What are VNV Global’s chances after the Babylon fail, Per Brilioth?

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.


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We have discussed the following topics:

Welcoming Per Brilioth

[00:00:00] Tilman Versch: Dear viewers of Good Investing Talks, it’s great to have you back at the podcast. Today, I’m having Per Brilioth of VNV Global back from Stockholm. How are you doing, Per?

[00:00:10] Per Brilioth: I’m good. Thank you.

[00:00:13] Tilman Versch: That’s great.

[00:00:14] Per Brilioth: How are you?

[00:00:16] Tilman Versch: 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. It’s interesting to have you back. It’s also great that you came because for you as an investor, it’s not like the easiest climate right now and the stock is also down a lot from the peak. Maybe let’s try to look back in the past. If you’re running VNV for quite some time and you have these huge drawdowns, have they already happened in the past and have you experienced something like this already as an investor?

[00:00:56] Per Brilioth: Yes, yes. I have. Yeah, you know. A few times like I specifically remember ‘98 and 2008, of course. But then in the midst, between those years as a couple, some volatile periods tend to sort of come and go.

Getting through volatile periods

[00:01:19] Tilman Versch: What was your framework to stand these volatile periods and this may be longer times of drawdown as an investor?

[00:01:35] Per Brilioth: I don’t really have a textbook like this is what you should do and it’s always, it’s not fun. And I think if you are just too relaxed and that then maybe you’re not really in the right job when things go down and when you’re in these volatile periods, I think it’s, it’s okay to think it’s tough and you have to sort of but and I certainly do and it’s in the same sort of manner these other times.

But I think now like before, I believe a lot in the portfolio that we have and so that gives me confidence that 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 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 it’s always darkest before dawn. So yeah, what I would say, and this is, of course, you know, I, we at the end we find ourselves in not this position, but when you’re in the business of investing into risk, taking a risk, like we are then it’s better not to have leverage when you go into this sort of downturns.

Of course, we do have leverage now and that’s something that we work with a lot and intend to sort of deliver and pay back the debt we have. But of course, if you sort of enter into a downturn without leverage you are much stronger. So that’s an easy one to have on this to-do list.

What went wrong with Babylon?

[00:03:42] Tilman Versch: 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 your Q1 or Q2 letter weighted analysis, but maybe let’s do a follow-up here too. What went wrong with Babylon Health?

[00:04:05] Per Brilioth: Yeah, Bob Long didn’t have the right sort of characteristics to survive this very sort of severe turn in the cost of capital. 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 and there are lots of details, but that’s the essence of it, it went into this sort of different climate of markets with way too little protection for those rainy days and was much too much in need of quality cheap money or a low cost of capital.

And then when the cost of capital normalised 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 wasn’t possible or this sort of format, this company, to see it all the way through.

Learnings from Babylon bankruptcy

[00:05:25] Tilman Versch: So as a shareholder of and we, Babylon was really a zero, there’s nothing?

[00:05:30] Per Brilioth: Zero.

[00:05:31] Tilman Versch: Even in the future, that might come back through processes or something like this.

[00:05:35] Per Brilioth: That’s in the past. That’s the total write-off.

[00:05:39] Tilman Versch: What did you change based on this experience?

[00:05:42] Per Brilioth: We’ll try to sum it up in our Q2. Well, different things are 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 haemorrhage money as I think is the way we phrased it.

So you have to sort of be still mindful that your losses are within reason, and you cannot fund those losses with debt. It’s also very important, that losses like that should be funded with equity. Otherwise, when the market turns like this time around, the debt holders will own the company.

Other things that are important here is that for us, you know, at the company level, it’s also that governance should be more straightforward. Accountability is very, very important. This is nothing that, I’m not insinuating that anything sort of evil was done here, but I think it’s a much better situation when there’s one share, one vote.

We still have things out there, but Bob Long 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, etcetera. But 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.

