Good Investing Talks - What are VNV global's chances after the Babylon fail, Per Brilioth?

Episode Date: December 8, 2023

We had the pleasure to welcome Per Brilioth of VNV Global back. In this interview, we walk through Babylon's bankruptcy and the portfolio companies' chances.

Dear viewers of good investing talks, it's great to have you back at the podcast. Today, I'm having pair a period of V&V global back from Stockholm. How are you doing, Pair? I'm good, thank you. It's great. How are you? I'm good, too. A lot of work this autumn, but I think we feel the same as we already said in the pre-talk.

Yeah, Pair, it's interesting to have you back. it's also great that you came because for you as an investor is not the easiest climate right now and the stock is also like down a lot from the peak maybe let's try to look back in the past if you're running V&V for quite some time and you have this huge drawdowns have they already happened in the past

and have you experienced something like this already as an investor yes yes I have a few times it's a few times yeah i like i specifically remember 98 and 2008 of course but then in the midst in the mean between those years there's a couple you know some volatile periods tend to sort of come and go how did you like what was your framework to to to stand this volatile periods and just maybe longer times of drawdown as an investor well it's I don't I don't really have a textbook like you know this is what you should do but it's and it's always it's not fun and I think if you if you are if you are just

too relaxed and you know then maybe you're not really in the right job you know when things go down and then when you're in this volatile periods i think it's uh it's okay to think it's tough and you have to sort of but and i certainly do and it's not it's not it's not and it's in the same sort of manner as these other times but but i think um i mean now like before i believe a lot in the portfolio uh that we have and so so that gives me confidence that um that um And, you know, it may be sort of a little bit stormy outside, but if you believe in what you have and what you do, then I think, you know, you have to just press on, basically, and things will turn, as they always do. It doesn't feel that way when you're in sort of the dark, but, you know, it's always darkest before dawn. So, yeah.

But there's no, there's no, you know, what I would say, and this is, of course, you know, we at I, we at V&V find ourselves in not this position, but when when you're in the business of investing into risk, taking risk and, you know, like we are, then it's, it's better not to have leverage when you go into these sort of downturns. Of course, we do have leverage now, and that's something that we work with a lot and an intent to sort of de-lever and pay back the debt we have. But, of course, if you sort of enter into a downturn without leverage, you're much, much stronger. So that's a good. That's an easy, easy one to have on the to do list. One thing you had in the portfolio got lost, Babylon, and we talked about it in a, wide range in the last interview so i did want to do a follow-up on this you've already written a bit about it in like your q1 or q2 letter where you did analysis but maybe let's do a follow-up here

too what went wrong with barbillon health yeah barbillon was uh didn't have the right sort of characteristics to survive this very sort of severe turn in the cost of capital and uh you know with the benefit of hindsight should have been without leverage and also much more focused on stability than taking over the world if one sort of talks about it at a very, very high level, then there's lots of details. But that's the essence of it, that it went into this sort of different climate of markets with way too little protection for those rainy days. and was too much in need of called it cheap money or a low cost of capital. And then when the cost of capital normalized it, it didn't have enough sort of staying power

to sort of get its company in order. The product, I'm sure, I mean, or it will, is the future of healthcare. but it's just not it wasn't possible for this sort of format this company to to see it all the way through so as the shareholder of in we babylon was really a zero there's nothing zero even in the future that might come back through processes or something that's in the past that's that's that's a total right of what did you change based on this experience well i tried to sum it up in our too was it? I, well, different things is that it's okay to lose money when you're in a growth period when you're building the company, but it's not okay to sort of hemorrhage money as I think

is the way we phrased it. So you have to sort of be still mindful of that your that your losses are within reason. And you cannot fund those losses with debt. It's also very important. Losses like that should be funded with equity. Otherwise, when market turns, like this time around, the debt holders will own the company. Other things that are important here is that for, you know, at the company level is also that governance should be more straightforward. Accountability is very, very important. Now, this is, this is nothing, you know, I'm not insinuating that,

anything sort of evil was done here, but I think it's a much, much better situation when there's one share, one vote. We still have things out there, but Babylon was had super shares for the founder, which was not helpful in the end. And then I think we invest a lot into founders and try to give them support to build new products and new companies and etc. But it's it's we have to be more mindful and this is not easy but to sort of have the trust of the founder so that the founder understands when it's the right time to step off and leave the keys of the company to a CEO and you know a lot of you see a lot of email signet signed by founder and CEO which now it's it's it's it's that doesn't work you can't be founder and CEO the best if a founder

becomes a CEO but then he understands that he or she is not a founder anymore you can't write founder and CEO it's a different mentality it's different mindset it's a different risk taking building teams listening to people around the table etc so so that's that's one another very important thing and then then I think also for for us lot here at at vmv you know bablon again I I mean the the product that they have been built, I think, is the future of healthcare. We will all use that kind of product in the future. But they were a trailblazer. They were the first ones out there. And then you don't know exactly. It's difficult to know how this will work. And like when we built or were part of building

