The Exchanges

Q want to dive into the public versus private though, because to me, ah, we joked before, but you know, everything that I buy, you should short. I'm the world's worst public markets investor, and they're so paradoxical in my mind. So tell me, why do you think that actually the framing shouldn't be so different for public versus private? Why do you not believe in segregating the two like this?

A I really think that the public private divide is an artifact of the financial universe rather than anything that you would come up with if you were thinking about investment or company formation from first principles. Um, when you think about what matters for a good business, uh, you know, a big addressable market, a great management team, robust competitive advantage, a fantastic business model. Well, these things are true, whether you're talking about private or public companies. And the only thing that changes when a business goes from being private to being public is that its shares start trading in a slightly different way. I don't think there's really much information in that that tells you that you should delineate investing on those terms. And so we just try to look for great companies and own them for a really long time, um, and try to break down what we believe is this artificial divide between public and private businesses.

AI assessment note: “public private divide is an artifact of the financial universe”

Q very obvious for a lot of people who went to Stanford and studied CS that they would then, you know, become what they did. But we were just chatting now, and you said about how you got into private company investing, and it was so cool, I wanted to ask it on the show. So how did you get into private company investing at Bailey Gifford? What was that moment?

A Well, so, so the specific moment was, um, I was on a public market strategy. It's called the long-term global growth strategy. It's a fifty billion dollar public market strategy. And this was in 2014. I was working with, uh, three very senior investment partners within the firm, James Anderson, Mark Urquhart, Tom Slater. And we were starting to see these private companies, uh, of real scale, the sorts of companies that we'd always invested in. And back then it was like, You know, businesses like Airbnb and Spotify and, uh, and Tom and Mark and James, like they kind of had their hands full looking after these tens of billions of dollars of our clients capital. And so we were sat in a room and, uh, and, uh, James said, well, like who's, who's going to do this? Who's going to look at these private companies? And I just put my hand up and I said, well, I'll, I'll do it. And, uh, that's sort of how it all started.

AI assessment note: “James said, well, like who's, who's going to do this? ... I just put my hand up”

Q You mentioned there the learnings from mistakes, and it's really the craft of investing that has learned through mistakes. When you think back about the most painful mistake that caused the biggest learning, is there one that comes to mind?

A There's lots of investments we've made that have been painful experiences. Um, But ironically, I would say not all of our bad investments are necessarily mistakes. So when you invest, you, you are trying to predict what's going to happen in the future or estimate the probabilities of what will happen in the future. And, um, sometimes you take a, take on uncertainty when you invest and, and the, 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 wait 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 went bankrupt was a company called Intarsia. It was a, it was actually a biotech company that was developing a GLP-I. 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 analys…

AI assessment note: “Northvolt's been a very bad investment for us... what we got wrong was the team's ability to execute”

Q Can you talk to me about the rationale behind that one? I'm a big believer in Andrew, so I, I have many thoughts around why I'm excited for them, but why did you get so excited for them?

A So I could go into the specifics of the company, but what Andrew Rill sort of conjured in my mind was a pattern that we'd seen in two places before. Um, those two companies, uh, that it sort of conjured were Tesla and SpaceX. What Andrew have done is they have developed products that are largely software enabled, but are still really hard technical hardware problems that they have solved. Um, they have proven that the products work and the people want to 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, you know, clear water between them and their next nearest private competitor. That was true of Tesla in 2013. It was true of, Uh, SpaceX in 2018, and I, and I think that's true of, of Android 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, and, and clear space between them and other private competitors.

AI assessment note: “what Andrew Rill sort of conjured in my mind was a pattern”

Q And the probability that's assigned to that five times, what is an acceptable probability? Is it like we feel there is an 80% chance, and if it's above 80%, then we will write the check, and if it's not, because obviously everything has like a one percent chance.

A So, um, no, it's certainly not as high as that, and if you think that there's an 80% chance of making a five times return in investment, like, you're probably, Uh, deluding yourself in the levels of probability and confidence that you can have in a long tail or, you know, 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 30 years of public market data, but the short answer to the question is, uh, the probability of any given company going up five times, if you were just picking randomly, is something like five percent. So if you can find a company where you think there is something like a 30 or 40% probability Of it going up, uh, fivefold. Well, actually those are really good odds. And so 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.

