After successfully investing in Tesla, Alibaba, and Meituan, this value investment giant is "very optimistic" about ByteDance

Peter Singlehurst, the growth investment director and partner at the renowned value investment firm Baillie Gifford, known as the "global growth stock catcher," recently participated in a blog interview discussing several hot topics, including the artificial intelligence boom and which companies are currently worth investing in. As a century-old institution in the investment world, Baillie Gifford, based in Edinburgh, Scotland, has a core investment strategy philosophy focused on global long-term growth, which involves identifying and investing in a select few high-quality companies that are the most competitive, innovative, and efficient in growth on a global scale. Among the early investors in global tech giants, Baillie Gifford's presence can be seen: the firm invested in Amazon in 2004, Illumina in 2011, Tesla in 2013, Alibaba in 2014, and Meituan in 2016. When asked about the most promising investment currently, Peter confidently replied—ByteDance. Peter estimates that even in today's international climate, investments in ByteDance still have a fivefold return rate. Here are the key points from the conversation: Companies need to be wary of the dangers of "force-feeding investment." For early-stage venture capital, if ROE is not a key consideration in investment, it can become a hidden danger for the company's development. Maintaining strategic focus amid the generative AI boom, Baillie Gifford has invested in AI companies like DataBricks and Tenstorrent, but has not yet made significant investments in large language models. This is not because there aren't good products or companies generating high revenue in this field, but because the true competitive advantages of companies at the large language model level have not yet been analyzed. When selecting investment targets, they remain very optimistic about companies led by founders. Before investing, a target is usually set, expecting the investment to achieve a fivefold return. During the modeling process, consistency in the return multiple is maintained while testing the probabilities and assumptions needed to achieve this goal. This allows for comparisons across different investment cases. If a company can be found that is believed to have a 30%-40% probability of achieving fivefold growth, that is considered a very good investment opportunity. As long as the probability is between 30%-50%, they usually consider making an investment. The most worthwhile company to invest in right now is ByteDance, with the investment primarily focused on its exceptionally strong business model in China. Even in today's international climate, investments in ByteDance still have a fivefold return rate. De-globalization poses the greatest risk to investments, but China remains worthy of investment. Baillie Gifford's due diligence consists of ten questions, the first being growth opportunities over the next 5-10 years; the second is product, competitive advantages, scale, etc.; the third is organizational culture; and the fourth is financial analysis. People are gradually realizing that companies can better focus on business development and build stronger enterprises by remaining private for a longer period. Anduril (a U.S. defense technology company) is reminiscent of the models seen in two other companies, namely Tesla and SpaceX. Most of the products developed by Anduril are software-driven, but they address very challenging technical hardware issues. They have proven the feasibility of their products, and there are consumers willing to purchase them, so there is no issue with product-market fit. If I could buy and hold a stock for 10 years, I might choose Bending Spoons (an Italian technology company founded in 2013 and headquartered in Milan, known primarily for its developed or acquired mobile applications). Here is the full transcript of the conversation: Host: Let's get started, Peter. Last time we communicated via Zoom, and I'm glad we can talk face-to-face this time. Thank you very much for being here today. Peter Singlehurst: I'm happy too, Harry. It's great to see you again. I'm also glad to be here. Host: However, I actually skipped the question "How did you get into venture capital?" because for many graduates of Stanford University's computer science program, the answer is obvious, and everyone knows what they will do next. But when we were chatting just now, you mentioned how you got involved in private company investments, which I found very interesting, so I wanted to ask you about it on the show. How did you start working on private company investments at Baillie Gifford? What was the opportunity at that time? Peter Singlehurst: The specific opportunity was this. In 2014, I participated in a public market investment strategy project called "Long-Term Global Growth Strategy," which was a $50 billion public market investment project. At that time, I worked with three senior investment partners: James Anderson, Mark Urtt, and Tom Slater. We began to pay attention to some sizable private companies that had been our focus and investment targets all along. At that time, companies like Airbnb and Spotify were emerging. Tom, Mark, and James were busy managing hundreds of billions of dollars of our clients' funds and were stretched thin. One time, while