Avito in Russia in the classified space, this became a very large company. But we could always look at you know how this business model worked elsewhere because there were other people who have done the trailblazing so when when you're in trailblazing mode it's we we don't have we need to sort of manage how much we put into these sort of risk situations and and with the benefit of height that we of course I invested too much into Babylon I believed in it a lot I was wrong and in the future we need to cap how much money we put into these things where we don't quite know how how the future looks we want to do those investments because they of course provide they have the capacity to provide sort of an extra large upside but but you know then with a veto

it was that 34 times the money it's enough upside so yeah I think you see what I mean so there's a couple of learnings like that both for how I run V&V and how you allocate within the portfolio sort of to to we I mean we are about taking risk and we do that but to take some kind of risk we need to still cap and then also some some learnings on around or you know some if it wasn't as if we knew it before but some things to remember on on when you're present at the board level for example that Yeah, no debt, not too many losses. Accountability. No super voting shares. And try to help the founder become a CEO or hire a CEO. I think those are the lessons. And then of course, you know, if you do take risk, you will lose some. You will. I mean, and then of course, it's, you have to be. remember to you have to try to take risk again and not not not not make it so afraid that

you you stop that's that's another big lesson so anyway i'm rambling on i don't know no it's there's a good point to to ask further about portfolio construction at vn v like is there now a rule implemented that you say okay with a certain characteristic this portfolio position can't go up a certain threshold like you you have let things run and it was a good experience with her veto you mentioned it but with some companies that aren't like that mature in their business model and where you can like have more certainty about outcomes how will you go about portfolio construction then yeah no so so so so with the benefit of hindsight it's always easier to trade with, you know, when you look in the mirror.

But, you know, I think the risk reward above them was still very investable. But for our size of company, we should have invested less money. That's the lesson, right? And that's something that I, you know, that's a scar that I'm going to, like, it's going to start to hurt when I, and remind me when we're, when we're in the same situation. the next time. It's time for a quick advert Tillman. Here we go.

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One thing that comes up in your conference calls and is the right refinancing of the bond. So you have two bonds outstanding. One is covered by the cash you have at the moment. And you're already buying it back with a discount, which is not the worst thing to do. But the other one, they are planning to sell assets. And you have like, we saw it with rising interest rates that the prices of the assets you own is really tied to the interest rates that went up so looking at the bond um was it in hindsight too aggressive to allocate capital like that um or yeah how do you would you weigh it yeah so so one thing to

to to just to sort of remember is that we or we our financial strategy is not to have debt right we and we don't use that as a way to sort of juice up our returns we think we we have enough upside and return potential in the portfolio, sort of outside of leverage, financing it with leverage. We've used debt as a bridge to an exit, sort of not to raise equity capital if we have some new investment and instead bridge the funding of a new investment through some debt and then pay off the debt with an exit that we have high confidence in. Now, those exits that we had as the rationale to have debt, of course, were, you know, did not materialize because of this big shift in the market that we've had.

So now we now we have the debt and have to sort of be more constructive and active around managing these exits. and so yeah we so as you say we have two bonds outstanding one smaller one which is due in June next year and that's where we have cash and we're we're buying it back in the market if it's if there's some supply available and then a slightly larger one which is just north of 100 million dollars which is due in January 2025 and then the intent is to pay that bond back and to do that we have to fund it and the plan is to perform some exits in the portfolio now from a distance that may look like how how is that going to happen the world is very dark and and it's you know it seems from a distance at least difficult to to sell assets especially also if you have the view

that our assets are are of startup nature and not profitable so two three three things there is that 70% of our portfolio is now EBITDA positive, which is up from some 40% in the beginning of the year. So the portfolio is more, it's much, you know, from a profitability point of view, it's much more attractive, I'd say. It's not that you have to fund it to live every day. So that opens up potential sort of buyers. And we also see that there are some transactions going on within the portfolio names that are around our NAV. Our NAV is written down by, not quite, but call it half since the start of this turmoil to now.