You see a lot of emails signed, signed by the founder and CEO, which doesn’t work. You can’t be a founder and CEO. The best if your 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 a different mindset. This is a different risk-taking. Building teams, listening to people around the table, etcetera. So that’s one another very important thing. And then I think also for us lot here at the VNV, Bob Long, again, I mean the product that they have 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 over part of building a veto in Russia in the classified spaces became a very large company, but we could always look at how this business model worked elsewhere because there were other people who done the trailblazing. So when you’re in trailblazing mode, we need to sort of manage how much we put into these sort of risk situations. And with the benefit of hindsight, we, of course, 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 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 then with Avito, what was that 34 times the money? It’s enough to subside. So, yeah, I think you see what I mean.

So there are a couple of learnings like that both for how I run the VNV and how you allocate within the portfolio. I mean, we are about taking risks and we do that but to take some kind of risk we need to still cap. And then also some learnings on around or some, you know, if wasn’t as if we knew it before, but some things to remember when you’re present at the board level, for example. 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.

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, if you do take the risk you will lose some, you will, I mean. And then, of course, you have to try to take risks again and not make it so afraid that you stop. That’s another big lesson. So anyway, I’m rambling on. I don’t know.

Portfolio construction moving forward

[00:10:58] Tilman Versch: No, it’s there’s a good point to ask further about portfolio construction at VNV. Like, is there now a rule implemented that you say okay with a certain characteristic this portfolio position can’t go off a certain threshold? Like you have let things run and it was a good experience with Avito? You mentioned it, but with some companies that aren’t that mature in their business model and where you can have more certainty about outcomes. How will you go about portfolio construction then?

[00:11:32] Per Brilioth: Yeah. No. 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 risky water bulb 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 and remind me when we’re in the same situation the next time.

Thoughts on the bonds

[00:12:10] Tilman Versch: One thing that comes up in your conference calls 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 is that you’re planning to sell assets and you have like we see sold with rising interest rates that the prices of the assets you own are really tied to the interest rates that went up. So looking at the bond, was it in hindsight too aggressive to allocate capital like that? Or how do you would you weigh it?

[00:12:51] Per Brilioth: Yeah. So one thing to just sort of remember is that our financial strategy is not to have that, right? We don’t use that as a way to sort of juice up our returns. We think we have enough upside and return potential in the portfolio sort of outside of financing with leverage. We’ve used that 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 new investment through some debts 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, did not materialise because of this big shift in the market that we’ve had.

So now we have the debt and have to sort of be more constructive and active around managing these exits and so yeah, we 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 buying it back in the market if there’s some supply available.

And then a slightly larger one, which is just worth $100 million, which is due in January of 2025 and for 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 is that gonna happen? The world is very dark and it seems from a distance at least difficult to sell assets especially if you have the view that our assets are of a startup nature and not profitable.

So two things there is that 70% of our portfolio is now Avito positive which is up from some 40% at the beginning of the year. So the portfolio is more, it’s much 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 a potential sort of virus 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 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.

[00:15:57] Tilman Versch: Can you give some examples for these transactions?

[00:16:01] Per Brilioth: Examples of what, sorry.

[00:16:02] Tilman Versch: The transactions you mentioned that are going around the NAV level.

[00:16:06] Per Brilioth: Yeah. No, I’m not allowed to sort of go into details of transactions because they’re private companies and they’re between two private shareholders. They’re not public. But until they’re done, of course. So, you know, hopefully, there will be some transparency around those in the not-too-distant future. And then, I mean, yeah, we’re managing around that.

[00:16:32] Tilman Versch: 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 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?

[00:17:08] Per Brilioth: Our plan is to continue like we always had is to sort of fund the work we do, which is to invest into very investable risk-reward situations with equity. 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 go from there.

So that’s very much the plan, yeah, and but now we trade at, you know, call it a 75% discount to our NAV, then it’s not possible to use the markets to sort of fund investments into new investments. I can imagine that part of the reason why we trade with this kind of discount is because we have debt. So once that’s behind us then I, you know, we should trade at least more constructively.

But I think the pricing of our stock in the market versus the NAV I think is a very clean or quantitively sort of clear picture that the markets are pretty much closed now for new risky investments. And for us, for sure 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 us.

