Good Investing Talks - Per Brilloth, how do you want to win with Babylon Health stock? A talk with the VNV Global CEO

Episode Date: April 6, 2022

I had the pleasure to welcome Per Brilioth of VNV Global back. We have discussed the recent turmoils and their Babylon Health investment.

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And now, enjoy the video. Hello, everyone. It's great to have you back on good investing talks. After one year, I re-invited Per Piliot of Wien v. Global, and it is still like quite moving time period, especially if you look at the markets and the current turmoil with Ukraine, Russia, and that's also the bridge to our first topic we don't want to go into war analysts at this point there are people who have way more expertise as us but we and we has a russia history and maybe pair for the beginning let us talk

about russia a bit and part of the identity is also tied with or we and viz identity is also tied with russia but you decided a few years ago to depart from russia when was the last time you had significant exposure to russia well defined significant right i mean we still have uh we have you know at the end of last year we had like three point eight percent in russia and ukraine uh in in in companies that that were that were based there basically so uh in absolute numbers that's a lot of money in relative numbers it's a much smaller you know percentage of the portfolio uh if we would have talked in end of 2018, we'd had like 60% in Avito, which is Russia's classified there, right?

But that's that's no longer here. So in economic terms, that's a much better situation of course, because visibility into assets over there is very low right now. What kind of visibility do you have then? And what kind of investments are hit by the current conflict in your portfolio? well so we have like was one of our investments there is one two trip that's like the russian booking dot com and there's quite a bit of travel going on over there now even today so so they're they're they're doing okay but it's of course you know if current circumstances continue then it's hard to see if there will be any travel at all right and there's certainly no

foreign travel or very very little forward travel and so so that's one we have another company which is like a marketplace for long distance freight you know that kind of situation of course still goes on in russia there's no war uh so you know so life goes on but there's very high inflation and there's you know there's unemployment coming up and all that so it's not a it's still you know the economic environment is not good so i guess you know both of those will be affected by that we own also like a digital insurer for health like an oscar health of russia and yeah it's you know that that product i guess over time will still be needed but it's uh it's also very uncertain you know you know the outlook so so visibility

overall overall is very low for those kind of companies how have you gone about as the crisis started with the communication with the companies what have you done at this this kind of point of time and how is it evolved over the last weeks yeah so we we talked to all of them and we've obviously talked about you know all sorts of things with them but all of those companies have people in them and people who have relatives in Ukraine and some some have offices in the Ukraine so Ukraine is a big tech market and it's basically you know the tech perspective it's very you know a lot of people have sort of staffing across most countries so that's very

problematic now of course you know beyond sort of people you know having people in Ukraine get to some a place where it's safe and that that's of course priority number one But we talked about those things and then sort of just sorting out because it's not possible to fund those companies just to make sure that they that they can basically that they are in okay shape because we don't know when they, you know, they will be, you know, there will be any kind of circumstances for those companies to be funded or so they need to stay alive as they are or go out of business. basically. So from a valuation perspective, I think it's, it's, you know, the complete lack of visibility, nearly complete. Of course, it makes it, you know, one way to sort of go about them in terms of an NAV perspective is to sort of take them down to zero because that, that, at least, minimizes the subjectivity. It's very difficult to value these companies. So, you know, zero across the board is, of course, you know, not.

the correct valuation because there is some value of even if it's just option value but it's at least one way to sort of minimize subjectivity around it is there any lesson you're taking from this like to reduce exposure further in some emerging markets not to invest in certain destinations anymore no not really i think you know we this was i think as much a surprise we certainly didn't expect this to happen and I don't think many other people expected this to happen even up to one of the Russian elite right which is very clear now it was this is like someone said this is not Russia's this is not the war of the Russian people this is the war of the of their so of Putin and so no no not not really we you know we we announced an investment

into Africa, which is also emerging markets, but, you know, we announced that just the other day. So we're still active in those kind of markets. I think this situation is fairly unique and not, and one can't draw sort of comparisons to other, to emerging markets in general. Like moving away from the direct focus on Russia and Ukraine, what do you, see as the impact for or the indirect impact for the other portfolio companies you're holding or if you see any like no i i mean so so the situation there even though i mean it has direct and indirect sort of consequences right yes you know direct consequences for the world economy because it's sort of a high energy prices and it's and and that sort of leads to in one way to inflation inflation

leads traditionally to higher interest rates and for long duration assets like the one we invest into it's that's you know that has a negative effect which is higher than for short duration assets right and so so but then also of course higher energy prices across the world puts a damper on economic growth you know slow economic growth high employment will sort of again get central banks to reduce interest rates so you know this is of course a very fluid situation. But so there's that direct sort of connection to it. And then and then just sort of, you know, uncertainty on this kind of scale in the

middle of, you know, Europe is of course something that that's not constructive sort of for markets in general. And we've seen markets, you know, the markets we can measure from day to day, public markets react sort of with lots of volatility. And now we know for sure that's not going to last, but right now that volatility remains. So both direct and indirect, there is sort of, you know, momentarily at least consequences. Have you seen, and if you can say there's a certain outflow from your investor basis as well, or not like in disinterest in investments in Europe because you have a certain Europe exposure. And from American perspective, Europe might be one of the scarier places on the world right now, for instance.