So the NAV is down. And so, you know, and we're very active around this. So I'm confident that we'll be able to perform this over the course of the year that we have now until the second bond is due. Can you give some examples for these transactions? Examples of what, sorry? The transactions you mentioned that are going around the NAV level? Yeah, no, I'm not allowed to sort of go into details of transactions

because they are private companies and they are between two private shareholders. They're not public. But until they're done, of course. And so, so, you know, hopefully there will be some transparency around those in the not too distant future. sure and then and then I mean yeah we're managing around that so with this experience how you're thinking about your dependence on the capital markets right now like you had the help to grow with the help of the capital market some of the companies like Babylon were possible with the strong growth also because they could take money for nothing so to say but at the moment

it's not like the most pleasant place anymore. Is there any way you think about in the future to come out stronger with a less fragile setup? Well, I mean, I think we can our plan is to continue like we always had this to sort of fund the work we do, which is to invest into very investable risk-reward situations with equity. so hence the focus of dismantling or paying down this debt now so that you can have the stability of a pure equity funded portfolio and then and then go from there so so that's very much the the plan yeah and but but now given you know we trade at you know call it a 75% discount to our NVV, then it's not possible to use the markets to sort of fund investments into new investments. I think I can imagine that part of the reason why we trade with this kind of discount is because we have the debt. So once that's behind us, then then I, you know, we should

trade at least more constructively. But I think it's a very, our price, the pricing of our stock in the market versus the NAV, I think is a very, very, very clean or quantitatively sort of clear picture that the markets are pretty much close now for new risk investments. I mean, and for us, for sure, you know, in good times and in bad times, we always compare a new investment to our own share price because we always have the opportunity to buy our own stock and so you know right now I also literally see nothing that is as well you know attractively priced as our own stock so even if we even if we had money

basically it will be very difficult to motivate oneself to buy it when you have the alternative of buying your own stock at a 75% discount. I see sort of stuff going on around as we spoke about around the NAV, but it's because the, you know, at that sort of, you know, we mark our NAV according to market, so say the market is, you know, is where our NAV is placed, but that's not interesting for us because we have this alternative. Now, we, of course, you know, as I think we've spoken about in the past and And we certainly have shown a lot in the past. I think we have been very, very active in buying back our own stock.

Now, also with the debt outstanding, we're limited to making dividends and doing share buybacks. So it's also a good reason to have that behind us as soon as possible, really. So that's the focus. One thing that we talked about the last time was also like scaling up the team. And that's also a topic of the past. Can you walk us maybe a bit through how you think operationally having the right set up for the new normal we have now? Yeah, we're back to where we're back to where we started now and maybe even more. So I'm right now all about scaling down the team.

And so we did some changes as late as last. week. And we were always, and I was a big advocateer and a big believer into having a very small team and then using our network to sort of when we needed help. Then when things got very active, we of course expanded the team to sort of try to, you know, in-house organize things. And of course, I'd say for the lack, you know, the markets being closed, and us being much less active we didn't need as many people but also because you know we compare our operating cost base to our NAV but also to our market cap and that relationship just was not good enough so we have to reduce the team because of that too and then finally it's also good learning

for me and there's that there was good reason why i wanted to have the team small it was you know i i think it's more effective for an organization like ours if we've concentrated on our investments instead of running people so so that's for all those three reasons uh it's it's now without now back to being a much smaller team again and uh i think that's for the better it's also programmed to come out stronger out of the crisis and yeah yeah no our our our our Our OPEX is going to be, on a cash basis now, it's much, much lower than it was a year ago. And on the cost base, that's very good, but it's also on, you know, being effective is also good. And then we use the network. We have a lot of people around us that we work well with and they like us and we like them and we know each other well and that are happy sort of to help us on a project or, you know,

and just it's our old way of working with which we are we're doing again so we talked a lot about how we and v comes out of the crisis stronger let's jump on the listing or not the listed the companies you invested in level what are they doing to come out stronger out of the crisis And where do you see a strength that might have surprised you one year ago, maybe, in the companies? All of the companies are coming out stronger because of the, because they have all reduced the cost base a lot. And, you know, and that's part of the reason why you see, you know, from Q1, we had 45% of the portfolio being EBITDA positive to 70% plus now being EBITDA positive. and you know continuously going in that direction so and you know companies are they exist to make profit so it's uh it's this is a this is a very very sound development uh you know that is forced

upon people to control their own destiny they have to reduce the cost so that they you know the money that they have is enough to sort of take them to profitability and other profitability and then yeah it comes at the expense of some growth that you can't sort of grow grow grow grow you have you have to grow with profitability basically and so so from that point of view it's a much much stronger portfolio today than it was a few years ago and there's there's there remains a lot of upside even with you know with the current sort of growth and the current sort of products that these these companies are doing is there's an enormous upside that I think will be easier for markets sort of to to take to you know now

there's not a lot of people looking at our part of capital markets now you want short duration assets and you know with uh with lots of visibility because your visible market visibility i feel is is it's quite short now so if you have something that has a little bit longer duration it's you know the analysis is just not being done i guess that's the opportunity that you want to you want to you want to you you want to get involved when everyone else is is doing active somewhere else right um but i feel it's but it's all it's all a normalization i think now maybe uh the visibility now is maybe for a month or six months you know two years ago we had the visibility of 20 years you know people were investing into flying cars we you know you