Well, you know, attractively priced as our own stock. So even if we had money it would be very difficult to motivate ourselves to buy it. When you have the alternative to buying your own stock at a 75% discount, I see sort of stuff going on our own as we spoke about around the NAV. But it’s because at that sort of we mark our NAV according to the market so say the market is where our NAV is placed but that’s not interesting for us because we have this alternative.

Now, of course, you know, as I think we’ve spoken about in the past 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 sort of to have that behind us as soon as possible really. So that’s the focus.

Scaling and downsizing VNV’s team

[00:20:13] Tilman Versch: One thing that we talked about the last time was scaling up the team, and that’s also a topic of the past. Can you walk us a bit through how you think operationally having the right setup for the new normal we have now?

[00:20:31] Per Brilioth: Yeah, we’re back 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 I was a big advocator and a big believer in 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 in-house, organise 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, 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 that there was a good reason why I wanted to have the team small. I think it’s more effective for an organisation like ours if we concentrate on our investments instead of running people.

And then finally, it’s also good learning for me and that there was a good reason why I wanted to have the team small. I think it’s more effective for an organisation like ours if we concentrate on our investments instead of running people.

So that’s for all those three reasons. We are now back to being a much smaller team again, and I think that’s for the better.

[00:22:11] Tilman Versch: It’s also programmed to come out stronger out of the crisis and…

[00:22:15] Per Brilioth: Yeah, 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 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 they we know each other well and that are happy sort of to help us on a project or you know. Just it’s our old way of working, which we are doing again.

How the portfolio companies weather the storm

[00:22:56] Tilman Versch: So we talked a lot about how VNV comes out of the crisis stronger. Let’s jump on the companies you invested in level, what they do, 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?

[00:23:20] Per Brilioth: All of the companies are coming out stronger because they have all reduced the cost base a lot and that’s part of the reason why you see from Q1 we had 45% of the portfolio being EBITDA positive to 70% plus. Now, being EBITDA positive and continuously going in that direction. So, you know, companies exist to make a profit so this is a very, very sound development. You know that is forced upon people to control their own destiny.

They have to reduce the cost so that the money that they have is enough to sort of take them to profitability and how their profitability and then yeah, it comes at the expense of some growth that you can’t sort of grow, grow.

You have to grow with profitability basically and so from that point of view, it’s a much, much stronger portfolio today than it was a few years ago. And there remains a lot of upside even with, you know, with the current sort of growth and the current sort of products that these companies are doing. There’s an enormous upside that we that I think will be easier for markets, sort of to take to, you know, there’s not a lot of people looking at our part of capital markets now.

You want short-duration assets and lots of visibility because your market visibility I feel is it’s quite short now. So if you have something that has a little bit longer duration, the analysis is just not being done. I guess that’s the opportunity that you want to get involved when everyone else is doing active somewhere else right.

But it’s all normalisation, I think the visibility now is maybe for a month or six months. You know, two years ago we had a disability over 20 years, you know, people were investing in 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, it’s maybe too short, you know. Now, it’s maybe, I don’t know, less than a year. When we get back to normality, when we have sort of stability on what the cost of capital will be, it would be the normal three to five years or something like that.

You could look out and then you start to sort of pick up and look at these things again 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 back, and cash flow to sort of new investments which we have had from time to time in the past, we haven’t had over the past couple of years, but with the way profitability is growing now we certainly have that, you know, that will be the situation when you say if you look at VNV when the crisis is over.

It’s difficult to define that exactly, but, yeah, so I’m very enthusiastic actually. Then we have a lot of companies that are small now in a portfolio, but that will be much, much larger that will come out of the shadow that is 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 big drivers for VNV for the longer term.

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Outlook for BlaBlaCar

[00:27:25] Tilman Versch: We recently had the capital market stay where people can also take a deeper look into some of the company’s presentations, plus 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.

[00:27:57] Per Brilioth: Well, I think the two larger ones which are, I mean there is really BlaBlaCar and Voi Technology. So I mean BlaBlaCar is now in a very, very strong sort of macro tailwind, right? This is the problem that they solve is for you and me and two others to sort of share the costs of long-distance travel. And when times are tougher, people are more prone to do that. And so it’s really sort of in a macro sort of tailwind.