America? Like from American perspective, Europe might be one of the scarier places in the world right now. Yeah, do you think so? Yeah, I'm not sure. But yeah, no, we can measure. I mean, we're not a fund, so we can't measure outflows, but we see the discount that we trade at has come up a lot, right? so so you know more sellers than buyers for sure it's one way to look at it and so that's I guess it's a reflection of the statement you're making it's it's it's

traditionally and historically that way right when uncertainty increases and you know now we know even before this Russia-Ukraine mess and tragedy that we're in we had sort of inflation being on the up on the back of COVID supply shops etc right so so so you had a you had this interest rates going up and and but more more importantly on top of that you have the uncertainty of where interest rates would sort of level out and that risk premium adds to the to the discount factor right so so but once you know if interest rates are going to go to level out at two and a half percent or three percent or whatever it is then then the risk cream comes down and then then that's very constructive for you know you know assets like

ours for example at least in the public market or you know anywhere i mean just if you look at this from a fundamental perspective but but now that risk cream must quote blown up again because of the uncertainty so just from a fundamental perspective i think that's very that's that you know that that that's a clear way of looking at it but but but and that's reflected on in that you know in in in all sorts of assets you know being sold of including our stock and then and then is that the yeah that's the market for it so that's where it is right now we believe very strongly in our NAV in the valuation of our NED and so of course you know that's a big opportunity because the discount is very large

in your NNV calculation you have parts of market valuations also included in some of the calculations. Do they also like now impact the NAV for V&V and the next? So the way we establish our NAV is that we take the last transaction for where there is, a recent transaction. We take that for the ICS as the input for the NAV. And if there is no recent transaction and we define recent by 12 months, then we use a model,

a simple model which looks at a peer group from the listed world and of course that that peer group has in you know i think in pretty much every situation come in some way come off right classifieds have come off a little less but other sort of tech companies have come off maybe a little bit more than classified so so we typically use a mix of classifieds you know the ebers of this world the liver heroes of this world you know things that you can sort of get some kind of relevance for our portfolio and this is different from name to name in our portfolio but but um but we're just some kind of relevance sector wise but also business model wise there is no perfect you know you know there's this there's seldom the perfect sort of peer but anyway so as those have come off then of

course you know our models will show a lower lower price and then and then you know that that that that so so so there's a link to the to the listed world through those models and do you see a general threat that the while the venture capital world is still in a world of relatively more higher valuations when what you can get at the public market that also this has a ripple effect for the venture world at a certain point of time yeah well the the private world is not as volatile as the, you know, at least, you know, on a short-term basis, it's not as volatile as the public world. And that's a reflection also of that, you know, at least for the better run companies, they're also better run because they don't, they plan the liquidity well. So they don't

need to sort of go to market and establish a price when the markets are, are the most volatile or the most uncertain. Right. So, so you don't get any price. and hence less volatility from the listed world, it moves around a lot. The less well-run companies, of course, or also typically less well-run because then they sort of live because they can find funding in very, very open markets, for lack of a better word. And when those markets are closed, these people have to fund themselves and then they have to fund themselves at a large discount.

So they may be more volatile than public market. But, but, you know, I, you know, I, I mean, over time, the same company, private or public should be worth the same multiple, right? You know, with the same growth, same business model, et cetera. So, so that's, there's no question about that over time. I think that's the fundamentals will prevail. And then, you know, but I mean, like people. people like us, we invest for a 10-year period. So, you know, the volatility comes and goes and you have to be, you have to manage your liquidity and liquidity at your companies. And then, you know, sometimes the public market goes down a bit and sometimes they go up a bit. But what I would say also is that in the private markets, there is, there's still a lot of capital looking for deals, right?

recently we were looking at a trying to get involved in a young company and we were basically out to bid by double by someone so you know it's there's still deals going on and and still still that kind of risk appetite and that's uh you know you can't you can't form a view from a sample of one but um but they you know it's the the the the activity is not dead I think from our side, though, we, of course, we have our liquidity. We have a, we have, I'm very proud of the portfolio we have. Those companies are prepared for liquidity, you know, that they have liquidity. At some point, you know, they will be funding needed.

And when visibility into markets opening and closing is low, then, of course, we are very mindful of that so that we have capital to support our ownership in, these companies. And so our activity goes down, but we have ample liquidity. So we can also, we can also do these if they, if, if deals come along that are very, very attractive. And, and but then also we, we always compare our investment activity to our own stock price. And if, if we look at our own stock and it trades at a historically very, very high discounts to a price of our portfolio that we in turn think is attractive, right? We invest in it.

Then that, of course, becomes, you know, something to always look at and we buy back our own stock as well because it's sometimes hard to find new investments that, that compare well to that opportunity. Maybe let's use this opportunity also add some qualitative data to the signaling you made to the market because like at 100, the level of 120, you did the capital. the race, I think, if I got things right. On the way down at the level of 60, 70, you were quite aggressive in stock buybacks, but lately, maybe I didn't get the males correctly, but lately you weren't that aggressive

in the level of 50, 55 with stock buybacks. Maybe you can walk us through a bit through your process of thinking about it and how you acted there. Yeah, we know, as I say, we always. always look at our own stock when we look at investments and but but in the same way as we are opportunistic when we look at our new actual portfolio company investments we're also optimistic when it comes to our own buybacks right and and as we sort of started off with you know talking about Russia and Ukraine and this whole tragedy over there that was not expected

if I known about that which I don't think anyone did right then then of course then we should I've waited and instead of buying it, whatever we bought at 60, 70, buying it at 55, it's better, of course. But we're also, we have to balance our liquidity so that we don't, so that we have liquidity to support the companies in the portfolio. So it's not even as much as I'd like to. And as an opportunity, it's probably, you know, it's maybe unparalleled, you know, the risk reward, I think, in, you know, in, in, in, in, in our stop. But, but, of course, we have to make sure that we can protect our ownership in the companies we have. Otherwise, that NAB will go down a lot. So it's a balance always. I had this one question from a Twitter user who was interested

in like asking a question to you as well. It was a bit like you already have this new setup where you're not split off or give your shareholders the shares of companies you invests in, but you're also now holding some of the shares. I think Hamnet is a stake. Babylon is a stake. Swivel might get listed and you hold a significant stake in them. Might there also be in such crisis situations, moves where you like use this shares if they are consistent with valuation as a currency to like help other companies or

what is what is your plan like is it more like you're becoming a part private listed asset manager and you hold companies for a while and also like what is what is the plan there and the flexibility do you have there in your current setup you mean in terms of us holding on to companies as they become listed like you've changed it a bit like there's this new line that you have listed assets also as part of V&V. You often like before that you rapidly gave them to shareholders or decided to sell and now you also have this opportunity on top of this. You have the crisis where you have some listed assets, some private assets. And the question is if you balance between this opportunity sets or what is the strategy with the listed assets? No, we don't think about it like that. I mean, the