and i we're not going to sit in a flying car for 20 years but 20 years was the time horizon now is maybe too short you know now it's maybe I don't know less than a year and then in a you know in a normal you know when we get back to normality when we have sort of stability on what the cost of capital will be it will be the normal three to five year or something like that you could look out and then and then you start to sort of pick up and look at these things again which which and you will see a portfolio that's making money you will probably see that there is a that VNV is a portfolio which also has some cash flow

cash flow to fund up bank cash flow to fund sort of new investments which we've had from time to time in the past we haven't had over this past couple years but with the way profitability is growing now we certainly have that you know that will be

the situation when you know when you say if you look at V&V when the crisis is over it's difficult to define that exactly but yeah I'm very enthusiastic actually Then we have a lot of companies that are small now in portfolio, but that will be much, much larger, that will come out of the shadow that are well-funded, that are growing despite the sort of the market turmoil and that people just don't look at. But there's a couple of those that are going to be, they're going to be big drivers for V&B, you know, for the longer term.

You recently had the capital market stay where people can also take a deeper look into some of the companies, but of presentation. but maybe let us both pick three companies in the portfolio that you that we do this or that you do the three to five years outlook maybe two larger ones and one of the not well-known names what names come to mind of the two larger ones where you want to do like your perspective on the next three to five years well i think the two larger ones which are i mean there is is really blah blah car and voy technology boy technology so i mean blah blah car is now in a very very strong sort of macro tailwind right this is the the the problem that they solve is is for you and i and two others to sort of share the costs of of long distance travel and and and uh in when times are

tougher people are more prone to do that and and and so it's really sort of you know in a macro in a macro sort of tailwind and but it's but it's and and during these sort of what they're active around now is to sort of expand the platform to sort of pick up on other means of transportation whereas they started with us you know sharing a car in what you know we've seen them add buses to it but we also see them being very active around trains and you know there will be probably be more to come after that and then within these sort of different means of transportation you used to only be able to do long distance now you can do sort of medium distance not not you know commute kind of distances and and another in other means of of if it's driven by

supply it can also be driven by demand so it's this there's an enormous amount of work going on around developing the product but the base of this is in a very strong sort of macro tailwind let me ask a follow-up question on blah blah car and how do you think about the growth there and the groundwork they have to do to lay a growing foundation because sometimes and i talked with other investors about blah blah car it felt a bit like they were a bit disappointed that was more like a slow brewing building thing and not like a hockey stick growth so what is your observation of growth at blah blah car but we you know we are in the business of investing into network effects right which is very which is essentially investing into

companies that can sort of grow as high barriers to entry so that they assume the characteristics of monopoly so we that we came to that through classified and and and and and but that's the common characteristics characteristics of all the things in our portfolio but but these things are not hockey sticks and they will never be and it's it takes it takes a long time uh to to grow to grow the liquidity or the the data whatever it is that creates the these very high barriers trend tree once you've grown to a certain level then you can start to charge um so it's like a flat flat in terms of revenue and as such financial analysts, we'll see flat, flat, flat, flat, and then suddenly a big jump as you start

to monetize and then growth. So it never becomes like a hockey stick. I don't know what that is. It's something else. It's another curve. But so when you compare it to, for example, e-commerce, you get much more hockey sticks, right? You do some work and then you spend money, marketing, and the thing sort of starts to grow. But what's hidden behind that, you know, hockey hockey stick is that you have to fund it with marketing because very strength you are very low and you know and it's brand and you have to fund the brand and you have to be very active so that's hockey sticks there's a lot there's more to the story and than just the hockey stick here it's that you you you you you have to sort of build liquidity supply is when when supply is small

demand has to be equally small then you can grow supply a little bit and then demand can grow a little bit but they always have to be matched If you have too much supply and too little demand, then the supply won't get sort of, it won't meet, you know, and then the whole business model falls away. So it's by nature something that grows, you know, in a slow way. But once you have reached that sort of level of big enough distance to your competitors, then barriers to entry are wonderfully high. and then it becomes very valuable companies. But for us financial analysts, it's frustrating because you don't see it. You have to be comfortable to understand that the value here is not being driven by revenue in the beginning.

It's driven by liquidity in some form or shape. And the same for Blah Blah Car. Blah Blah, in fact, is the business model in my portfolio that's the most reminiscent of classifieds. It's now super fragmented demand, offering into super fragmented, you know, demand versus supplies. It's very high fragmentation on both sides of the marketplace. Get liquidity in the middle of that, and it's, I would even say, unpenetrable sort of bearish to entry. and so so so so so so so so so so blah blah car is it's very much in that situation but what i was going to get to and it's something that when when if we talk in a few years right and what's what's

