00:20:56 · Guillaume Moubeche
[00:20:56] S1: Yes. Super super interesting, and agree that it's really important to have one focus. And, obviously, like, you've done amazing. So congrats on on that. It it reminds me of a conversation I had with Larry Ashbrook, you know, the founder of g squared Mhmm. Where basically, you know, he was saying to your point that sometimes the shiniest asset are not the one that's gonna return, like, the the best. So for for example, for him, like, I know that he actually lost money on Uber and made money on Lyft. So it's like, well, right now, you know, when you look at both company, you could think like, hey. You investing in Uber, you should be like the the most... The richest person on earth, but sometimes it's not. And I... I'd like to to maybe like understand a bit better, like, because I think from a company's perspective, you know, like when... Whenever we looked at the past IPOs, something that happened is... Let's take for example, Klarna or like this kind of like companies or even Figma and, you know, like the the IPOs and eventually after that, you know, like you see the the stock like start tanking and it goes like quite badly for the company and it's it's it's pretty tough, you know, out there in in public markets. So do do you think that as an investor, you have like a better edge being like Baillie Gifford doing like both public and private? Do you think you have a better edge whenever you are like competing on deals because people would know that you are a long term investor because whatever like... And I think the public market doesn't really know that, like if you take, I don't know, like anyone investing in public market can get excited at the IPO, but what they don't know is that people usually have like a six months lockup periods. And after that, after six months, we often see, you know, like the the stock tanking. So retail start panicking and often, you know, like, it's basically the people who are like retail, not informed, etcetera, will lose a lot of money on this because they would see something sinking and they would like start panicking. So do you think because you have this kind of like really long term strategy, it's a it's a value add for companies and a competitive advantage, or, like, how do you perceive it?
00:23:15 · Peter Singlehurst
[00:23:15] S0: Yeah. So I think you're absolutely right. Every edge that we have as a private growth equity investor stems from the structural integration between public and private growth equity investing within Baillie Gifford. And you can sort of break that down across the different parts of investing that matter, accessing companies, analyzing those companies, and then adding value to those companies. So on the access side, like, yes, the fact that we are a large public market investor is of unbelievable importance to our ability to access companies. And it also helps that we've been in this market, like, for instance, existed. So, like, you know, if you're a growth equity company, you know us. We know you. Like, that's sort of... We we started to have our own kind of right to win and ability as well. But, ultimately, the fact that we can be a partner of continuity from private and into public markets, the fact that our public market teams, should they decide and it's at their discretion, you know, can conceivably write a billion dollar check-in an IPO is something that a VC investor or a private only growth equity investor simply can't do. In a sense, by working with Baillie Gifford, you you you are able to start derisking your financial future as a business, and you're able to start derisking who the owners of your business are going to be over the very long term, not just, you know, for this bit in private markets. So it's of integral importance to our ability to access companies. When it comes to analyzing those companies, though, and, you know, we look at a thousand businesses a year, and we're trying to make 10 investments. So we have to have a pretty good filtering system to say no to 990 and pick the best 10. Again, our ability to draw on our public market, analytical infrastructure is really important Just to to bring that to life, a little bit. So we, we we do all of our own research in house. We never rely on consultants or anything like that. Our research in public and private markets all done by investors at Baillie Gifford. All of that research is stored in something that we call our research library, piece of software. And in there, there are about 75, 80,000 proprietary research reports written by my colleagues over the course of the last thirty, forty years.
00:25:28 · Peter Singlehurst
I can go and draw on all of that in understanding the defense sector if I'm looking at Anduril or looking at software roll up stories if I'm looking at Bending Spoons, or I can go and look at our early work on Meta if I'm looking at ByteDance. Like, I can I can draw on that institutional knowledge? And because people spend virtually their entire careers within this firm, I can probably also just go and speak to the person who, wrote that research, you know, fifteen years ago. They're probably just sitting, you know, you know, a few meters away from me. And I can then draw those people into our research processes. So that kind of ability to draw on the information, but the institutional heritage around growth equity investing is really important in us then separating the wheat from the chaff and all the stuff that we've been able to access. And then in adding value to those companies, you know, because we know and care about public market governance, for instance, we can help companies get ready for being a public company. We can help them transition from an investor led board to an independent led board. We can help them establish an effective and palatable dual class share structure. We can help our private companies network within the thousand public businesses that we own. Like, this is this is the crux of our competitive advantage, and it's structural. So it's... You know, we we don't sit here saying, well, you know, we've got a competitive advantage because so and so is an amazing investor. We say we have a competitive advantage because we have this structure, and that will outlive any individual investor of Baillie Gifford. It will persist long after I'm gone. And, ultimately, that organizational edge, that organizational stability is what clients should really be underwriting when they are choosing partners in the private markets where you're sort of locked into a fund. You know, you you can't just get out if you decide something's wrong. So it's it's something that's very important to us and something that we've been very intentional on building in to our private business, which is this kind of structural edge. Your second question was kind of about IPOs, and, you... Think you're still trying to get, like, what what makes a good IPO versus a bad IPO? And how can you...