we were discussing in the conference room, James asked, "Who will be responsible for researching these private companies?" I raised my hand and said, "I'll do it." And that's how I started working in the field of private company investments Host: Were you nervous at that time? Peter Singlehurst: Perhaps I should have been nervous. If I had foreseen the various challenges that followed, I would definitely have felt nervous. Host: Now that you have accumulated so much experience, what advice would you give to your past self when you first entered this position? Peter Singlehurst: That's a difficult question to answer. Human instinct often leads us to give advice to help ourselves avoid past mistakes. But in reality, it is these mistakes that allow us to learn and grow continuously. So, I'm not sure whether I should give my past self specific investment tips, because I believe investment skills need to be accumulated through practical experience. If I had to say something, I would remind myself not to be overly idealistic when thinking about how to extend our investment capabilities and services to more clients. When we first started this work, we primarily invested through permanent capital tools, and we have continued to do so. This approach is very suitable for ultra-long-term investments, but it has also led to many clients who wish to participate in our investments in high-growth, large-scale private companies being unable to do so due to the limitations of permanent capital tools. They hope we can adopt a more traditional fund structure. I really wish we had recognized these trade-offs and made some compromises earlier on. Host: Why didn't you do that at the time? Peter Singlehurst: I think in the investment process, the factors that give us an advantage or unique capabilities often differ from those of others. Some differences are at the core of our competitive advantage, while others are not. But sometimes, it is difficult to distinguish these differences. For example, we have our own characteristics in talent recruitment, bringing in different types of talent; our company is located in Edinburgh, Scotland, which is also a unique aspect. I once thought that permanent capital tools were one of our core advantages, and to some extent, they are. But now it seems that I may have overestimated their importance. In fact, we can provide quality services to clients through permanent capital tools, and we can also adopt a more traditional fund structure to meet client needs. Host: You mentioned learning from mistakes, and investment skills are accumulated through continuous errors. Looking back, which mistake left the deepest impression on you and also provided you with the most lessons learned? Peter Singlehurst: We have had many investment experiences that did not go smoothly. Ironically, not all losing investments are the result of poor decisions. In investing, we try to predict future trends or assess the likelihood of various scenarios occurring. Sometimes, investing itself comes with uncertainty, and negative outcomes may lead to losses, which is part of investing. Some investments are mistakes because we should have foreseen certain issues but did not give them enough attention, ultimately leading to losses.** I can give you two different types of examples. The first bankrupt company we invested in was Inari, a biotechnology company dedicated to developing a product called GP1. Imagine if this company could have continued operations; it would have been a very successful investment. Unfortunately, their treatment plan was rejected by the U.S. Food and Drug Administration (FDA), and the company eventually went bankrupt. This is a known uncertainty risk, and unfortunately, it happened, resulting in losses for our clients. Although it is painful, I believe it is an inevitable part of the investment industry. Another example is Northvolt, which is a typical case of our investment mistake. We had high hopes for a company like Northvolt, believing it was significant in terms of energy sovereignty and had a broad market prospect in Europe. However, we underestimated the execution capability of their team, and they failed to effectively execute their plans, leading to the investment failure. I feel very guilty about this because I think it was something we should have noticed in advance. Host: Were there any signs at the time? Peter Singlehurst: In hindsight, there are always some signs. During the investment process, we gradually noticed some issues and subsequently reduced our additional investments in the company. Host: This falls under the category of forgivable mistakes. I think the most painful part is continuously increasing investment during the process while being unable to control one's emotions and not being able to cut losses in time. Did you continue to add investments in Northvolt? Peter Singlehurst: We did make additional investments after our initial investment. However, there were times afterward when, despite the company requesting more funding, we considered factors such as their execution and the structure of the financing rounds, which we believed could affect the reasonableness of the company's equity structure, and ultimately decided not to make further investments. Host: You mentioned Inari, and investing in this company faced many risks, such as market timing risks and regulatory risks from FDA approvals. Many