AI assessment note: “If something is in the range of 30 to 50% probability of going up fivefold”

Q Can you talk to me about the rationale behind that one? I'm a big believer in Andrew, so I, I have many thoughts around why I'm excited for them, but why did you get so excited for them?

A So I could go into the specifics of the company, but what Andrew Rill sort of conjured in my mind was a pattern that we'd seen in two places before. Um, those two companies, uh, that it sort of conjured were Tesla and SpaceX. What Andrew have done is they have developed products that are largely software enabled, but are still really hard technical hardware problems that they have solved. Um, they have proven that the products work and the people want to 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, you know, clear water between them and their next nearest private competitor. That was true of Tesla in 2013. It was true of, Uh, SpaceX in 2018, and I, and I think that's true of, of Android 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, and, and clear space between them and other private competitors.

AI assessment note: “what Andrew Rill sort of conjured in my mind was a pattern that we'd seen”

Q I mean this naively, probably. Why would you ever go public In many ways. If you can have a great concentrated investor base without prying eyes, without the need to disclose information and build a great business with significant capital in private markets, why, why go public?

A I mean, I think that's a great question. And there are companies in our portfolios that I think has, they've been private for a long time. And I think they'll probably stay private for a really long time. You know, business like Epic Games, you know, it's been private since. And I don't think Tim Sweeney is about to rush off and take that business public. I think there are however good reasons and bad reasons. I think a good and honorable reason is to give employees liquidity. Um, you know, if you remunerate your employee base through options, you know, these people put The best years of their lives into these companies. And it's only right that they should be able to get a bit of liquidity, you know, pay off the mortgage, pay their kids college fees and all of that sort of stuff. I think that's really honorable. I think a really bad reason for going public is because you've got early stage investors who have funds coming to the end of their life and they want to distribute capital to their limited partners and collect current interest and all of that whole, uh, circus.

AI assessment note: “a good and honorable reason is to give employees liquidity”

Q Oh, I, I love VC pontification. Utterly brilliant. It's how we justify the fees, Peter. You should get into our game. Um, no, I, what I want to ask is, you know, we spoke about the loss there. Winners also inform your perspective. Um, how do you think, you know, A, how do you think about your biggest winner, and how do you think that changed your view of investing?

A I mean, my biggest winner to date, uh, is still a public company, actually. Um, I was working on Tesla in 2000 and, uh, 12, and we went on to buy that for various strategies. Um, and so far that one's done all right. Um, I think what I really learned there was not just intellectually, but behaviorally, what, what asymmetry really looks like. Um, but I think also I really learned that And this is actually to, uh, uh, something that one of my, my colleagues said the other day, he said that if you are sufficiently long-term, uh, even in your most successful investments, there will always be a time when you look and feel really stupid. And I think Tesla is an example of a company where there have been multiple periods over the course of that investment, where we as an organization have looked and felt really stupid.

AI assessment note: “I think what I really learned there was not just intellectually, but behaviorally”

Q Can I ask, what are the benefits of being able to invest in both public and private to you and not having this quite blinkered mindset of public versus private?

A I think it's really a question of the, the, the whole being greater than the sum of its parts. There are enormous benefits that we get as private investors by working alongside our public market colleagues every day. We get an incredible sourcing advantage because we source through the You know, hundreds of public companies and executives and founders that we work with. Um, we get to benefit from the analytical insights of a 120 public market investors, and we can draw them into our private or analysis of private businesses. And then we get to bring the benefits of the scale of being a fairly large public market organization and supporting companies over, over their journey, not just privately, but Potentially with greater sums of capital into the public markets as well. So it's enormously beneficial for us as private investors for our public teams. They basically get a window into the future. They get to see the businesses that will be in the public markets over the next five or 10 years and just get insight and understanding and relationships with those companies that you could never get if you weren't an active participant in the private markets. I think it's also beneficial for the companies we back because we can be this long-term provider of capital over their journey. And it's beneficial for our clients because we give them continuity of ownership and access to these com…

AI assessment note: “There are enormous benefits that we get as private investors by working alongside our public”

Q I mean this naively, probably. Why would you ever go public In many ways. If you can have a great concentrated investor base without prying eyes, without the need to disclose information and build a great business with significant capital in private markets, why, why go public?