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. We’ve seen them add buses to it, but we also see them being very active around trains and there will 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 distances.

Now you can do sort of medium distance not, you know, commute kind of distances and another means that if it’s driven by supply, we can also be driven by demand. So it’s this enormous amount of work going on around developing the product, but the base of this is in a very strong sort of macro tailwind.

[00:29:41] Tilman Versch: Let me ask a follow-up question on BlaBlaCar. What 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 BlaBlaCar, it felt a bit like they were a bit disappointed. It was more like a slow-brewing, slow-building thing and not like a hockey stick growth. So what is your observation of growth at BlaBlaCar?

[00:30:09] Per Brilioth: We are in the business of investing into network effects, right, which is essentially investing into companies that can sort of grow as high barriers to entry. So that they assume the characteristics of monopoly. We came to that to classify. But that’s the common characteristic of all the things in our portfolio.

But these things are not hockey sticks. And they will never be. It takes a long time to grow the liquidity or the data, whatever it is that creates these very high barriers to entry. Once you’ve grown to a certain level then you can start to charge. So it’s like a flat. In terms of revenue and as financial analysts, we’ll see 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, the hockey stick is that you have to fund it with marketing because very strength you are very low and it’s brand you have to fund the brand you have to be very active. So that’s hockey sticks there’s more to the story than just a hockey stick.

Here, it’s that you have to sort of build liquidity, 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. And 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 as something that grows, you know, in a slow way. But once you have reached that sort of level of this of big enough distance to your competitor then best entry or wonderfully high and then it becomes a very valuable company.

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. So the same for BlaBlaCar. BlaBlaCar, 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 supply is this it’s very high fragmentation on both sides of the marketplace. Get liquidity in the middle of that and I would even say unpenetrable sort of bearish to entry. And so, BlaBlaCar is very much in that situation. But what I was going to get to and it’s something that if we talk in a few years, right, and what’s now very, very strong macro and keeping them stronger is sort of is, of course, climate and different ways to sort of. To reduce the dependency on energy-intensive sort of transportation modes.

These platforms like BlaBlaCar and Voi both have within them a very, very strong ability to be a tool to reduce energy intensiveness or to reduce the dependency on carbon dioxide means of transportation, etcetera. In BlaBlaCar you see some of that already, in Voi 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 behaviour to more sort of climate efficient.

Well, in this case means, 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. And now we invested in them because they are network effects. The product that they deliver becomes better for every new user that uses that product. They both checked that network effect, you know, rule of thumb that we look for first and foremost when we invest. And then, of course, they have the macro mobility, which is very interesting.

It’s changing. Younger generations are, you know, much more prone to sort of use new methods of transportation so that whole industry is changing and they’re in the midst of that. But what we now forget is that they’re also platforms to drive people to a more sort of climate-friendly means of transportation and that’s the value we don’t talk about today that which will be much more present, I think if we look a few years down the road.

Outlook for Voi

[00:35:59] Tilman Versch: Let’s come back to the point where I interrupted you. You wanted to make the case, so to speak for Voi in three to five years.

[00:36:08] Per Brilioth: Yeah. So Voi is the, I mean, I think everyone we talk to will agree that in three to five years, the city you live in, the city I live in will have fewer cars. People moving around the city, the politicians, everyone is on that track and when you think about it in that way, Voi sits on the platform that now we only think about scooters and looks very competitive. Voi is already, you know, it’s a profitable company, it’s been able to sort of run its platform with scooters as the only product essentially the product as in.

[00:36:49] Tilman Versch: I did ride a bike two days ago in Berlin. I had bikes.