what's now very very strong macro and keeping and stronger is sort of you know is it's of course climate and different ways to sort of to reduce the you know dependency on energy intensive sort of transportation modes And these platforms like Blabla Car and Voie both have within them a very strong ability to be a tool to reduce the energy intensiveness or to reduce the, you know, to reduce the dependency on carbon dioxide means of transportation, etc. And in Blah Blacar, you see some of that already. In Vaux, you don't. I mean, people use it because it's a very, partly because it's a very efficient way to move around town, but it's also a very climate-friendly way to move around town. And the ability for especially politicians to use these platforms to drive behavior to more sort of climate-efficient,

well, in this case, in this case, means of transportation. is going to make these platforms very, very valuable. There's like a hidden value in them that they sit on this sort of toolbox. That is something that we're going to talk much more about in the coming years. Now, we invested into them because they are network effects. The product that they deliver becomes better for every new user that uses that products. They both check that network effects rule of thumb that we look. for first and foremost when we invest but but then and then of course they have the macro

mobility which is very interesting it's changing younger generations are you know are are much more prone to sort of use new methods of transportation so that that whole industry is changing and they're in the midst of that but then what people what we now forget is that there are also platforms to drive people to a more sort of climate friendly means of transportation And that's a value we don't talk about today, but which will be much more present, I think, if we look a few years down the road. Let's come back to the point where I interrupted you, wanted to make the case, so to say for Woy in three to five years. Yeah. So, so so so so voice the I mean, I think everyone we talked to will agree that in three to five years the city you live in the city I live in will have less cars.

people moving around the city the politicians everyone is on that track and and and and when you think about it in that way that voice sits on on the platform that now we only think about scooters and looks very competitive that there's scooters no voice already it's you know it's a profitable company it's it's been able to sort of run its platform with scooters as the only product essentially the only product as you know i did ride a bike two days ago in berlin so they also have bikes in some cities but it was based on scooters and now it's developed into bikes but but but only on those products well two products uh it's it's it's been able to sort of run an efficient company that's making money and that's uh that's that that's what we have today but that they sit in the middle of that

sort of nearly seismic shift that Berlin, Stockholm, London, etc. is moving away from cars. Then those platforms also will be there at the heart of that and they'll become more and more valuable as the platform to move around the city, not only on scooters, but then on lots of other things in the future. That platform business we forget about when we see a voice scooter and it stands next to a lime scooter and what's the difference and you know and so there it's we missed the big picture of how important these platforms will be for you know the cities we live in over over three to five years also on that quite short time horizon at the moment a lot of like financial analysts might compare void to bird lime tier whatever all the other offerings and see them as just

like maybe because of this low barriers to entry as a business where you're a question like how can this be a good business or how one can win in this this game like how do you see the market in the in the scooter business and why it's why you're your winner so to say what are the factors that make them the winner well um this sector got going during an era when there when there was capital around to fund it right and so so you got a lot of people starting this because well from a distance it looked like barriers to entry were low and there was capital to fund it let's you know let's go but then when when you know after a while it became very clear that you know you need

to sort of if we put aside the network effects on this for a while you also need to run this business you have to make sure that these scooters are charged are safe are parked correctly have the licenses from a city you know it's it's an operation where you have to run it very very efficiently especially when there is competition so so voie has concentrated a enormously to run this as efficiently as possible. And I think it's now clear that they pretty much stand out as the most efficiently run operator of all of them. And that has its background, the team that started it where basically came from

sort of military sort of background and were sort of very, very organized in planning for all eventualities, et cetera. And so but then on top of that, you have. the network effects, which is the fact that you will not take a scooter if it's not outside your door or a bike if it's not outside a door. And it can only be outside your door. If I have driven it there and parked it there, it's impossible for these companies to sort of put them out perfectly from, you know, in the morning. So the one who has the most users will be most spread across the city. And the ones who's most spread across the city will get more users and more users

gets better spread and then you're in this spin. So we see that in in in the in the in cities where where voy is that they have a smaller part of the scooters, but they have double or triple the size of the actual rides in a city because because of these sort of network effects. So in contrast to maybe blah blah car and classified it's not a win it takes everything. It's a it's a better to it's it's it's more similar i think you could say to the uber industry where it's a winner takes most that the big one takes most of it and the big one is also typically the one that's best run and less and least dependent on the on the on the on the on the on the on the on the funding environment and and then you'll have

some competition as well it's not it's not not so winner takes most So, yeah, I'm a big believer in it. And on top of that, you know, it's just going to be a more and more important part of how cities are run, essentially. You know, the concept that was, I think, was coined by the former mayor of Paris that, you know, we're looking to live in 15-minute cities. That's without the use of fossils, the population will be able to go to work, school, hospital shop you know uh within 15 minutes and then these platforms are they they very quickly become at the heart of that of course you have to have metro and public transport as well but but these platforms become very necessary part of that vision which i think is where we're all going you've

dropped the idea that they might add other categories like or other modes of transport not scooters but also bikes um is there we no we they have it right i think you said that you you you rode a voy bike so they have electric bikes in some cities not in all cities but i think um part of what we talked about before being being efficient they they instead of doing everything at once voie took you know the starting point that we should have a black belt in the one thing we do so so only to do scooters extremely efficiently and let's become make that profitable and then go from there. For the longer term, I think these platforms will, you know, a little bit like we talked about, blah, blah, car will give you a choice to cars, scooters, maybe even, maybe even metro, right?