A I mean, I think that's a great question. And there are companies in our portfolios that I think has, they've been private for a long time. And I think they'll probably stay private for a really long time. You know, business like Epic Games, you know, it's been private since. And I don't think Tim Sweeney is about to rush off and take that business public. I think there are however good reasons and bad reasons. I think a good and honorable reason is to give employees liquidity. Um, you know, if you remunerate your employee base through options, you know, these people put The best years of their lives into these companies. And it's only right that they should be able to get a bit of liquidity, you know, pay off the mortgage, pay their kids college fees and all of that sort of stuff. I think that's really honorable. I think a really bad reason for going public is because you've got early stage investors who have funds coming to the end of their life and they want to distribute capital to their limited partners and collect current interest and all of that whole, uh, circus.

AI assessment note: “I think a good and honorable reason is to give employees liquidity.”

Q Um, before we dive into the public versus private kind of merging, um, I do want to touch on the background, so, because, you know, you said about your background there in kind of studying philosophy, and then when we spoke before, you said very few people at Bailey Gifford have financial backgrounds. Why is that, and what do you think are the benefits of this mindset coming into investing?

A The belief that we have is that there are some basic tools that you need to do investing and what seven accounts look like, how to do some sort of fairly basic valuation techniques. And we can teach those pretty quickly when people join. And then there's a whole lot of stuff that you can only learn through experience and doing the job. But what you can't teach is cognitive diversity. And so the reason we hire from a range of academic backgrounds is because we bring in people with lots of different perspectives. Perspectives on the world, Um, rather than hiring people who grew up dreaming of being fund managers where you might well end up with a fairly narrow, uh, perspectives on the world.

AI assessment note: “the reason we hire from a range of academic backgrounds is because we bring in”

Q Oh my god, I'm going to send it to you. It basically distinguishes like what makes a company defensible, and it bakes it down to seven different factors. Um, do you have a framework for trying to understand sustainability of value in a company?

A So yes, we do. Um, 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. Uh, we call it our 10 questions framework. Uh, I won't run through all the 10 questions, but you, the questions basically break down into four areas. The first couple of questions are about, uh, the, the, the growth opportunity over the next five years, but also over the next 10 years and beyond. So trying to look really far out. The next set of questions are about the enduring determinants of success. Uh, 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, you know, 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, um, ambition or mission that that company has. So those enduring determinants of success are 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 busin…

AI assessment note: “So yes, we do. Um, and this is a framework that actually goes”

Q layer being the LLMs. But when you look at the application layer, The scalability of these companies in terms of revenue is unlike anything we've seen before, from your McCaws to your Mid Journeys to your Lovables to your Bolts, and they're scaling at three, four, five million a week. And so the price is exorbitant. So can you play at the application layer and have your disciplined investor mindset?

A I don't think it necessarily, 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, you, you lean into valuation too much, but the trick is not paying high prices. It's being judicious and selective about when you choose to pay a high price.

AI assessment note: “It's being judicious and selective about when you choose to pay a high price.”

Q Talk to me about, I don't know, and I, I have an incredibly Western view, which makes me feel incredibly naive. So, what is the ByteDance business in China and why is it so good?

A So, I mean, there are two main applications in China. Uh, there's not really a direct comparable, but like a better version of Apple news and Doyen, which is like, uh, like TikTok in China. Um, they're the market leader in, uh, online advertising in China. And I think at the moment they're about number three in e-commerce in China. It's, it's enormous. It's an absolute monster. And look, so TikTok has a big user base and 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, you know, the, the, um, yeah, the quality of that business is, is quite something to behold.

AI assessment note: “there's not really a direct comparable, but like a better version of Apple news and Doyen”

Q What do you worry about most today in the investing world?