the listing in itself is not a destination. We're not a VC that will typically exit when things become listed we have the opportunity to to remain shareholders also when the company becomes listed and in many of these cases in our portfolio we we will right the way we so so the first thing i think the best way to think about our thinking as we as we as things get listed is that one is that we invest in the private companies we don't invest in the private companies we don't invest into listed companies, right, because we are listed ourselves and we think that our shareholders can invest into listed companies themselves. But if our private companies become public, become listed, we don't have to sell them on day one. The way we think about

it is that if we are present at the company's boards and if we still remain very close to the companies, I think it's a good way to describe it. We are, you know, we feel that that can add value for our shareholders in that we have better visibility into the sort of the, the working so the company. And that combined with us seeing a return profile that is 20% plus per year, because that's essentially our hurdle rate. And we, you know, that combination allows us to stay as shareholders. But you could also argue them because we don't invest in to listed companies that it's start even if it's a long-term exit phase.

Now, Babylon, for example, I think we'll hold on to for, you know, for, you know, possibly like five years now, you know, we have no sort of, we have permanent capital. We can hold on for it for a long time because there, I think, so strongly at this point of time, I mean, we're definitely close to the company and we know the history. people around it and we have a much higher return profile than an annual 20% and in terms of sort of managing the NAV discount by distributing listed assets because that's practically possible right that you know we have listed shareholder we have people who are shareholders in a listed asset like ours so they can theoretically hold other listed assets right so one way to sort of reduce the

discount. I mean, the argument goes at least that one way to reduce the discount is that you distribute listed elements of the portfolio. That's everything is on the table. We can do that. We have done that in the past. But not to astounding success, if I'm, you know, just very honest about it. And I think also if we would have distributed

hemnet now, you know, some Swedish shareholders would love it. Some American shareholders probably maybe you know, maybe don't. And the same goes for Babylon. If we distribute Babylon, that's a U.S. listed stock. Our American shareholders could probably hold it. Some Swedish pension funds have no mandate to hold American shares, so they would have to sell it. And we for sure do not think it's the right, you know, decision to sell Babylon at this point. So we don't have forced that upon anyone. It's better to hold it. Anyway, it's a long winding answer. I don't know exactly if it covers what you were looking for.

No, it helps to get an idea about your waiting process, what your factor in there, and how the decision is made. It's more like what we can do with the interview is at qualitative data to the quantitative data points we get with news from your distribution list and stuff like this. Yeah, so we don't think about our portfolio

that we should have 25% enlisted assets and 25% Swedish assets, it's not the way we go about it. We go about looking for some bottom-up, optimistically, for very, very strong risk-reward opportunities across any stage of the maturity in terms of capital raising. We are now on this topic of portfolio construction. Is there any thinking about trimming you have,

or is it just like you say, we are buy-on-hold investors? or is there something in between? No, I, I, I, we're much more to the, I mean, we don't, we have a very long-term view. So when we invest, we don't invest to, to, to, to sell after three years or four years, which I think our colleagues at the VC industry is the way they go about that they sort of, you can, we can, we can, we can get this return because we get paid if we get this return. And we get paid on exit, so we want to exit. That's not the way this company or our incentive program works. So we invest to hold it for 10 years plus. We sell on the founder's sell.

So I think that's a very, you know, those degrees of freedom is a very, it's the right way to invest, I think. But then there's stuff in the portfolio. that you know that we can sell i mean we have sold some hemnet and hemnet has come off a little bit with everything else not so much but you know i think that in that that we have sold some is an indicator that that's probably on the sell list we are we're not in in a hurry because we have a lot of liquidity on the balance sheet so and so that allows us to be price sensitive i know i know the People buying HEMNA stock today are probably the best classified investors in the world. I know some of them that I know are buying.

And so that's another good sign to see to sort of not stress by selling that stock. It has a very good risk-reward characteristics in it. Even if they maybe don't live up to a 20% annual return, you know, the downside is so low. So risk-reward-wise, it's very attractive. against us not stressing to sell it very interesting insight at this point last if we look back at the last year it was a year of companies becoming public we had the spec topic we have the IPO topic maybe walk us a bit through through the current state what has happened in the last year with your portfolio companies and what will happen because there was some reasoned use to

just like bring the level on the yeah so So in turn, I mean, so on the topic of listing, right? So pretty much exactly a year ago, hemnet listed in an IPO here in Stockholm. It was only secondary sale down, sell down. So no primary, you know, the company's cash deposit didn't need a raise in the funding. So, and then during the autumn, we had the Babylon list. They listed to respect. uh this start of public life for bablon stock has been wobbly to say the to say the least

and there's some technicalities to that which we can talk about but in terms of going through the rest of the portfolio so we have well well we have swivel which looks to uh start trading on the 31st of march uh there's a shareholder meeting that's a spack so it's a shareholder meeting on that merger and upon approval from that which we have every reason to believe that it will be approved it will start trading in the US and then the final one which did announce that it was going to try to list through us back is get but they also announced last week that they they discontinue those ambitions to fund themselves to the spec market now so so they will then go to private markets or to other public markets.

The SPAC market has, of course, become a little complicated and a way to go to market. And beyond that, we have two more companies, which is Voie and Blah Blah Car, which have both been vocal in the press that they are, you know, they're looking at IPOs. but they're yet to announce a final decision whether that route is the way to go. So I think that's the entirety of our portfolio

in terms of which ones are listed and about to get listed or have that in the pipeline in the near term. This few months or just one year of listing is also like maybe a two small sample to ask this question and you also have this long-term orientation as you said but how happy are you with this this listings and is maybe like what we saw last year with the specs a bit of a premature form of listing um if you look more like in a long-term view um yeah um i i mean for us we we it's very rare that we very much advocate the listing. We think private markets work very well. There are some circumstances when the listing is, you know, it's good for a company's strategy. You know,

sometimes it's for funding reasons that it's the best sort of most efficient route to get funding, valuation. And sometimes like in the case of Babylon, it's also there are reasons which are more linked to the company's sort of strategy on you know versus counterparties and customers and branding etc so so so that so that so that so that so that so that was a strong reason for why babylon chose to list through spec and we can come back to that but um but but so yeah But otherwise, the SPAC markets as such has, of course, become much more complicated over this past year. It was always very much a capitalization form that was very populated by hedge funds who are very interested in the optionality it gives you. that you have an option on the upside, but limited downside because you can always redeem your stock.