I mean, basically become your, you know, your one-stop shop to get from A to B, at least within the parameters of the city. Then you have blah, blah, car on top of that to take you to, to take you to Disselor for wherever you go in Dortmund, maybe. Thank you for the insights into two larger positions. What is the smaller company in the portfolio that you want to do in the outlook for the next three to five years? Well, I think I have, I have two that sort of a little bit stand out and one is a Swedish company called Alva, Alva, which is essentially LinkedIn 2.0. So, you know, the way we sort of match a job with an employer or a job with a job seeker today is basically based on a CV. So LinkedIn does that quite efficiently. It sort of has the format

of the CV. But a CV is quite a crude way in how to sort of match people with jobs and, you know, and people running companies with with with with with with with with with with with with with with with with with employees future employees so alva's product is basically you could say in a crude way based on a personality test but you know you know in a very sort of digital format and it allows their computer to do the matching much much better and so you could see you see that essentially evolving into becoming the marketplace for the supply and the demand for jobs in the future, sort of just a new way of doing that.

And so they've set that it's a rather young company. They're widely used in sort of in here in the Swedish context, but have ambitions that take them well beyond Sweden, first to Europe and then elsewhere. Swedish founder and now they also a large owner, but also the C.E. EOO is the guy who used to run a veto in Russia, a Swedish guy, came from consulting into a veto, helped build a veto, then came home, did some investing for a while, and now has taken his sort of operating skills to sort of run this company. So I think Alva is one of those. It has high network effects. It's a very digital product. Of course, you know, when times are, you know, now people

or not recruiting as much as they did maybe a couple of years ago. But, you know, the cycle always turns. So there will be some macro, but in the meantime, they're sort of very active on building out the product. So that's one I think will be one that we talk much more and will be, you know, develop into being a large constituent of my portfolio. Another company we have that I think also is on route to becoming a large part portfolio, especially if we look on a three-year time basis, it's an Israeli company called

No Traffic, which uses the aggregation of data to manage traffic in the city, very much centered around traffic lights. So one, at least my view, my sort of perception, and I think many people share that, that traffic lights were quite sort of efficiently run. But if you, when you get closer to it, there's a huge potential to run traffic lights with the help of data and then not only manage the traffic around the traffic light correctly, but do that across the city, which manages for safety, climate, and lots of things. So this Israeli sort of group of tech people have put together this company, which is now starting to get quite large clients in the US.

It's essentially a, the US is the starting point to focus. Makes a lot of sense with their car focus. Yeah. Yeah. And this is also huge market and a company where, you know, if you get, the data sort of aggregates these sort of network effects and barriers to entry. So if I choose two among all my babies, and I like all my babies, but these two, I would sort of think that they would, they would, they will be, they will grow up to be quite large contributors to the portfolio. What is Alva doing better than competitors? Because I think the hiring market is quite competitive. You have Cypregor, indeed, whatever. Why is Alva really like standing out? Well, it's, I think the, this method of, of matching people,

to jobs and the other way around is it's in its infancy this market so you know there there will be others who probably build similar products but their product is is of matching is is proven strong it's it's doing it in a small market and matching people to jobs and the other way around very efficiently and then you know like we spoke about before it's you have to sort of you You can't have a lot of supply that doesn't get matched to any demand, then it falls apart. Here you start small and then you grow from there. And then the product, if the product doesn't match well, it dies, right? So this product matches well, but it has to sort of start small.

I think competitors are also, the big ones, come from a historical, world where it's much more matched based on the CV that I've done this course or I've had this, you know, this work experience. And then, you know, it becomes not a lottery because they add some value, but it's, you know, you don't quite know. Here's like a much more complete picture that the algorithm sort of understands and has and that can understand, you know, what Tillman, you know, your exact qualifications from in a much more sort of holistic. way and they can understand that because it's done it so many times before and then that data helps it become better and better so it's it's a it's a date i see it as a data play so you have to have the algorithm that matches well but then it matches better and better on the more data it has so how does the data then get filled in into this so well they they go to v-nv and they say well will do your personality test for your hirings and then that gives them data and then you know that helps them get go to tillman media corporation and then it's do your hiring and then it starts like that and it builds data okay that's interesting to know um let us jump back again to the holding or the v and v level and how much room for capital allocation do we have at the moment outside of of focusing on yeah paying or buying back the debt well well that's our focus uh but i always say that

you know if we if we find an investment that is that that is you know attractive enough we we will we will we will find a way to do it right so we and in fact we we did have such an situation earlier this year before summer there was a there was a seller of shares in blah blah car that was not at all sensitive to the price they really needed to sell and so we we basically felt that the pricing of blah blah car was attractive even to our own stock price So we went ahead and we did that. We increased our stake in Blabla Car at the price that we thought was, well, it was, you could call it semi-distressed, semi-distressed seller. And so even though the overall focus now, which I think is very, very clear from a short to medium-term perspective for our shareholders that we take away the debt. And then, you know, just from the very quantitative way of a discount to an NAV, we traded a 75% discount.