A De-globalization. Um, we, we're global investors. One of the things that's made us successful over the years is, is finding interesting companies all over the world. The very first investment, this is a story we love to tell our clients, the very first investment Bailey Gifford ever made was in a, in a Malaysian rubber plantation, uh, that was producing rubber, uh, for the tires that were going to be needed on the Model T Ford. We, we've always been global. The very first private investment we ever made was It was not in the US, it was in China. Sitting in Edinburgh, in Scotland, there's not that many companies to invest in there. So our remit, our investment, and our client base has always been global. Um, and from an investment perspective, um, but also just, I mean, from a sort of, from the perspective of humanity, I worry about an era of, uh, more barriers, weaker ties between countries, because I think it's Better for investing. I think it's better for us as people.

AI assessment note: “De-globalization. Um, we, we're global investors.”

Q Sure. Okay, but when we think about, like, pre, like, will we have, because I think we're just seeing the, like, precipice now, and we're going to see sovereign wealth funds like we've never seen before, pension funds like we've never, and it's going to get much noisier. Do you agree?

A So yes and no. Like I, I, I do still think we are seeing this trend of institutionalization and professionalization of the growth stages. And there are some, 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 20 21. And you could say, well, those are 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, you know, I, I think we're already at the stage where there are a handful at the growth stage of, you know, let's call it 10, maybe you get to 20, of institutions that are consistent presences in this part of the market. And I could probably name you those. Is that gonna double or triple? Like, I don't think it will.

AI assessment note: “Is that gonna double or triple? Like, I don't think it will.”

Q What would you advise yourself now knowing all that you do, Telling that younger self entering the position you were?

A That's a really hard question because 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 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 Um, this capability in this offering to more of our clients, I would say to myself, be a little bit less purist. We, we were, um, 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. Um, but the result of that was that we had a lot of our clients who wanted, uh, to be investing with us in the kinds of companies that we were investing in, these kind of high growth You know, 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 compromised, or not compromised, we'd been aware of some of those trade-offs earlier on.

AI assessment note: “I would say to myself, be a little bit less purist.”

Q hate for this, but Brazil has not shown pathways to liquidity at scale. They've shown new bank and everyone says new bank. It's one in 20 years. There's D local and bunny. They're not a tool at scale. India has continuously actually been the Europe of this technology ecosystem. And now's the time. Now's the time. We're still waiting. How did you guys think about that? Like, Macro market risk.

A 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. It's, 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, I think this is where Having a very long-term time horizon, like, we are willing to take a little bit more risk there, again, just provided we are being paid to take that risk.

AI assessment note: “make sure that you're being, you're paying a price that rewards you”

Q And how does that change when you're making reinvestments? It's a different process and psyche. How does that change?

A So when we're making reinvestments, we revisit the investment case. We do an updated TenQ. Uh, we re-examine that five times upside case. And I guess you then have like, broadly speaking, there are three different decisions that you need to see five X on the reinvestment. Um, well, so this is where it slightly varies, right? So if you're going to double down on a company, then absolutely. Yeah. You need to see a five X on a reinvestment. Um, if you're going to do a small pro rata check, I think then you're doing pro rata checks. If they're relatively small can just be part and parcel of being a good investor, which will do can provide that things are going in the right direction. And then of course there's the decision not to do anything. Um, Where we sort of decide not to take part in a round, where we are not seeing, either we're not seeing the execution that we need, or we think the valuation just doesn't make sense.

AI assessment note: “So when we're making reinvestments, we revisit the investment case. We do an updated TenQ”

Q layer being the LLMs. But when you look at the application layer, The scalability of these companies in terms of revenue is unlike anything we've seen before, from your McCaws to your Mid Journeys to your Lovables to your Bolts, and they're scaling at three, four, five million a week. And so the price is exorbitant. So can you play at the application layer and have your disciplined investor mindset?

A I don't think it necessarily, 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, you, you lean into valuation too much, but the trick is not paying high prices. It's being judicious and selective about when you choose to pay a high price.

AI assessment note: “a disciplined investor mindset doesn't mean you should ever just not look at certain areas”

Q Talk to me about, I don't know, and I, I have an incredibly Western view, which makes me feel incredibly naive. So, what is the ByteDance business in China and why is it so good?

