good reasons for going public. I think it’s right that employees should be able to get liquidity, but that’s increasingly being served by these very large secondary private rounds. I think if you’re an acquisitive business, having a public currency can be helpful. I think that if you’re a business that operates in a regulated environment, I think it can be helpful for regulators to see you as a as a as a public company. We’re shareholders in Epic Games, and that that’s been private since 1992.

And I once asked Tim Sweeney, the founder of that company, like, you know, how he thinks about that. And he had quite an interesting answer to this. He said that, well, at some point, it will be easier to be public than it is to be private. At the moment, it’s much easier to be private than it is to be public. But at some point, the various forces that exist within your business mean that actually the easier option is to be public. And those forces can be needful liquidity.

They can be know, if you need to be acquisitive or engaging with regulators, forces can, I think, become good reasons for becoming public?

You’re starting to see the evolution of these these very large company facilitated secondary rounds, Stripe, Databricks. I can see those starting to become more of a feature. I don’t think we’ll end up in a world where you have sort of exchanges for private companies. I think you just have too much complexity in the share class structures. You have things like ROFAS. You have, like, company control. I can’t see those exchanges really working. But, you know, maybe we also get into a world where these companies become very profitable.

They continue to grow, and they start paying out dividends as private businesses. You know, maybe that becomes a little source of liquidity for for investors.

I can’t remember the first. I think the first one we invested in was about $30,000,000,000. I think we did our pro rata in that round. Yeah. Do you see a five x from 60? Yeah. Yeah. Remember, we did our pro rata in the 60,000,000,000 round, which is a little bit different from saying we’re doubling down. Right? So it’s we we we stood our hand. We put a small amount of extra capital into it, but we didn’t double down in the 60 round.

are they gonna get burned? The trend that we’ve seen in growth stage private company investing over the last ten years looks a little bit like this. Right? So these companies or these kinds of companies, they they all used to be public businesses. And the natural owners of them were public market organizations. It was Baillie Gifford. It was. Companies started staying private longer. So the natural owners and the long term historic owners kinda got pushed out of owning those kind of companies. It’s created a vacuum. Into that vacuum and I don’t mean this in a pejorative sense, but the opportunists came into that vacuum.

So you had hedge funds. You had traditional earlier stage investors spinning up these growth stage funds and owning companies that they knew but had never owned companies at that stage and scale before. Post ’21, I think a lot of those guys got pushed out, but some have remained and some have remained at really scale. My hope is that they’re developing real expertise of what it means to own companies at this stage and scale because you want to have good owners of companies. Right? Like, you want to be operating in a market where you have rational investors making rational decisions, doing a really solid analysis on companies because you need that market to be sort of pricing efficiently.

I think there are examples of that, but I think what you’re really seeing is more of like an institutionalization and a professionalization of this market. To give you, like, one example of what that can look like, we’re shareholders in Anduril. We first invested in that company last year. The round that we took part in, there were the insiders in it. But then other than the insiders, the only new investors that came into that round were investors that were traditional public market investors but could also do some private investing.

And that’s because what the company needed was investors that are used to owning companies at that stage of growth and that scale, and over time can help them transition into the public markets.

get so excited for them? So I could go into the specifics of the company, but what Anduril sort of conjured in my mind was a pattern that we’d seen in two places before. Those two companies that it sort of conjured were Tesla and SpaceX. What Anduril have done is they have developed products that are largely software enabled but are still really hard technical hardware problems that they have solved. They have proven that the products work and the people wanna buy them. So there’s no question about product market fit or do they work or anything like this.

And then they are operating in very, very large markets that have largely not changed in decades and where there is clear water between them and their next nearest private competitor. That was true of Tesla in 2013. It was true of SpaceX in 2018, and I think that’s true of Vandruel today. So it’s that combination of, you know, really difficult hardware problem that they’ve solved, an industry that’s largely not changed, and clear space between them and other private competitors.

He is. And he’s amazing. But the thing that people forget about Anduril is you’ve got, you know, Brian Schimpf, the CEO. Matt Grimm, amazing operator.