venture capitalists would not even venture into such investments. How do you weigh the risks you are willing to take against those you are not willing to take when investing? Peter Singlehurst: I believe that over time during the investment process, we gradually narrow our focus areas and concentrate on those we believe have greater competitive advantages. Nowadays, we might not invest in companies like Inari. Over the past five or six years, we have focused more on investing in companies that are in a real growth phase. At this stage, we do not take on product risks but focus on the quality and scalability risks of the business model. Over the years, the types of companies in our portfolio have continuously optimized, and our investment direction has become increasingly focused because we believe that investing in such companies can give us the greatest competitive advantage Host: Interestingly, I once invited Mitchell Green from Lead Edge to the show. Lead Edge has been very successful in the growth investment space, and they have eight investment principles, such as focusing on a company's profitability, high growth potential, good profit margins, and lack of competitive advantages. I was thinking at the time that these principles really make sense. When you mention the scalability risk of a business model, can you provide a specific example to illustrate what it means or what it looks like? Peter Singlehurst: We consider investment decisions from both quantitative and qualitative perspectives. From a qualitative standpoint, we try to invest in companies that have lower product-related risks and then analyze whether they have the potential to become outstanding enterprises. This means we need to assess whether these companies can achieve growth several times their current scale and whether they can generate high returns on equity. Before answering your question about specific examples, let's take a look at some data from the companies we invest in. The median annual revenue of the companies in our portfolio is about $200 million, and they are still growing at a rate of approximately 70% per year, with an EBITDA margin of about -14%, indicating a slight loss. Of course, this is just median data; some companies are profitable while others are still in a loss position. If a company has an annual revenue of $200 million, it indicates that its product has a market, and people are willing to buy it. When we invest, we do not need to bear the risk of product-market fit, which is an entry point for our investments. When we make successful investments for our clients, we often find companies in this revenue range that subsequently achieve several times growth. Take Wise as an example; when we first invested, its revenue was slightly below this range, around $50 million to $60 million. Today, it has grown into a company with annual revenues in the billions, continuously growing in the core person-to-person foreign exchange trading market and expanding its business scope to include corporate foreign exchange transfer services, which did not exist at the time of our initial investment. Now, Wise is a company with a very high return on equity, but at the time of our initial investment, it was still in a loss position. We made the right judgment when investing in Wise, considering not only its enormous market potential but also its scalable business model, which could generate high profits after scaling up, providing substantial returns relative to its relatively small equity investment. For anyone from the public markets who understands large-scale quality enterprises, return on equity is a key factor in evaluating a business. However, in the venture capital space, this concept is often overlooked. I don't think this is a criticism of the venture capital field because, by definition, if you invest in a company at its inception, the issue of return on equity may only become apparent later, so it may not necessarily be a consideration at the time of the investment decision However, from the perspective of the quality of enterprise formation, this is indeed a problem, as it distorts the capital structure of enterprises, leading to over-capitalization and causing some enterprises to develop imbalanced. An inappropriate metaphor often comes to my mind, like force-feeding ducks. I really like this metaphor, we are now seeing the phenomenon of startups being excessively "force-fed" with investments. In 2019, 2020, especially in 2021, many companies received too much funding. Host: Peter, in fact, this situation may still exist now. A large amount of growth capital is flooding into the market, and investors are willing to pay high investments for a company with an annual revenue of $30 million two years in advance because they believe this company has the potential to develop into a $10 billion enterprise. If they can enter at a lower valuation, they can achieve multiple returns. They believe that the amount of capital invested will not affect the final outcome, but we all know that if too much capital is injected, the enterprise may become overwhelmed and ultimately fail. Peter Singlehurst: I think this situation does exist in certain areas of the current market, but it is not universal. For example, if you want to invest in artificial intelligence large language model companies, the issues you mentioned still exist. If you want to invest