And when the hedge fund world changed a bit, after game stopped and, you know, after, you know, volatility started increasing in the summer, then also the financing part of the SPAC merger changed a lot. So like in the case of Babylon, the, you know, there was so high redemption. So there was, you know, essentially no money left in the SPAC. they you know but typically you raise money you know new money also in the listing like a normal IPO when you do a spec merger so they did raise money through through what they what the spec world calls pipe but which is just a normal IPO money but but what then happened and this is not this is not only relevant for barbelon it's relevant for pretty much all the spacks that

happened during the autumn is that the remaining free float on day one is next to zero because the only people who can trade the stock on day one are the people who are who are who were shareholders in the originally listed vehicle the spec and so and so you have you have no free float and you have certainly no free float which is high enough to to give you the kind of daily turnover which large investors require to you know you know even do work on the stock. So you have you have one set of shareholders that want to sell the stock because they want to get out and you have no one else who can buy it because turnover is so low. So then you get in this sort of negative spiral, which Babylon and and but not only

Babylon, but it has been through and but all others basically as well. I don't think you find many specs at all that trade, you know, at anywhere near their listing price. But it's a, but it's a you know it's a it's a technical issue and as long as the companies do what they're supposed to do and you know you know evaluations will will of course be set by fundamentals so it's but but therefore the spec sort of the spec routes to market has become has become less less efficient if you will if there's if you can do any form of accounting on this observations you made with your companies is it a net positive or net negative to do this listing?

It's a bit hard question, but maybe... The market is negative, right? We have one spec and that's Babelam. It's gone from $10 to $5, even to $4 and a half dollars wherever it's trading today. You know, so down. So from that listing price. But, you know, thankfully we're not here to sort of do investments

for a few months. We're here for a much, much longer time period. And, and so, so it's a little irritating, but it's not, it's not super relevant. We're not, we're not here to sell the stock at this price. We're not here to sell the stock at double the price and probably not a double or double again, right? So we think that's the potential. So, yeah, no, but, but Babylon had a very valid reason to go to the spec market because they are the leading sort of digital doctor in the world right in the two sets it's an a the AI platform it's not it's not it's not it's not face time or it's not soon with the doctor it's it's it's a real sort of digital innovation in terms of the computer assuming the role of the doctor in a very efficient way

and the biggest market in the world for health is the U.S. and the U.S. market is different from our European markets and insurance companies are a large part of that. So, but in order to become a serious counterparty for the largest insurance companies in the U.S., they felt, and I think correctly also decided to be listed in the U.S. So that instead of you being a British company with some small, unknown The Swedish shareholder, you are listed on the New York Stocky Exchange. It becomes an easier counterpart to relate to if you're a large U.S. insurance company. At the same time, if you would sort of go the IPO routes to market in the U.S., it's very clear in your perspective.

You could only talk about the history. And if you, if Babylon could then only talk about an $80 million revenue from 2020, and if you would, even at those multiples, talk about that, then you would get the valuation, which is not efficient. And what you would do then is you would resort to private markets where you can do an NDA with everyone. And you can talk about the projections for the future. And you get a valuation that reflects the future, not only the history in a sort of a company with this kind of growth. That's mega important. But in the SPAC markets, you can talk about the future in contrast to the IPO market.

So it becomes more similar to the private market with an NDA. And so so they wanted to list in the US. The normal IPO market didn't get them, you know, efficient capital raising. So what was left was the SPAC market. And they took that. And then the SPAC market changed from their decision to when they actually listed. But, you know, in time, we'll look back on this and say, well, it was it was it was a short time it was trading like it was and then i think it will have

corrected to its proper value as we as we go forward you mentioned you wanted to say something in technicality but i think that's already included in the points you said yes the technicality is around this free-float mechanism which which just makes it a very very hard stock to trade for for large investors then let's step a bit back and also talk about the basics barbillon does we did this already a bit but what problems barbelin was solving and how do they make money with it yeah so they so so their product is a digital doctor right this is an ai platform which takes care of the patient and the computer has access to so much data so it can it can check the symptoms and establish like a diagnosis in a very efficient way and and and and the

access to data you know it makes the product efficient and and that in turn attracts more customers which gives it more data and makes the product more efficient and you in this spin on network effects that we what we look for and so so they so it's a digital doctor in the true sense and that's attractive for you know the health sector overall because 80% of the costs in in the health sector is people so if you want to make health you know eat more accessible you have to make it cheaper and if you want to make it cheaper you have to do something with the cost base which is which is 80% people so so this becomes very clear from that perspective right that this is a product that's you know gives you that leverage

whereas if you know a digital doctor like a like a video call with the doctor doesn't give you the same leverage it's it's more convenient for you and me because you're the doctor and I'm the patient and you know I can stay at home and you can stay at home and we can still but but it's still you know an interaction like this it still doesn't do anything with the large cost so so that's the basis of the product and then they commercialize this in different ways so the so the the you could say the traditional way are there's three ways of doing it you know the traditional or one way to do it is like for you know in the same way that you get paid per visit

and that you that you perform this in in a similar sort of commercialization as the teledopters of the world that one visit got 40 dollars and in some in some places the company pays the 40 or 50 dollars and some places the state pays it and sometimes you pay to sell and the that's that's one way to do it the other way is that you you white label in the software to the likes of insurance companies and then and that part that revenue stream is like a soft product or they call it AI as a service and so which has a very high margin of course and it's an attractive product but their big revenues today they come from their third commercialization of this which is to which is to be part of the of the insurance mechanism in the u.s so in the u.s they have this concept of value-based care a value-based care player is connected to the insurance industry in that they assume all the risk of the insured clients and so the insurance company you go to the insurance company

you get insured you pay your premium the insurance company you know keeps maybe 10% of that premium and then gives 90% of the premium to the people that they outsource the risk to so this is this is this is the way it works and has worked for a long time in the u.s the traditional players are in the value-based care, they are, they then invests into brick and mortar hospitals, you know, care stations, doctors essentially. And they deliver a product act is where they make single digit margins on. In comes Babylon, who of course then inserts their layer on the digital product. The digital product can then sort out without, you know, any sort of incremental cost. What exactly you need as the insured client to fix your your problems.