A So, I mean, there are two main applications in China. Uh, there's not really a direct comparable, but like a better version of Apple news and Doyen, which is like, uh, like TikTok in China. Um, they're the market leader in, uh, online advertising in China. And I think at the moment they're about number three in e-commerce in China. It's, it's enormous. It's an absolute monster. And look, so TikTok has a big user base and 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, you know, the, the, um, yeah, the quality of that business is, is quite something to behold.

AI assessment note: “there are two main applications in China... they're the market leader in, uh, online advertising”

Q Because everyone is struggling from the same, you know, Frankfurt is struggling from the same, the French are struggling from the same, we're struggling from this. How do you figure out when to sell? It's really hard. I mean, when you're public, it's even harder, because every day you have that permanent decision of I can sell. When you're private, I mean, to a relative extent, you're kind of stuck.

A So, like, there is, you can look at it through, like, a binary decision of, like, 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 something away? Like this is where I think increasingly in the private markets, secondary, secondary markets can be useful. Uh, 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. Um, for those companies that go public again in the funds where we can recycle capital, it's like, it's not easy, but the, There's an opportunity cost trade-off that you, that you make, right? Each time you look, you're looking at a new company, which is, you know, I need to find some capital to invest in this company. Well, where's that capital going to come from? Well, I'm going to get it from where I have liquidity, but also where I believe there's 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.

AI assessment note: “it's an opportunity cost trade-off question, really”

Q Yeah. What have you changed your mind on most in the last 12 months?

A Oh, so many things. Um, so we, we had this discussion about, um, 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 at the growth stage, like 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. You know, we've already talked about them. How do you go public effectively? How do you be a public company? How do you You know, create a great independent board, these sorts of 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.

AI assessment note: “I was just dead wrong on that, and I've come to realize”

Q You mentioned Intarsia there. There's a lot of risk baked into that. There's like market timing risk. There's regulatory risk with kind of FDA approvals. That's a lot of risks that a lot of venture masses won't take period. How do you think about the risks that you're willing to take on entering an investment versus the risks that you're not willing to take?

A 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. Um, 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.

AI assessment note: “we're not taking product risk, we're taking business model quality and scalability risk”

Q What's the most memorable first founder meeting you've had?

A I mean, I think the memorable ones are the ones where you're sitting there listening to a founder and as you hear them speaking, your view of what is possible for this business or your view of the world is changing. Um, I would say the first time I spoke to Tim Sweeney at Epic Games, that was a real sort of aha moment as to what that business could become and what it was building or a business like, uh, Solugen based down in Houston. Um, meeting, uh, Garab and Sean for the first time and understanding how the, what they had could really change the chemicals industry in a way that was really scalable. Um, you know, those would be some of the meetings that, you know, really stood out for me.

AI assessment note: “the first time I spoke to Tim Sweeney at Epic Games”

Q How many companies have actually, I've had quite a few now, Where it's like, they've had acquisitions and I've got like, 50 cents on the dollar back. And so it's like, it's not a bankruptcy, but when you look at that cohort, is there many in that cohort?

A Very few of our investments get acquired. Um, and that's partly because we, we steer away from any company where we get a whiff of, um, them potentially being bought. Um, I think it kind of comes back to what we're trying to achieve here. We're not trying to find a company that can be bought For, you know, one or two X in a year or two, we're trying to find companies that over a five, 10, 15 year view can go on to become five, 10, 20 times their, their current size. And so that kind of skews us towards companies that we, that we believe have the potential, but also where you have a management team who has a level of ambition to keep it private. So I keep, keep the business independent, um, and grow it independently rather than looking for an M and a exit.

AI assessment note: “Very few of our investments get acquired.”

Q There is so much for me to unpack there. I mean, I, I want to start with actually something, though, that you said before we started this recording, which was, I don't consider myself a venture capitalist. That's pretty interesting to say, and it's, um, novel for me to hear on TwentyVC. Um, why don't you consider yourself a VC, Peter?