[00:36:53] Per Brilioth: So there are some bikes in some cities, but it was based on scooters and now it’s developed into bikes but only on those products. Well, two products. It’s been able to sort of run an efficient company that’s making money. That’s what we have today, but they sit in the middle of that sort of nearly seismic shift that Berlin, Stockholm, London, etcetera is moving away from cars, then those platforms also be will be, they’re 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 Voi scooter and it stands next to a Lime scooter. And what’s the difference? And you know, we missed the big picture of how important these platforms will be for the cities we live in over three to five years. Also on that quite short time horizon.

[00:38:03] Tilman Versch: At the moment, a lot of like financial analysts might compare Voi to Bird, Lime, Tier, whatever, all the other offerings and see them as just like maybe because of this, this low barriers to entry. As a business, you question how can this be a good business or how one can win in this game? Like how do you see the market in the scooter business and why you’re a winner so to speak? What are the factors that make them the winner?

[00:38:40] Per Brilioth: This sector got going during an era when there was capital around to fund it right and so you got a lot of people starting this because, well, from a distance, it looked like very strange you were low and there was capital to fund it. Let’s go. But then after a while, it became very clear that 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, safe, are parked correctly. Have the licences from a city. It’s an operation where you have to run it very, very efficiently, especially when there is competition. So Voi has concentrated enormously on running 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 or the team that started it basically came from sort of military sort of background and were sort of very, very organised in planning for all eventualities etcetera. But then on top of that, you have the network effects, which is the fact that at least 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, you know, perfectly from, you know, in the morning. So the one who has the most users will be most spread across the city. The ones that are more spread across the city will get more users and more users get a better spread. And then you’re in this spin.

So we see that in cities where Voi is they have a smaller part of the scooters, but they have double or triple the size of the actual rides in this city because of these sorts of network effects. So in contrast to maybe BlaBlaCar and classifieds, it’s not a winner takes everything. It’s more similar, I think, you could say to the Uber industry where it’s a winner, takes the most. 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 funding environment and then you’ll have some competition as well. It’s now a winner takes most.

I’m a big believer in it. And I mean and on top of that 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 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, within 15 minutes and then these platforms or they very quickly become at the heart of that. Of course, you have to have metro and public transport as well, but these platforms become a very necessary part of that vision, which I think is where we’re all going.

[00:42:31] Tilman Versch: You’ve dropped the idea that they might add other categories like other modes of transport, not scooters, but also bikes.

[00:42:43] Per Brilioth: No, they have it, right? I think you said that you rode a Voi bike. So they have electric bikes in some cities, but not in all cities. But I think part of what we talked about before being efficient, instead of doing everything at once, Voi took the starting point that we should have a black belt in the one thing we do. So only to do scooters extremely efficiently. And that’s become make that profitable and then go from there.

For the longer term, I think these platforms will, a little bit like we talked about BlaBlaCar we’ll give we’ll give you a choice of cars, scooters, and 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 perimeters of the city. Then you have BlaBlaCar on top to take you to Dusseldorf or wherever you’re going, Dortmund maybe.

Outlook for Alva

[00:43:49] Tilman Versch: Thank you for the insights into the 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?

[00:44:02] Per Brilioth: Well, I think I have two that’s sort of a little bit stand out and one is a Swedish company called Alva. Alva, which is essentially LinkedIn 2.0. So 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 the CV is quite a crude way in how to sort of match people with jobs and people running companies with their future employees.

So Alva product is basically you could say in a crude way based on a personality test but you know in a very sort of digital format and it allows their computer to do the matching much better. And so 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 said it’s a rather young company, they’re widely used in a 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 COO is the guy who used to run Avito in Russia. Swedish guy came from consulting into Avito, help build Avito 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, when times are, you know, now people are not recruiting as much as they did maybe a couple of years ago and you know the cycle always turns and 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 about 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 of the portfolio, especially if we look on a three-year time basis is an Israeli company called No Traffic. Which uses the aggregation of data to manage traffic in a city very much centred around traffic lights. At least my view, my sort of perception and I think many people share that traffic lights were quite sort of efficiently run.

But 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 that 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 the US is the starting point to focus.

[00:47:38] Tilman Versch: Makes a lot of sense with their car focus.

[00:47:41] Per Brilioth: Yeah, yeah. And this is also a huge market and a company where, 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 grow up to be quite large contributors to the portfolio.