And whereas the traditional player has to send you down to the hospital, which is very expensive, the digital player in Babylon's case can sort of decide that it's only 10% of you lot that needs to go to the hospital. The rest we can take care of by the computer. So it reduces the cost a lot and then they can take that extra margin. so so that's the those are the three sort of main mechanisms of how barbelon sort of commercializes their AI product but like healthcare is a super tricky thing to do right because if you mess it up like you you cause harm and damage to people and you have to make sure that you like keep things safe and like not lead to such false diagnosis and advise and like if you do such a product software development you know know it's hard to make software that's perfect from the beginning you need the customer data so

how is babylon going about this and they were also like if you dig a bit deeper into babylon they also cite quite vocal critiques who attack babylon that they lead to false diagnosis in the UK so how does how do you get confident that it isn't running into problems yeah so yeah First and foremost, they, yes, you say, it takes a long time to build the product and also gather enough data so that your AI platform can make it, you know, an efficient sort of stand on diagnosis, essentially. So in contrast to the tele doctors of this world, which can basically, you know, set up one day, buy some, buy some Google traffic and have revenue the next day, this takes a long time to get. any revenue. I think in the case of Babylon, it basically took them five, six years before they had any meaningful revenue at all. It took five, six years to build product, the other data. So it takes much longer. But once you reach the state, you, of course, in a much better position than the

teledocs of this world, because the teledoc is a very, there's no various to entry. You and I can set up a teladop today and launch it tomorrow. There's no way. I wouldn't do it. I'm a bad dog. I mean, hopefully one of us is a doctor, right? So, but so, but you get the point. And so in the case of Babylon, which is not, I mean, this is, this is, this is relevant for the entire portfolio of ours. This is sort of very, very true to network effects in general. There it takes a long time to build enough liquidity or build enough data to have a product that it's, that we can commercialize. Because if you, if you start to commercialize too early, you open up the door for competition.

Various to entry are too low. But if you, if you're patient, you can, you start to commercialize when various to entry high, and then no one can take over. But you're right. So, so one thing, it took a long time because you have to, you have to get it right. And they started their, their first client was the NHS in the UK, which, It's one of the largest sort of health providers in the world. Obviously, state funded, but also inefficient. So it was very keen on getting sort of digital products into their system.

But like, you know, like in the UK, like anywhere else, as you say, health is, there's a reason why the health sector is maybe the last large sector to digitalize because it's different from country to country and it's something that can't go wrong. If you order something from Salando, the T-shirt comes. in large I wanted medium we send it back it's not the end of the world but health it can't can't go wrong so it's it's it is problematic and so so it's so it's the last one to digitalize and and then it's yes you know we're you know started with this but they also it's it's it becomes controversial right if you are a doctor in

this world you nearly assume godlike features right you can save people from from from from sickness. And if a digital product comes and takes away your godlike features, you know, that's controversial. It's going to be controversial for years to come. It's not going to be friction-free. And so, you know, I think that's the background to why this is this lot of controversy around these products. And I think that will remain. But NHS as the first customer and a very politically sensitive customer who was also very, very keen on sort of, you know, trying to demonstrate to its population, the voters ultimately,

that this was a product that worked. So they did a lot of third-party studies that this is a product that one delivers the same sort of clinical sort of efficiency, that's a normal doctor, and one does it as a cost that's lower. And those third-party studies and service were, very clear right that it's they were on par with normal doctor and and sometimes also above and and at a at a much lower cost so so yeah but's looking into the a i debate which has to be done if

you think about barbelon it's also a i is not like it's also not godlike it's it's fitted with data from our real society it feeds to racist outcomes if you think about policing studies like that it leads to people being identified as policeable or like as a risk who are just like don't have the aunt aren't white so there are some outcomes in AI if like if you don't take care that lead to certain outcomes and it's also like hard to get AI right so there's also risk coming from this sure I mean you you have to you have to be very mindful of that otherwise you don't have a product that you can use that you can use essentially but that's that's the that you know I think that in the case of Babylon that that's why it took so long for

them to sort of get off the ground in terms of the product and and it's by no means done right it's I mean they have a product that's viable we look at who all their customers are it's the biggest sort of it's the biggest customers in the world right and so they're very able to to they're very grown up right in their ability to be able to judge if this product is something we want to associate ourselves with or not so they clearly have a product that's viable but but it's by no means done i mean there's so much more to do uh it's also a reflection that babelon today has you know this year they're they're guiding for like a billion dollars in

revenue the u.s market alone is you know coming close to 900 billion dollars for the markets relevant for them so this is still you know in the very early innings i would argue that all of that revenue will become in some way or form digitalized in time right so it's that's also a reflection of that it's there's more to do there's more product development that you have to do and and you have to adapt as well because it's every country's different and and there will be there will be be different things sort of to deal with as this market develops. I think Babylon has done that very well, right? They started in a very established healthcare market in the UK.

They took it to a market where there was no pre-existing health infrastructure whatsoever in Rwanda. And then they scaled it enormously quickly in Southeast Asia. And only that experience got them ready to go to the US because the US exists maybe of all those three markets within the world. one market. So if I should want to think about the strategy of Babylon, there is this maturity of products they are doing.