A In my mind, venture capital means very early stage investing. It means, you know, backing the sort of proverbial two people and a dog and an idea in a garage. And that's not what we do. Um, we invest in, I guess, kind of mid and late stage high growth, private companies, companies where you can have a real conversation about what the business model looks like and a company's competitive advantage. Um, to me, that's, that's sort of more growth investing. That's fundamental company analysis. And we're not operationally involved with companies either. Um, and so that's why I don't call it what we do venture capital. We're not sort of pretending or aspiring to do or be what those early stage investors do and, and some of whom are very good at it. We're trying to be a bit different and we're trying to be a long-term partner for our, for our companies, transcending the private and into the public markets, um, over timeframes that I think are, um, Uh, unfamiliar to most investors, but are very familiar to us given the longevity of our organization and, and the philosophy that we've always pursued.

AI assessment note: “venture capital means very early stage investing. And that's not what we do.”

Q with you there. I want to touch on a couple of things that you mentioned before. You mentioned kind of fundamentals and, you know, first principles thinking. You mentioned market size. I'm always troubled by this. Should one do outcome scenario planning, thinking about how big this could be, knowing that actually, in your winners, you always underestimate how big it could be. So, is it worth doing at all?

A I think it's worth doing within the context of probabilities. And this is how we think about valuation upside. We create scenarios in which we are deliberately contrived where a company can be a very high returning business and a high returning investment for our clients. We think about the probabilities or the, the things that would have to come to pass for that to be the case. And then we look and test the probabilities that you would have to ascribe to that. But whenever you do that, there are many different things that go into it. It's the size of the market, but it's, It's the financial characteristics of the company, it's the robustness of the competitive advantage, which will be a direct input into the returns the business can make, the amount of capital it will require, the returns on equity it can make. Um, and so I think it's trying to understand these things holistically and in the round, imagining that you will be an owner of this company for a really, really long time, rather than saying, well, this thing will go public and, you know, somebody will pay a multiple of X, Y, Z, which is higher than the multiple that I paid, and that's how I'll make money.

AI assessment note: “I think it's worth doing within the context of probabilities.”

Q much concentration? I remember, like, Brian Singerman from Founders Fund said, um, the biggest enemy of great venture returns is capital concentration limits on a per company basis, and that Founders Fund actually have done so well because they have exceeded 40, 50% on a per company basis. Does it look like two or three having 70% of the capital? How does that spread in terms of capital distributions look?

A Um, so it's not quite that concentrated. Um, you know, I think at times we've had sort of upwards of sort of 50% of, uh, any given fund in the top 10 companies. Um, now those will often be companies that we've invested in privately that have gone public and, you know, have gone up a lot. Now, of course, some of that concentration has flattened off, uh, in the last few months as you would expect. Um, and so that kind of level of concentration, you know, can be a bit movable given that we continue to own these companies. Into the public markets and those, you know, the market prices of those businesses, uh, in recent times in particular can be rather volatile.

AI assessment note: “it's not quite that concentrated... upwards of sort of 50% of, uh, any given fund”

Q to pay for the operational intense businesses that they run providing these services. When we spoke before, you said, don't come to us if you need help. We're a financial partner. So talk to me in a world of like services and value add and, you know, heavy operational models. How do you think about not adding this operational value? And I guess, do you think VCs really add value?

A I think there are definitely some VCs that had an incredible amount of value. Um, I would also say though, that, uh, there's a sort of industry of using that as kind of air cover to carry out quite a lot of window dressing around sort of so-called value creation in order to justify very high fees, but that doesn't take anything away from those folks that are actually genuinely very good at it. Um, I think we've always tried to be very clear about what we are and what we're not good at. Um, and as I said, we're not sort of aspiring or pretending to be venture capitalists. And so we don't pretend or aspire to be able to help a very, very early stage company, you know, advise them on their sales and marketing strategy. It's not to say, however, that there aren't things that we can be helpful with. And I guess if you look at our heritage, you know, it comes from the public markets. And I think what we can be helpful with is helping companies transition into The public markets, um, in some cases with capital, um, but also with advice and guidance around what the public markets will be like and what they should expect. Um, normally the way in which that manifests itself is that we are the voice around the table telling our public, our private companies, like, are you really sure you want to go public? Like, you do realize that's a sort of one-way valve and it's really hard being a pu…

AI assessment note: “I think there are definitely some VCs that had an incredible amount of value.”