I don’t think there is. There are big differences. Right? Like, how you go about sourcing opportunities is obviously totally different in the private markets compared to the public markets.

analytical questions, I think, are pretty similar. You have different sources of information, whether you’re doing public or private, but, like, you’re still looking for the same characteristics. Right? Like, if you make it very simple, you’re still looking for companies that can become many times their current size and earn a high return on equity. I think one of the big differences is in what it means to be a good owner of a growth stage company. And there are big differences here between not only private ownership and public ownership, but also kind of growth stage ownership and venture ownership.

about that as a risk? Oh, I worry about it. The thing that people forget about SpaceX is that there’s an amazing management team there that is not Elon Musk. You have Gwynne Shotwell. Who keeps a is is able to keep a very low profile perhaps precisely because of the high profile that Elon Musk has. So that gives us a lot of comfort. But is it a concern? Yeah. Of course, it’s a concern.

So I’ve never thought of myself as an expert or an investor in technology. I invest in companies. I invest in businesses. And those businesses will often use technology to create these incredible business models that are very scalable and can be sort of high returning. But I’m not a student of technology. I’m a student of businesses and business models. Now there there are people on my team who are much more interested in technology itself and also love investing and love businesses. But my focus and I think this is a focus that perhaps makes me better at, say, growth stage investing than I would be at venture stage investing, is trying to understand great businesses, not great technologies.

What do you worry about most today in the investing world? Deglobalization. We’re global investors. One of the things that’s made us successful over the years is finding interesting companies all over the world. The the very first investment this is a story we love to tell our clients. The very first Bailey investment Bailey Gifford ever made was in a in a Malaysian rubber plantation that was producing rubber for the tires that were going to be needed on the Model T Ford. We’ve always been global. The very first private investment we ever made was not in The US, was in China.

Sitting in Edinburgh, in Scotland, there’s not that many companies to invest in there. So our remit, our investments, and our client base has always been global. And from an investment perspective, but also just from a sort of from the perspective of humanity, I worry about an era of more barriers, weaker ties between countries because I think it’s better for investing. I think it’s better for us as people.

I think it does. Yeah. I think it does remain a big opportunity. Now Are you still actively investing in China? Yeah. I mean, we in the public markets, we have a team in China. We continue to look at opportunities in China. Is there added risk investing in China? Of course, there is. Absolutely. But then you need to be rewarded for taking that risk. I’m a sort of big believer of the sort of, saying, so, yeah, be be greedy when every when others are fearful and fearful when others are greedy, and everyone is fearful of China right now.

If everybody is saying one thing, which is China’s not investable, you would be daft not to be questioning that and saying, well, hang on a minute. Like, is that actually the case? Maybe I should go and have a look. So I’m hoping to get out there over the summer of not being in far too long. But, yeah, we will continue looking for investments in China.

I guess the decision making process is always a manifestation of that funnel. Right? So if I look at last year, we met a thousand companies. We looked at 600 private financing 10. But we work within a team of a 170 public market growth equity investors. And and we’re able to draw on that resource. So but this is just as a team. Right? So just as a team, we met a thousand companies. We looked at 600 private financing rounds. We did sixty five first cuts of our diligence process.

We did 30 deep dives, and we made 11 new investments. On the companies that we put through our diligence process, we do our diligence that culminates in a 10 q, which the the note that I talked about. I mean, you would see one of these, they look I mean, we don’t use PowerPoint. These look like essays. We sit down and we discuss them as a team. We do that on Thursday afternoons. Every week? Every week. Yeah. The whole team’s there. How long do you set aside for it?

We’re slowly increasing the amount of time that we set aside for them because we always get to the end of discussion. We’re always kinda hungry for more discussion. At the moment, they’re an hour and a half stop discussions. The investment committee then meets on Friday afternoons. That’s a, you know, pretty small investment committee. There’s four of us, and we decide what to do. Now, inevitably, there’ll be additional things we want to follow-up on, but it’s, the core decision making group for our dedicated funds. There’s four of us.

Yeah. So so it there’s a large range because there are different pools of capital that we invest from, but they can range from $10,000,000 to $150,000,000.

does that change when you’re making reinvestments? It’s a different

So when when we’re making reinvestments, we re revisit the investment case. We do an updated 10 q. We reexamine that five times upside case. And I guess you then have, like broadly speaking, there are three different decisions that you You need to see five x on the reinvestment. Well, so this is where it slightly varies. Right? So if you’re gonna double down on the company, then absolutely, yeah, you need to see a five x on a reinvestment. If you’re gonna do a small pro rata check, I think then, you know, doing pro rata checks, if they’re relatively small, can just be part and parcel of being a good investor, which we’ll do can provided things are going in the right direction.