[00:48:12] Tilman Versch: What is Alva doing better than its competitors? Because I think the hiring market is quite competitive. You have ZipRecruiter, Indeed, or whatever. Why does Alva really like standing out?

[00:48:25] Per Brilioth: Well, I think this method of matching people to jobs and the other way around is in its infancy in this market, so there will be others who probably build similar products, but their product of matching is proven strong. It’s doing it in a small market and matching people to jobs and the other way around very efficiently and then like we spoke about before it’s you have to sort of 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 if the product doesn’t match well, it dies right? So this product matches well, but it has to has to sort of start small. I think competitors are, the big ones come from a historical world where it’s much more matched based on the CV that I’ve done this course, so I’ve had 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, it’s like a much more complete picture that the algorithm sort of understands and can understand what, Tillman, your exact qualifications 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. I see it as a data play, so you have to have the algorithm that matches well, but then it matches better and better the more data it has.

[00:50:19] Tilman Versch: So how does the data then get filled in into this?

[00:50:23] Per Brilioth: Well, they go to VNV and they say, well, we’ll do your personality test for your hirings. And then that gives them data and then, you know, that helps them get to. Tilman Media Corporation. And then do your hiring and then it starts like that and it builds data.

Capital allocation

[00:50:43] Tilman Versch: Okay. It’s interesting to know. Let us jump back again to the holding or the VNV level. How much room for capital allocation do we have at the moment outside of focusing on paying or buying back the debt?

[00:51:03] Per Brilioth: Well, that’s our focus, but I always say that you know, if we find an investment. That is attractive enough. We will find a way to do it right. In fact, we did have such a situation earlier this year before summer there was a seller of shares in BlaBlaCar that was not that sensitive to the price. They really needed to sell and so we basically felt that the pricing of BlaBlacar 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 seller.

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 just from the very quantitative way of a discount to an NAV, we created a 75% discount I think. People who I think have a much less attractive portfolio than our trade that’s maybe a 35% discount, right? So there’s a big uplift from just moving on from that. But then in the meantime, we keep an eye out for all new investments. We have several sorts of dialogues going on. We haven’t found anything that we think is attractive enough, but that may change.

[00:52:59] Tilman Versch: How do you measure this attractiveness like is the hurdle that you make 50% IRR 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.

[00:53:19] Per Brilioth: You know 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% higher or from an NAV basis. That I think we have the ability to do and then of course we trade at 75% discount to that. So those are the very simple metrics. From an NAV basis, 25% IRR and then but in the shorter term we have this 75% discount to deal with. So those are the two very simple parameters that we work with.

Providing benefits besides money for companies

[00:54:02] Tilman Versch: In your letter, you’ve also written that you look to help the companies you own with capital allocation decisions outside of like the holding level. What do you do there? Maybe you can give one or two examples if you’re allowed to speak about this.

[00:54:20] Per Brilioth: Yeah. Well, this would do from being present at the board. So the board typically is the feedback to the CEO for those kinds of decisions and of 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 I think the essence of what capital location discussions and decision has been going on in the industry at large, certainly in our portfolio.

Sometimes that works well and sometimes like in Babylon it doesn’t work well. I mean, I think we as shareholders were sceptical of, or at least sort of a little bit nervous about them going so big in the US 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 the markets turned. So 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.

[00:56:16] Tilman Versch: 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 GARP approach growth at a reasonable price now with the thinking you do or is it like is this the wrong framework to…?

[00:56:35] Per Brilioth: That growth. You know, we don’t need the companies to throw off and it’s different from companies. It’s different. It’s difficult to talk high level about every company because every company is a little bit different. Some companies in our portfolio are now getting into the phase where they will be dividend payers. They have growth, based entry are high, earnings will grow faster than revenues but it’s not worth reinvesting into, you know, all of the profits. So they will provide a profit back to us.

In some other companies, it’s maybe not the 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 just profit 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 you can sort of start to raise money or be even more aggressive around growth when the cost of capital becomes more reasonable at some point in the future.