I think people who I think have a much less attractive portfolio than ours trade that maybe a 35% discount, right? So there's a big uplift from just moving on from that. But then in the meantime, we all, we keep an eye out for all new investments. we have several sort of dialogues going on we haven't found anything that we think is attractive enough but that may change so so yeah how do you then measure this attractiveness like is the hurdle that you make 50% iR on a new investment then compared to the things you already know or they don't have to put out the number but like a rough framework to understand this decision no the way we get paid you know there's a ladder but essentially our shareholders are telling us that you will get paid if

you deliver 25% IRA from an NAV basis that I think we have the ability to do and then of course we traded 75% discount to that so so I if you know those are the very simple metrics from an an NAV basis, 25% IRR, and then, but in the shorter term, we have this 75% discount to deal with. So, so those are the, you know, those are, those are, those are two very simple parameters that we work with. Hey, Timon here. It's great that you've made it that far into the video and I think it shows a certain passion for investing you're having. If you want to dive deeper and go further down the rapid hole, you're invited to apply to my community Good Investing Plus. It's a place that's very helpful to people who are ambitious about investing. It's helpful to investment talent as well as Experian fund managers.

So if you're interested, please click on the link below. And now, without further ado, enjoy the conversation. In your letter, you've also written that you look. also to help the companies you own with capital allocation decisions outside of like the the holding level. What do you do there? Maybe you can give one or two examples if you're allowed to speak about this. Yeah, well, this would do from being present at the board. So the board typically is the feedback to the CEO for those kind of decisions.

and of late the typical sort of capital allocation decision has been is it worth sort of raising money at this kind of cost of capital to go for this much extra growth and typically it's been like no we don't that becomes too expensive we will live without that extra growth because the cost of capital here is too high. So it makes more sense for us to stay with the growth we have and continue being profitable. That's the, I think the essence of what capital location discussions and decision has been going on in the industry at large, certainly in our portfolio. And sometimes that works well. And sometimes like in Babylon, it doesn't work well. I mean,

I think we as shareholders were skeptical of or at least sort of a little bit nervous about them going so big in the U.S. when they started and they went and they did that. So that capital allocation decision looked good for a while, but then it turned out to become the death of the company, you know, when markets turned. So hands back to the need that one has to have one share, one vote, so that we as capital providers, you know, have a say in the capital allocation. So it's more that you now focus on, or I try to boil it down, you might correct me, that you focus more on garb approach, growth at the reasonable price now with the thinking you do. or is it like is this the wrong framework to grow growth growth you know we we don't need the companies to to throw off and you know it's different from company companies different it's difficult to talk high level about every company's you know because every company is a little bit different some companies are in our portfolio are now getting into the phase where they will be dividend

payers. They have growth. Berger entry are high. Earnings will grow faster than revenues. But it's not worth reinvesting into all of the profits. So they will provide a profit back to us. In some other companies, it's maybe not worth sort of raising money because the cost of capital is high. But we also don't need them to sort of make a lot of profit. So you can make, you can make, you can make, you can just profit and grow and grow at the maximum speed that you can under that because there's still a lot of market share to turn to make and then and then and then you can sort of start to raise money or be even more aggressive around growth when the capital cost the cost of capital becomes more reasonable at some point in the

future. Maybe for the end, let's jump on the meta level with you or another level with your shareholders because I think looking at a shareholder base of V&V there was a larger rotation happening and with the new shareholders. What are expecting, they are expecting from you compared if you have the chance to talk to them compared to the past shareholders because for them it was more, yeah, maybe that we might have been. been a part for the FVC exposure in certain geographies and the new shareholders, what are they expecting from you and could this allow a different kind of setup at VNV? Maybe also thinking about paying dividends as a holding to the shareholders or something like this. Yeah, you know,

our largest shareholder has been the same now for, I see, it's close to a decade. So it's I think their view hasn't changed you know it's for you know we're you know they