They want to have data. This is their goal and they want to build something on the data. So in this line, if you think about the acquisitions they did in the U.S., because they bought local care centers, they bought local places, the idea is to acquire these places and this customer contacts to get. more data and build product on this or how should I understand this so they're done different acquisitions some acquisitions to buy existing value-based care contracts to get started quickly which then connects them to a large population set has been served in a traditional way

and then they're rolling out their product to them some acquisitions have been to increase the engagement because this you know in in in in healthcare overall it becomes a lot about engagement if you have clients and patients that are engaged you know engage when they are sick and engage when they are not sick and you can minimize and they're the need for them to go to the to get you know to go to the hospital which is the most expensive a part of this you know making people healthy process so so so some acquisitions have been on this engagement issue it's it's interesting on the engagement issue i mean in the you in london i think i don't quote me on this or i mean like a caveat i might be get this somewhat wrong but the big picture is right in that you have if you want to go

to the doctor you wait for four or five days before you before you're in front of the doctor you know in a normal situation If you go to rural America, it's one month. And so imagine if you're sick and it takes one month to meet the doctor, how much sick are you become. And if you can engage someone, and that's where the digital product becomes so efficient, right? If you can engage someone on day one, you can sort of sort of sort out, you know, even in your home, what you need to do not to become as sick as if you were told that in a month's time. and hence reduce the cost to be massively so it's so there's lots of opportunity anyway so the acquisitions yeah some some to establish presence and some to drive engagement like how do you get

the confidence if they are going to the u.s market where they haven't had the experience and also like this market is a quite big opportunity but if you just look at the opportunity there also might be the chance that you are in acquisitions and if some of the players want to sell something to you or you ask them to sell something it's often not the best price you're getting like how do you get the confidence as barbelon isn't the patsy on the table to say it in this picture no it's it's they they rely on their experience from other markets as we spoke about i mean without that there will be maybe a too risky uh venture to go into the u.s market without experience And so that's the starting point.

But of course, it's a new market. It requires new investments and new, you know, into regulations, into sort of staffing, et cetera, into some acquisitions. So it's, it's, of course, not one with zero risk, but the risk is, of course, very acceptable, you know, given the upside of the opportunity. So, I mean, to, to our,

knowledge and what we can see there there are there is no one else who does this with the same sophistication and with the same sort of broad product there are people who do this in niche markets like for maybe diabetes only or for you know this kind of cancer only etc but but you know to be able to sort of take on a normal healthy person or normal sick person normal person normal person it's you have to do this in a broad sense and there's no one else who does it in this way well there will be others of course but but the but the opportunity to become the largest and hence the largest in data set and we've spoken about how that also drives value than that then then the opportunity is probably now

so how what is your framework at v&V to track the success of barbillon like what are your kp i's there well there's no there's no single kpi that sort of stands out now as as you know that you know you may have you know listings per day and classifies and you know there's there's other but here no I think it comes down to outlook for margin, right? This is a low margin business that they're getting into, and with the digital product, they will be able to take that to a very high margin. In our view, we could be wrong.

You know, we don't know the future. That's the potential we believe. And so I think ultimately it will be the margin on the contracts that they have. And those contracts are, you know, they're a few years old now, but it's only with time that you can break them out and you can show that. And I think that's also reflected in the share price today that, you know, the visibility into this is maybe low today. But then you also have enormous leverage as visibility into margin sort of picking up on this

increases. And it will increase if we're right. Could be wrong, of course, but I don't think so. Taking this, this 10 years outlook you have, or there's five years you already said, like these are two time periods you already mentioned what kind of company will babylon then be if things go the way you indicate well i think it has the potential to be the global leader in this space uh but then you know now since you and i spoke last this company is listed in the u.s so i have had like a gazillion lawyers around me just to say that i have to shut up

about talking about the future of babylon so i have to be more mindful of about getting into numbers and exactly what we expect, et cetera. If you look at the prospectus from the listing, you know, it's the, they said $700 million this year. They have up that to a billion. They said one and a half billion dollars next year. That's maybe to the extent that, that, that's, that, that, I, you know, that I, I'm allowed to talk about it.

But, but I really think it has the potential to become like the Amazon of, of digital health, you know. Quite interesting. Like for the end of our interview, I would like to talk a bit more about V&V and the changes you make in your structure because there has a lot happened. But before that, let us also, I want to give you a chance to, with this one year timeframe, to tell a bit more about notable developments in the other portfolio companies since we've spoken. Is there anything that has surprised you? Is there anything that has an interesting story to tell? Is there anything that's also a lesson you can learn to avoid. future mistakes.

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I'm waiting for your application. And without further ado, let's go back to the conversation. And it's also a fascinating thing about why, if you think about what kind of technologies and cost digressions allowed them to build the kind of scutures and the kind of networks they currently have, it's fascinating if you think about the scooter and alone the parts that are in it and that allow this kind of frictionless behavior i know i know it's yeah it's it's it's fascinating and moreover fascinating that this is this is a three-year-old company right uh or now it's maybe a four-year-old company but it's only that old i don't know if we spoke about it last time but that's another thing i'm fascinated by the subject that that it's it's it's so young and it's you know it's a thousand employees it basically runs infrastructure in 70 cities in

europe you know it's it's you know it's it's you know tens of millions of dollars of revenue on the monthly basis and it's only it's only a few years old you know if you down i had spoken 10 years ago to look at a company like those revenues that it will be 10 years old maybe 15 years old and one factor is money that that there has been access to money to build this. But equally important, access to money goes up and down. But equally important is also that it's access to technology. And I speak to the guy who we invest into who built the first classified site in the world some years ago now. He said when we built this, it's, you know, what we did the first year is we carried service up and down the stairs in

the office building, right? Because there was no AWS. and there was no search engine so we had to spend i don't know you know a half a year a year building our own search engine there's no a search engine now if you and i do it we can we have a contract with a w s in five minutes we can we can take you know off the shelf a search engine in five minutes so it goes quickly right and that speed is not going away even if money is tighter maybe now and the other one is of course a depth of talent like in germany certainly in stockholm barcelona london you know we have here we typically we talk about we have grandchildren of spotify already people who work at spotify left built a new company sold that and it's now building another