And then, of course, there’s a decision not to do anything where we sort of decide not to take part in in a round where where either we’re not seeing execution that we need or we think the valuation just doesn’t make sense.

So you mean,

Actually, I’ll tell you the round that we didn’t take part in that. We came very, very close to. So we we first invested in Stripe at about a $30,000,000,000 valuation, but we didn’t take part in the down round that they did whenever that was. 22? Which was 12? Because it got we invested at 30. It got up to about 90, and then think it came back to about 50. And we didn’t take part in that round. I think we should have done. Why did you not?

Oh, gosh. That’s a you asked me to kind of go back. I think that it was I think at that particular time, growth had come back, and I think we had slightly more questions around the build out of a more sort of holistic software offering over and above the merchant acquiring business. It was quite nascent on that. I don’t think they quite made the progress that we would have hoped that they would have made. And so we just said, actually, like, we’ve got meaningful amounts of capital invested in this company.

Let’s just see how this goes. I think that was a mistake. I think we should we should have put more in then.

40? Stripe is priced even even less than than Adyen. You just look at it on a multiples basis, and it’s growing quicker. I mean, that last round was what? So I think they’re doing one at the moment, aren’t they? It’s sort of 91.5 or something like that. Which is think that’s Adyen? In terms of market cap, yeah, I think it is. Yeah. Does that mean Adyen’s undervalued? I don’t know. You need to speak to my public market. Do you ever wanna do public markets? Oh, I did public markets.

But like, again, might go back. I mean, we we continue to own a number of our companies after they go public. Right? So we’re still big, you know, shareholders in Affirm and Wise. Would I ever want to go back to just doing public markets? Look, I mean, I am so lucky and privileged in what I get to do. And I think the reason I love doing what I do is because you get to sort of you get to expand the map, or at least expand the map for an organization like Baillie Gifford.

Of course, we’re not doing like series a and series b. But when we’re looking at companies within the private companies team, this will be the first time Baillie Gifford as an organization will have looked at these companies. And so you’re starting with a blank sheet of paper, and you get to discover these companies. And you get to know these companies as people in a much more personal way than, by and large, you can in the public markets. And I think that’s very special.

dire state for the London Stock Exchange? Yeah. I do share the sentiment that we’re in a dire state for the London Stock Exchange. And think Why do you think that is? I think it’s a combination of there not being loads of amazing high growth companies in The UK and listed in The UK. So there’s a there’s a supply problem, and I think there’s a demand problem as well. I think that UK investors, perhaps as a function of them, there just not being that many really exciting growth companies listed in London, they’re not as used to analyzing and investing in, and their risk appetite are probably not as high as investors in The US investing on on the Nasdaq.

Instance. So I think there’s a demand problem, and I think that there is a supply problem as well. If I were to put you in charge of the LSE today, what would you do? That’s a really hard question. So I think the problem starts to like, before the LSE. Think that if you’re trying to diagnose it or trying to solve the problem, I don’t think you would start at the LSE level. I mean, I respectfully disagree with you on the

But I think that is the problem. Right? You can name 10. And maybe you can name 20. Right? But you can’t name a 100. Well, no. That’s because I’m in

would be way more. And I’m not saying that there aren’t great companies out there. There’s just I’m just not sure that there are enough at the scale that you would need to have to make for a very vibrant, diverse, growth equity public market in The UK alone. I think that if you were to go around and you were to combine all the sort of growth stage companies in Europe, then I think you can have a really interesting Do you think we should have a European

Yeah.

So you can look at it through like a binary decision of when do you sell? But you can also think about it through the lens of, like, well, when do you trim? Like, when do you take some of your winnings? Look. This is where, I think, increasingly in the private market, secondary secondary markets can be useful. So some of our large high profile companies, that we have trimmed in the private markets, and we’ve recycled that capital into new, interesting, high growth private companies.