[00:57:59] Tilman Versch: Maybe for the end, let’s jump on the meta-level with you or another level with your shareholders, because I think looking at the shareholder base of VNV, there was a larger rotation happening and with the new shareholders, what are they expecting from you compared if you have the chance to talk to them, compared to the past shareholders? Because for them it was more maybe there might have been a part of their VC exposure in certain geographies and the new shareholders, what are they expecting from you and could disallow a different kind of setup at VNV? Maybe also thinking about paying dividends as a holding to the shareholders or something like that?

[00:58:45] Per Brilioth: Yeah, that’s, you know, our largest shareholder has been the same now for close to a decade. So it’s I think their view, you know, hasn’t changed. I’d say that they want us to continue doing what we’re doing is to sort of be part of building companies with very high bar strategy, Avitos, BlaBlaCars, Voi, etcetera. We have one new shareholder which is number two, which is nearly as large as the largest one. And they have built their position since the summer of 2022, essentially. So they started buying them and now they own just under 20%.

This is a Swedish family, who is very active around the Swedish financial markets, both of them 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 are the largest shareholder. 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. But I think we, you know, so the shift this 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 have 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 fund investors 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 family families who you see, of course, that this is now we’re in, you know. Now there’s a shift in cost of capital that gives rise to opportunities.

But of course, you know, we’re still in this world where that, you know, there will 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 barriers to entries, that kind of business model, that combination is very interesting.

I think we’re all in agreement that the financial strategy we have 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 Avito was the last years before we sold it.

And then, you know, like Avito, I think we got $13 million in the last year we owned it, which funded both the OpEx and funded our first ticket into Voi and it funded 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 types of situations for us over the next period here.

[01:02:55] Tilman Versch: That’s just like a scenario, and 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 are you looking back at it until you find like interesting to outline it again?

[01:03:15] Per Brilioth: I think we’ve talked about the BlaBlaCar and Voi which of course two very important positions and the various trends that they can build. Talked about some of the examples of the stuff that’s going on in the portfolio that we never talked about. And in the same way that Voi was in the shadow of Avito, Alva is in the shadow of Voi now. And that will change. I think it’s we do a lot of work and I feel very confident that we will be able to sort of 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 in NAV that’s quite very, very fairly priced. I think it’s the right way to phrase it. 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.

Closing thoughts

[01:04:28] Tilman Versch: Maybe let’s do a number of quick follow-up questions because one topic that also came for me as a theory wider market is giving you the 75% discount is the idea that the market expects more zeros like Babylon. On a higher level, 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 overview?

[01:05:01] Per Brilioth: Seventy per cent of the portfolio, I mean 70% of the NAV, right, is EBITDA positive. So, I mean, Babylon was EBITDA negative to the order of [unintelligible], $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 have so much financial impact. So like of course, Babylon did so. So no, that fear, I understand and I have sympathy 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 a long-duration asset. Now the market is doing something else. So I have sympathies that people don’t really study it closely, but if you do, if you come closer and you look then you see that that is not a good reason for this discount.

[01:06:06] Tilman Versch: And the 70% share might even grow in the future or…?

[01:06:11] Per Brilioth: Yeah, it’s growing. It’s growing.

Thank you

[01:06:15] Tilman Versch: And 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 it’s the time.

[01:06:29] Per Brilioth: No, no. It’s great to talk to you, Tilman, and I think it’s well, in these times. I mean, if you look back to, you know, buying my stock in January, if we are now in like 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 a 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 it lived another day and then the market turned, lived another day, and then the market turned, and then it went back up. So I feel we’re in that sort of same period and so it’s very important to talk in this period too is what I’m trying to say.

[01:07:15] Tilman Versch: Yeah, a lot of investing is holding hands and talking. Thank you for your time.

[01:07:24] Per Brilioth: Thank you.

[01:07:24] Tilman Versch: And bye-bye to the audience.


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Tilman is a very enthusiastic, long-term investor. Over the last years he has taught himself important investing concepts autodidactically. He tries to combine a positive climate and environmental impact with his investments.
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