in a field that was very popular three or four years ago but has seen a decline in interest now, such as fintech, many fintech companies have actually made significant progress in profitability and are no longer in a situation where everyone is pouring large amounts of money into them. You can find some very excellent companies that are either already profitable or are steadily moving towards profitability, with huge growth opportunities, excellent products, and management teams, and the investment prices are also relatively reasonable. Or you can broaden your focus to wider fields. For us, we are global investors, with a wide range of investment areas, not limited to specific industries or regions. This way, we can discover some remarkable companies. I know you previously invited Luca Ferrari, the founder of Bending Spoons, to the show, and I think that is a great example. Bending Spoons has largely developed through self-funding, creating a highly scalable business model, and its profitability is envied by many companies. It has achieved its development by avoiding the pitfalls of over-capitalization. Host: Within Baillie Gifford, do you deliberately avoid investing in AI companies due to their high valuations? Peter Singlehurst: We do not simply say we won't invest, but rather think about where value will be generated. If we are to hold a company for ten years, we consider which factors will determine the company's success in terms of revenue and profit in the long term This involves some more abstract factors such as competitive advantage and corporate culture. We have indeed invested in some companies at the forefront of the artificial intelligence revolution, such as Databricks, of which we are a shareholder; and Tenstorrent, a company focused on chips and infrastructure, in which we have also invested. We have conducted extensive research and analysis in this field, but have not yet invested in large AI large language model companies. This is not because the products of these companies are not excellent or their revenue scale is not large enough, but because we are still exploring what kind of competitive advantage is sustainable at the large language model level. I believe we have a relatively clear understanding at the infrastructure and product distribution levels, but in the large language model field, there is homogeneous competition brought about by factors such as open-source models and Deep SE. Host: I completely agree with this point; everyone seems to recognize that large language models are in the middle layer and face the issue of homogeneous competition. However, when we look at the application layer, the revenue growth rates of these companies are unprecedented. From Midjourney to Lovable, Bolts, and other companies, their weekly revenue growth can reach millions of dollars. Therefore, the valuations of these companies are also very high. In this case, as a rigorous investor, can you still invest at the application layer? Peter Singlehurst: Rigorous investment thinking does not mean you should completely avoid certain fields or industries. If you have enough confidence in a company's success, you should delve into its valuation. Being a rigorous investor does not mean you will never pay above a certain multiple; when you find a truly special company, you should seriously consider its valuation. Of course, the risk is that you may think every company is special, leading to an excessive focus on valuation. The key is to wisely choose when to pay a high price for a company. Do you know what I am really worried about? I am concerned that we are seeing an unprecedented revenue growth pattern, which may mislead a generation of companies. Some of the companies we invest in are experiencing revenue growth that is no longer from $2 million to $100 million, but rather achieving several times growth. Host: Does this change in growth pattern mean that for these companies, simply relying on this growth is no longer sufficient to secure Series C, D, or E funding? Peter Singlehurst: I think there is a possibility of that. But I also believe that there will still be some companies from before the AI era that, due to their unique product development methods that are difficult to replicate with AI, can still become outstanding companies. Returning to the fintech sector, I think this is a good example. These companies face many challenges and complexities, such as how to deal with regulation, and AI will undoubtedly have an impact on this field However, there are still some fundamental issues in the process of building these products, which will not be easily resolved by the emergence of artificial intelligence. Host: When you consider a company's competitiveness and revenue quality, I recently read Hamilton Helmer's "7 Powers," and I think it's a fantastic book. Have you read it? If not, I must recommend it to you. The book mainly analyzes a company's competitive advantages, summarizing them into seven different factors. Do you have your own analytical framework when assessing a company's value sustainability? Peter Singlehurst: We do have our own analytical framework. This framework dates back to my time working in the long-term global growth team. We call it the "Ten Questions" framework. I won't elaborate on the ten questions in detail, but they can generally be divided into four aspects. The first few questions mainly