So those companies that go public, again, the funds where we can recycle capital, like, it’s not easy, but the there’s an opportunity cost trade off that you make, right, each time you’re looking at a a new company, which is I need to find some capital to invest in this company. Well, where’s that capital gonna come from? Well, I’m gonna get it from, you know, where I have liquidity, but also where I believe there is the greatest disparity between the returns I can make by continuing to own whatever the company is, that public company, versus this new opportunity that I’m looking at.

So it’s an opportunity cost trade off question, really.

Yes and no. Like, I do still think we are seeing this trend of institutionalization and professionalization of the growth stages. And there are some high profile names in the growth stage, but I think there are fewer participants in the growth stage today than there was in 2020 and 2021. And you could say, well, those were anomalous years, but I actually I still think there has been consolidation within the growth stage of the private market. Will people kind of come in and go out? Yeah. Of course.

And so there’ll be there’ll be periods where there are more and periods where there are less. But I think we’re already at the stage where there are a handful of the growth stage of, let’s call it 10, maybe you get to 20 of institutions that are consistent presences in this part of the market. And I can probably name you those. Is that gonna double or triple? I I don’t think it will.

So Coinbase. Should’ve invested in Coinbase. Why did you not? Oh, because I created a very elaborate spreadsheet where I was, you know, estimating all of the volume and liquidity that you’d need to have in Bitcoin to get to the kind of five x returns, and was a very clever model, and I felt like I was being very clever. I’m just wildly off model.

I mean, I think that can always be at risk. Right? Like and it’s not just with models. Like, sometimes you can over intellectualize things. And sometimes the best investments, like, they’re quite obvious. What was the most obvious? I mean, this is kinda going back to when I was doing public market investing. But, you know, for me, when we invested in Tesla in 2013, like, was pretty obvious. It was obvious in 2013. Yeah. I mean, they’d sold tens of thousands of Model Ss, they had preorders where people put down real money for Model Ss.

They’d proven that they could make a car that would that people wanted to buy. They’d proven that they could, you know, make it the the Roadster. And then the question, like, was execution? And, like, were they actually able to make enough of these things? But you could look at the organization, and there were people in there that had built car factories and, like, had scaled the production of cars. So, yeah, it sort of felt kind of obvious at that time, and it was a, you know, $3,000,000,000 market cap.

That you can be a generalist and that you can be a globalist in how you invest and that you can still add real value for your clients by being specialist in growth equity investing.

Wow. That that’s the one? Why? Because I think that they have the most astonishing business model, culture, and opportunity to be like an immune cell that kinda goes around gobbling up all of these slightly broken businesses, but they have great products and generating loads of profit and free cash flow from them.

It’s having these generalizable set of tools that can make any consumer digital application better from a user perspective, can grow the revenues, and can be run way more efficiently. Their addressable market is the broken parts of the venture capital ecosystem, ecosystem, which is companies that are good products but really bad businesses. And they can take these good products and make them amazing businesses by virtue of being part of Bending Spoons. And so the core risk really is acquisition price sensitivity. And can you continue to do it at ever greater levels of scale?

Well, I think that if you knew that you couldn’t fail, it would increase your risk tolerance to infinity, wouldn’t it? You’d go and you’d take the most absurd risks you possibly could because you knew you would get them right. Mean, what would you do? Maybe you’d be like, an early stage biotech investor because you would know that every company that you invested in at some super early stage would go on to become a blockbuster drug and your returns would just kind of be off the scale.

Maybe that’s what you do if you knew that you couldn’t fail.

you have most respect for and why? I’ve got an enormous amount of respect for Christo at at Wise. He’s just a brilliant executor. He just has this deep care and passion about this very sort of niche thing of moving money cheaply and efficiently. He just cares deeply about his customers, his business. He thinks differently and orthogonally about how you go about creating a business. And, yeah, I’ve sort of seen seen that journey as the business has grown, but as he’s sort of grown with the business as well.

change one thing

Baillie

what would you change? I would like to have more time to invest in every decision I made. So, you know, rather than, you know, having, I don’t know, however much time it is to digest all the work that the team has done to come to an investment decision, I would love it if I could have three, five, 10 times the amount of personal time that I could put into thinking about those investment decisions. But we have to operate within the the sort of, you know, number of hours there are in the day.

Right?

any of them?