00:27:41 · Peter Singlehurst
What are the signs that you could look for as to tell whether, you know, an IPO is gonna be effective or not? The the... There's a truest answer to this, which is, like, if a company is a great business, it's probably gonna have a good IPO. And if it's a mediocre business, it probably won't, or it might for a bit and then get found out. There's a little bit of a truism perhaps. But what what might be a little bit more insightful than that slight... Than that slightly obvious answer? So companies can choose to optimize for certain things when they come to the public markets. They can choose to optimize for price if they want, get the highest possible price in an IPO, minimize dilution from an IPO. Those IPOs usually end badly, because if you optimize for price at the point of IPO, you're not really leaving enough on the table for new investors coming in to have a good experience. You're not building trust with the public market. And trust is so important both in public and private markets, but I think people really undervalue it as a currency in in the public markets. Or you can optimize for the quality of your partners. Now that might mean that you don't get the highest possible price on the day the IPO opens. But it might mean that you get investors that can be with you for the journey, that can support you in difficult times, where by leaving a little bit of value on the table, you can make sure those investors have a good experience, which makes them more likely to help and support you in the future. Something I often tell our portfolio companies as they come to the public market is is that an IPO roadshow is about... Is, yes, certainly about attracting the right kind of investors, but it's also about putting off the wrong kind of investors. Yeah. There's a... I think there's Buffett who says, like, you get the shareholders you deserve. I'd... I strongly believe that. And if you look at the shareholder registers of... You know, take a business like Amazon for much of its history. It actually had a very stable group of long term investors that stuck with it to the top of its cap table throughout its journey. And there's an argument to be made that a stable, strong support of investor base can be part of a company's competitive advantage. And so to answer the question, Riva, what is it that we like to see our, you know, companies do in IPOs?
00:29:59 · Peter Singlehurst, Guillaume Moubeche
We like to see them optimizing for the right kinds of partners, the quality of the investor, not optimizing for valuation in IPOs. [00:30:07] S1: Super interesting. And I want to continue on that topic and take the the couple of example you mentioned. Do you think that for Amazon... Because Amazon basically was criticized a lot when it entered like the the public market because it was not profitable at the time. And I think back then it was not as common as it is now to have companies losing so much money. So I think like at the time it required people with a certain mindset, you know, like a long term thinker that the company would actually be, you know, become what it is today. And I want to make the parallel with SpaceX. So if you look at the the valuation of SpaceX versus the revenue and you look at the revenue multiple, I think I think they are at, like, 18,000,000,000 or something like this in in revenue and potentially want to IPO at, like, 1,750,000,000,000. It's not like it's numbers on the press, like, or is this kind of thing. So it's not super accurate, like, don't know yet, but it's what we see. So what... What's kind of your vision on how do you value a company? And also, do you think that these companies who have extremely big long term bets can actually attract investors who are here a lot more for the long term and not just trying to make a quick buck on an IPO opportunities that they see and where they can kind of, like, play with public markets.
00:31:42 · Peter Singlehurst
[00:31:42] S0: Yeah. Yeah. So I think I think the first thing to say is that when you invest in a company, you need to understand how a founder is gonna run a business, what they will optimize for, and the kind of risks they're going to take and underwrite within their company. So we we first invested in Amazon in 2004, but I can't take any credit for that. But I think it was actually very clear at that point in time how Jeff Bezos was gonna run the company. And it was very clear because you could just go and read his shareholder letter from when he IPO ed. And, again, this is something going back to the previous question. I think when founders very clearly communicate how they will run their business and the things they will optimize for in an IPO in an IPO letter, I think it's actually very effective. What did Bezos say? He said that he was going to run Amazon to optimize for long term free cash flow per share. And it was also very clear that sometimes that would mean taking bets that had low probability of... Low probability payoffs, but high impact payoffs. So where the, you know, the the magnitude of payoff would more than outweigh the low probability. That's what he did. I mean, he did that consistently. I think Musk is actually pretty similar in terms of how he runs his businesses. What you know about Elon Musk is that every couple of years, he will bet the house. He will, you know, put everything on black in his companies. And we saw him do that time and time again in Tesla. You know, whether it was, you know, going through production hell, kind of scaling up the Model y, We've... And we've seen him do it in SpaceX as well. You know, initially, it was launching rockets. Then it was reusable rockets. It was betting the house on reusable rockets. Then it was Starlink, betting the house on Starlink. And it's Starship, betting the house on Starship. And now it's the next generation which is saying, hey. You know, maybe we can do orbital data sectors. And he's not gonna take that bet half hearted. So if you're gonna own these companies, you need to know the kind of way in which they will be operated and how the founders of those businesses will take risk. And if you don't like that and you don't want founders that are gonna take risk in that kind of way, it's fine. Just don't own them. Just don't invest in them.