I'd say that they own us to continue doing what we're doing is to sort of you know be part of building companies with very high very strengthry avitos blah blah cars

voice etc and we have one new shareholder which is number two which is nearly as large as the largest one but and they have built their position since the summer of 2022 essentially so they started buying then and now they own just under 20 percent and also and this is a Swedish family who is who has been active you know you know it's very active around on the Swedish financial markets, both in that they own one of the larger fund managers here in Scandinavia, and they also own the largest stock trading platform, like the Swedish or Scandinavian version of E-Trade. So they're the largest shareholder of that. Those are the two sort of big ones,

and now they own us as well. And the family member there, the guy who runs that family, he's also the new chairman of the board here. But I think we, you know, so the shift is maybe to sort of more of a family holding structure, which is probably a little bit more long term and a little bit less sensitive to the flows and ebbs of the market on the short term, typically. And I think that they really built their stake from sellers who are, like you said, are technology funds or, you know, funds that are exposed to sort of the digital world in some ways but these funds have also are have a fund investors that have wanted their money back and so they have been selling in the market to fund their outflows so those outflows have

driven them to be sellers and they've basically gone into the hands of of family families who who who see of course that this is now we're in you know now we're in you know now there's a shift in cost of capital that gives a rise to opportunities but of course you know we're still in this world where that you know there'll be a lot of more digital transformation to be done and if you can sort of be exposed to that within the concept niche of these very high various two entries that kind of business model that's that sort of that combination is very interesting. I think we're all in agreement that of the financial strategy we have, which is not to fund this with debt. And so we're focusing on taking out that debt. Of course,

I think we're also in agreement that it would be very good to have one of our companies evolve into a dividend payer, a little bit like a veto was. the last years before we sold it. And then that, you know, like a veto, I think we got $13 million in the last year we owned it, which funded both the OPEX and it funded our first ticket into Voie. And it's funded, you know, it's funded, you know, it can fund both OPEX and then a couple of new investments. So that's more difficult to plan exactly when it happens. But I think we have a few good sort of cases in the portfolio.

that will develop into those type of situations for us over the next period here. That's just like a scenario. Maybe we can talk about something clearer in the next interview we do because with this interview, I have asked my questions. But for the end, I want to give you the chance. Is there anything you want to add? We haven't discussed or you, looking back at the interview, find, like, interesting to outline again?

I think we've talked about, you know, I think we talked about Blabla Cor and Voie, which are, of course, two very important positions and the very strength that they can build. We talked about some of the examples of all the stuff that's going on in the portfolio that we never talk about. And those, you know, in the same way that Voie was in the shadow of Avito, you know, Alva is in the shadow of Voie now. and that will change. I think we do a lot of work and I feel very confident that we will be able to sort of, you know, sell some assets and pay off our debt. That's not done until it's done.

I know we've talked about that. This is just me helping myself see if there's anything we've missed to talk about. But I think that's the main reason why we traded a 75% discount to an NAVE that's, you know, quite very fairly fairly price. it i think is the right way to phrase it and yeah and then you know we talked about four companies we have called it 70 so we got another 66 to talk about but that's that's maybe let's do a number quick follow-up questions because one topic that also came for me as a theory why the market is giving you the 75% discount is the idea that the market expects more zeros like Babylon on a higher level it's do you what do you expect there knowing the 66 companies in your

portfolio is there more pain to come on this side or are you fine with like there's the overview yeah 70% of the portfolio i mean 70% of the NAV right is a bit positive so i mean in Babylon was a bit of negative to the order of what was it, $250 million per year, right? So we have nothing like that in the portfolio. There are some younger companies that won't make it. And we've probably written them off too, but they're like very, very small in the portfolio. So the number of names will be reduced, but it doesn't give so much financial impact.

So like, of course, Babylon did. So no, that fear, I understand and I have simply. for that fear being there especially if you look at us from a distance like you're not so focused on this it's technology it's long duration assets now the market is doing something else so I have sympathy that people don't really study it closely but if you do if you come closer and you look then you see that that that is not that is not a good reason for this discount and the 70% share might even grow in the future or yeah it's growing it's growing so then thank you very much for the interview

thank you very much for your time it was very insightful and i hope next time we have some brighter topics to discuss because i had brought some harder questions as well but that's the time no no it's great to talk to you tilman and i think it's uh well it's in these times i mean if you look back to you know buying my stock in in january if we are if we are now in like the the first quarter of 2009 or something similar in the first quarter of 2009 it was difficult to see what was going to happen but that was also the very low point the same if you went to the autumn of 1998 this company nearly sort of was liquidated in the autumn of 1998 but you know it lived another day and then the market turned lived another day and

then the market turned and then it went back up so we're i feel we're in that sort of same period it's it's And so it's very important to talk in this period, too, is what I'm trying to say. A lot of investing is holding hands and talking. Do it. Great. Thank you for your time. Thank you. And bye-bye to the audience.

Bye. As in every video, also here is the disclaimer. You can find a link to the disclaimer below in the show notes. The disclaimer says, always do your own work. What we're doing here is no recommendation. and no advice. So please always do your own work. Thank you very much.