You can buy none of them. I think at the moment, I would say that I would buy none of them. I don’t know what the answer is to enduring competitive advantage at the large language model level. And I don’t feel like I could tell you which one I would want to buy without a strong thesis on that.

say Microsoft, wouldn’t you?

twelve months? So many things. So we we had this discussion about adding value to companies. Like, this is something that, like, I was just so wrong on for so many years. I used to say, like, oh, no. You don’t get it like it. At the growth stage, the concept of value add doesn’t apply. Companies should, like, know know everything themselves. And that was true in the narrow sense largely around, like, operational stuff. They should sort of know what they’re doing themselves. But what I misunderstood was all the kinds of things that are specific needs to being a growth stage company.

Yeah. We’ve already talked about them. How do you go public effectively? How do you be a public company? How do you create a great independent board? These sorts things. I was just dead wrong on that. And I’ve come to realize over the last few years that there are so many things that growth stage companies do need help with and that, you know, we we can be well positioned to help them with. Did becoming a father

I don’t think

investment approach. I think it changed my world. What did it change in your worldview? When you become a parent, there is this sort of little being that starts off very, very small, and very quickly, they become much, much larger that you care about more than anything you can possibly imagine caring about, that you are deeply responsible for in a way that it’s difficult to comprehend being as responsible for anything else as it is to be as responsible for your children. Or in my case, child. I just have the one.

It’s amazing. But the good things become, like, way better than, like, the good things before you have a kid, and the difficult things become way more difficult and way harder as well. So it’s like everything in life just becomes somewhat accentuated.

live. Why would anyone ever wanna leave Edinburgh? Sorry. I did not mean that derisively to Edinburgh, but, you know, it’s not Yeah. So the firm will be around for a hundred and fifteen years. We’re we’re a partnership. We are a intergenerational unlimited liability partnership. So so does this work from a carry perspective? So carry goes to the firm. Carry goes to the firm. And then we we remunerate people through through bonuses, which is sort of synthetic carry, I suppose. But the way the firm operates is that there’s this sort of continuous chain of partners who have been responsible for the firm and responsible for our clients and doing a good job for our clients.

And the job of the partnership is to maximize value for our clients, but also make sure the firm is in a better place to hand off to the next generation of partners. And so I think there’s this kind of deep care and responsibility that those of us who spent our entire careers at Baillie Gifford have for our clients, but also for this this organization that we kind of get to be stewards of parts of our lives and hopefully hand on to the next generation of partners better than when we joined it.

So I’m I’m really excited and optimistic about the conditions under which companies are entering this stage of the market, this kind of growth stage. So kind of going back to that framing that we had earlier of, you know, companies, you know, around about $200,000,000 mark, derisked on the product side. There have never been so many venture backed companies that are sort of entering our part of the market. Like, there’s been a lot of spaghetti thrown at the wall, and we get to see which bits stick, which is a great place to be a growth investor because lots and lots of experiments, and you can sort of see the ones that work and sort back those ones that work.

But then there have never been so many people with experience of trying to grow and scale businesses, so that kind of human capital has never been better. Can I And then can I interrupt

is the opportunity for Bending Spoons. Right? Like, this this is their market because they can take those companies, and they can improve the products, and they can they can make them profitable. And then they become really, really valuable. So those kind of companies, you’re right, don’t stand up as stand alone businesses. But in the hands of the right kind of capital allocator, they can generate a lot of free cash flow.

I don’t know. I’m not sure. Called you up Yeah.

There’s David, the CFO there, does an amazing job. There’s no way I’d be able to do this. But the final thing that I think is really important for, like, why now is an amazing time for growth equity investing is we’re this period of capital where there and, yes, taking the conversation we had earlier around, there are some parts of the market that are still quite exuberant. There is neither across the market, I would argue, an excess or a deficit. So you’re at this golden mean, this Aristotelian mean of availability of capital, which is providing enough capital to be able to invest, but not so much capital that it detracts from the long term quality of those businesses.

So I think that kind of amalgamation of lots of venture stuff being tried, lots of experiments, human capital, and the right quantity of financial capital just makes me, like, really excited to be deploying capital in this part of the market.

being so open today. Well, it’s been a pleasure to see you again, Harry. Really enjoyed the conversation, so thank you very much for having me.