company and they may be 30 years old and with every iteration they come with a lot of experience right how to build a team what to think about etc so so it's also that that sort of entrepreneurial experience you know access to that entrepreneurial sort of experience is also very very very important in in setting companies up quickly so it's also to the to the point i usually make about our portfolio yeah we have we have like 70 names and you know 10 of them you can see you know in our portfolio when they stand out they're so large in our portfolio so that they stand out. The other 60 are so small so they don't stand up. But this is the exact same way as now I know what's looking like. That's the exact same way that boy was. You know, when we had a

veto. No one talked about boy. It was tiny. And but the tiny stuff in our portfolio, they will come out of the shadows of Babylon and become, you know, the large part of our portfolio. And it happened quickly like it did with boy. With why one factor is might also be like you can should comment on this the culture because like what i've heard about why they started the latest in the market like they're also other brands bird whatever you name it and they started the latest in many markets but now they're market leader what has influenced this and how like how is also like culture effect are you looking into i i think i mean they were the first ones in europe right they were they were the they're the first

to enter Europe, but they were quickly followed by Lyme, and then after a while, tear came. But yes, in terms of entry into some markets, they were not the first, but they have become the biggest or the second biggest in all their markets. So even if they entered late into the actual markets, right? But as company in Europe, they were not, they were the first ones out. And I mean, it's access to all these things. I mean, technology, they have kept their supply chain working very well all throughout COVID in contrast to the others. And then they've also sort of, you know, found a way to run the operations of these companies because there is some operational stuff going on, right? As you change batteries and you repair bikes and, and well, they have.

they they come with an experience I mean I mean I think pretty much all the founders came from the Swedish army and had sort of been brought up there so you can't you can't you can't make mistakes right think some of them have been in Afghanistan for a while and it's like it's like you can't make mistakes you have to be super super super diligent and I think that's something actually to be to have operational excellence right which is a big part of this it's not only it's not only an app there's actually some real work going on in on the streets yeah this was also one thing I was thinking about as I did my due diligence on why to better understand a company and

maybe yeah that's the missing part thank you coming back to your structure in the way you want to keep operational excellence you've grown your team significantly maybe to lay the basics who is new on board and what strength do they add to V&V? Yeah, we added four people lately now. And I think in general, what we wanted to add is to have a diverse group of people around us to add to the sort of capacity to do different things. But one thing to be present, to be close to the companies without imposing ourselves. I think that's what we are very careful not to impose ourselves

because I feel very humbly that we, who are we to sort of decide how these companies are to be run? We take a lot of care to invest into founders and give them a large part of the upside of the equity in order for them to do their job well. So we don't need to impose ourselves, but we are, we have, what we typically say is that

we are available on demand for them. If we can open up our network for them, should they need help, et cetera, et cetera. But we've found that it's good to sort of be close to the companies. In Voie, we've had one of our board members, basically be part of the company for a long time. And I think that's helped Boy in different decisions and stuff like that. But again, without imposing us.

So now we have capacity to be that at a, at a larger number of companies. The portfolio has grown in number of names. I think we've sort of added capital, become shareholders to, you know, a large number of future potential voice. And we have capacity to be present in those companies now with this new team of people.

So the team of people come with different backrides. You know, Dan Sanders, he used to work at NASPERS for a long time and ran parts of OLEC. So he's been, he's been, he both has an investor hat on him, but he also has a capacity, he's run large organizations within NASPRIS. So, you know, as these companies grow, sort of to be able to sort of access someone who is, who has already run large organization, I think it's a valuable asset to have within our team. Tessa has run her own startups. I think that's a very important talent to have that we now have within ourselves because I don't think any of her startups actually became many successes,

but exactly because of that, I know how hard it is and how difficult this and how much anguish you have when you take decisions. That's very important. And on top of that, she has. has five years of experience from FG Labs. So FG Labs is an investor that's run by Fabriz Grinda, which next to Pierre Siri is probably the father of Cassified, as we know it today. He built O at X.

And FG Labs, they maybe make investment into 200 companies every year. So very young. And they're all network effects, all marketplaces. So exactly what we do on a global base. So lots of experience on that. And then Dennis, our third colleague, he was part of the founding team at Voie, so we got to know him there. Then BCG took hold them in for a couple of years, and now thankfully we've moved them here. So it comes with a lot of capacities from that background.

And finally, Sasha Tofimo is a guy that we've known for, I think, 15 years. He's going to be present in our office in Cyprus, part of the first. the focus in our separate companies, so it's important for us to have the presence there. That's what he would help us with is to build the models that we use for our investment work and also for putting together our MAV. And also he's had a large, long experience of connecting with investors. So he will beef up our IR capacity. So different things that we've added, that we maybe have needed for some time, that, that, now was the right time to add to the team as i was as i'm meeting with you i always remember that

you're or always get the feeling that you're a quite efficient guy and you you like efficiency and i also have this quote in mind that you don't want to manage people you want to manage investments yes so how does this quote fit with this this growth and people around you how does the corporate culture now change how are you dealing with this i'm super nervous yeah no no no it's it's the good thing is that these are people that we've known for long time and so it's uh they know the culture we have here which is not one where we check if they come into the office exactly at eight o'clock and leave at five o'clock it's it's the degrees of freedom are high and they know what we want to do and and uh and so i i i i i i i i i i i i i

I hope and I think it, you know, it will not, you know, change that, that ambition of ours. But then, of course, Dan and Tessa, they sit in Amsterdam. So me, Bjorn and Dennis are here in Stockholm and all the others, of course. And, you know, but 2022, Slack, which you have heard deep on my computer, I found out, I closed it now. And Zoom and it works pretty well. so you have a certain notification that people are working in this interview that's good yes exactly that's right um if like i have done many investor interviews and some of the investors have this idea of not hiring another person like to be one-man shops to be focused on like

focusing on the highly qualitative decisions and not like having this dilution through because you like someone and he pitches so many ideas to you you have so many ideas and like to the 10th year you think not really sure about it but I say yes to it because it's like f10 times said to this person no no I have to say say yes how do you make sure that you have this culture that allows you to have still highly quality high quality decisions not like dilute with like adding more exposure and adding more people yeah no it's but it's ultimately you know it will come I mean I will still take the decisions like we have before.

And then what I, what's worked here with a small team that we've had this like Bjorn and some of the others, they have, we have gotten to be so close to each other so that we know what will work and what won't work, you know, here basically, right? And therefore, I feel also that the new group of people, we've known for time, some time right so they should they will be able to morph into that that kind of mentality as well i i am um um and you know yeah i mean there's a million ways to run investments right but now here we run it's like like this and then and then that's the that's the way it's going to keep we're not going to change how we run investments and um

And so, so, so, so, so they, so they, so they, so they, I think they already know what, what works here and what doesn't. So they can be efficient in their investment sort of, you know, what, you know, what will I bring up or what won't I bring up. And then ultimately sort of, I'll take the decision or ultimately I'll, I'll, I'll decide what we suggest to our board, which is the investment community. with the beginning with my questions you already answered it i was asking what strength you add to v and v with the new people and you said like this different experience on running startups and stuff like this um are there any topics or themes you might have added with the new new team members that will broaden your investment horizon it's partly network effects you have this network and climate as one topic which was a quite a new investment theme is there

anything that might surprise investors in the coming weeks or month with the africa investment i think you're taking the first bigger step into africa uh yeah this is this is other parts of africa we've of course been very active in the northern part of africa uh and and and and a little bit in the most southern part of africa but but not so in between but yeah you're right this No, I think it's more of the same. I don't think there's nothing new, really. They buy the new people buy into what we do. They join.

I mean, they could have, they could work anywhere. And I think we pay them, but we pay them less probably what they would have gotten at other places. So they really like what we already do. And they bring their experiences. They also bring, you know, we invest globally. And I think it's good to have access to people who have been, have a very important. very global background. I mean, the Dutch people that we, or, you know, the entire team that

we've come back over at least last, or this entire thing that we brought on, they're doing the past five years, they have lived in Toronto, California, Buenos Aires, Cape Town, Dubai, New York, you know, it's really, you know, that's very reflective of the kind of, you know, investment work we do, geography-wise. So that's good capacity. But no, otherwise we're here with network effects is what we do. And you might see us, as you alluded to, go into, you know, a network effects under other macro themes, like there's lots of stuff happening, which in some ways associated to climate. But at the base, it's still network effects. okay quite interesting i'm scrolling through my set of questions but i think i've asked many

is there anything for the end you want to add as in point we haven't discussed thinking through back through the interview you want to go deeper into or anything you want to add nothing springs to mind we talked about a lot but um um um um no no i mean i mean this there's this 70 companies to talk about i mean i'm enthusiastic about every single one we have one in germany now we have a few in germany but the new one in germany is surplus which is a marketplace for recycled plastic which we're very enthusiastic about a german guy used to run blah blah car in germany actually he he uh he he started this company and uh and we and We, we, we, we, we, we, it came through our scout network.

And so a scout, we have invested the first money and then we invested it. The second money is small in the portfolio. But that, anyway, so there's this, this kind of a story behind every single one of these 70 investments. So there's a lot of talked about. We should talk maybe more often than once a year, in a month. We will figure it's out when we stop the recording, I think. And maybe with this, this.

kind of grim outlook we have currently like this the last days it changed a bit but like me personally and i'm not sure about you but we have like if we we looked the interview from one year ago it was lighter and easier it was a tricky time but like how do you keep your your hope or optimism this time and like how do you keep focus on the long-term view if this this this kind of turmoil has happened yeah no this this this thermal is deeply sort of saddening in war in Europe, but also, you know, that Russia, I've been looking at Russia for 30 years and clearly how we wind back the clock on that country so much is, it's a depressing sort of fact. And that's going to affect us for a long time. But I think it's important to,

you know, every crisis is, is, you know, feels completely new. and sort of but we and I've been through many now you know especially being you know subject to the markets that I've been subject to and in every in when you're midst of it it's very difficult to sort of see how will we get out of this and will ever anything ever become normal but what you can rest assured is that it will become normal again and so now we're maybe in the midst of it the visibility is so low it's very difficult and it becomes we get down by it but But, you know, I think it's also true that it's always darkest just before dawn. So, so, so, so courage.

But also like normality might change a bit. So it's quite interesting to see this. This is also a bit of change. The world changes, right? We have to think more about the climate, you know, the way the pandemic changed us. Of course, it's, you know, change us. This thing will change us as well. it's quite as

normality will always change but it doesn't you know when you're in the middle of the storm it feels like it will change for the worst in a big way and it will stay that way I don't think that necessarily has to be true

and I think there might be also a chance thinking through your portfolio and the exposure currently having that some of the headwinds get stronger for some of the portfolio companies because they offer more efficient solutions and also like if you think about high gas presses and blah blah

car it might be a call for them too yeah no no i mean high gas prices for blah blah car is a it's a big win right it's i mean it's much much more expensive to now travel from stutt car to berlin and if you can share the cost of this ride then then it's good yeah no so so no i think all our companies are involved in sort of solving big problems with a digital product and and that innovation is not going to stop maybe it becomes a little bit less worth in a period when interest rates go up and there's uncertainty but the fact that you know this thing has to happen and no doubt about and if you invest for the long term you know that you know if we're right about picking the right digital products and i think we are then the value will be will be created

a lot. As I say, you know, we, you know, these companies could be, you know, even if the multiple should be the right multiple should be P.E. of 10, we will produce our returns over time because the growth will be so high and because these products, you know, basically change large, large markets and and that's what's important. I think that's a good point to close. Thank you very much for the time and thank you, Matt, for the audience to listening to Till here. Thank you very much. And bye-bye, have a great week and the rest of the day, whatever you do. Bye-bye.

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