focus on the company's growth opportunities over the next 5 years, 10 years, or even longer; the next set of questions involves the enduring determinants of the company's success, one of which is the product, as well as competitive advantages and how these advantages evolve over time and scale; the third aspect may be the most abstract but also the most important, which is corporate culture, which certainly includes the management team and its execution capability. It is important to note that this is not simply about judging whether corporate culture is good or bad, but rather whether the corporate culture aligns with the company's specific goals or mission; The final aspect is financial analysis, such as whether the company can become one with a high return on equity. We refer to cases of high-return companies in the same industry to analyze what factors lead to varying capital returns within a specific industry. In terms of valuation, our approach is closer to public market valuation methods because we are trying to find companies that we believe have long-term intrinsic value, and that intrinsic value is significantly higher than the current market price. Host: You mentioned enduring competitive advantages. Nowadays, with new artificial intelligence tools constantly emerging, many existing companies' business models are being disrupted. In the face of such rapid changes in technology companies, do you think it is still possible to accurately predict a company's enduring competitive advantages? Peter Singlehurst: It depends on whether the competitive advantage is reflected in the product or other aspects. Typically, the most enduring competitive advantages do not stem from a specific product, such as not being able to sell more than you just because my cup is better than yours. Take Bending Spoons as an example; its competitive advantage does not lie in a specific application but in its acquisition strategy, business strategy, and the ability to integrate acquired companies into a shared set of services and tools that can help businesses grow, improve product quality, and generate free cash flow. Moreover, competitive advantages are often deeply integrated with the founder's corporate culture and personality, as well as closely related to the organizational structure they create. So, will this competitive advantage weaken over time? Of course. But will it be destroyed by artificial intelligence? I'm not sure; I think it is more enduring than that. If a company's competitive advantage is merely that its products are better than those of others, such as their widgets being superior, then artificial intelligence could potentially create better widgets, thereby weakening that competitive advantage. However, if the competitive advantage is reflected in other aspects, the situation is different. Host: In the investment process, is there a significant difference between companies led by founders as CEOs and those led by non-founders as CEOs? Paul Graham discussed this issue earlier this year, and I'm curious if you have data indicating that founder-led companies have advantages in terms of durability and sustainability compared to non-founder-led companies when you mention organization and culture? Peter Singlehurst: While specific data may vary somewhat, the general situation is that among our largest 10 investments, 9 of the companies are still led by their founders. Even among the large enterprises we invest in, we still clearly prefer to invest in founder-led companies. This is mainly because if a company has an annual revenue of $200 million, and the founder cannot scale the company to that size, it often has already undergone multiple management changes before we get involved. Moreover, we remain very optimistic about investing in founder-led enterprises when screening investment targets. Of course, this does not mean that there are no excellent companies among non-founder-led enterprises; for example, Vinted is a great case. I previously talked with Thomas about the Project Europe initiative, and the achievements you have made in this project are truly impressive. Vinted is led by non-founders and has undergone tremendous transformation, which is really incredible. In a way, it’s like re-establishing a company, and I think that description is very appropriate; I completely agree. As a podcast host, I might be a bit more skilled in expression. Host: You view growth as the primary consideration. Just like Bending Spoons, whose publicly reported revenue figures are very impressive, with a valuation of $5 billion. When making investments, do you conduct revenue scenario planning? For instance, considering if scenarios X and Y occur, the company's market value could reach $25 billion, allowing us to achieve a 5x return? Peter Singlehurst: Yes, we model the potential returns of each company in a very consistent manner when evaluating them. **We typically set a target of expecting the investment to achieve a 5x return. During the modeling process, we maintain consistency in the setting of revenue multiples while testing the probabilities and assumptions needed to achieve that goal This approach allows us to compare different investment cases. Of course, we will also pay attention to the long-term returns and higher potential returns of the invested companies, but the foundational modeling always revolves around a 5x return. So, what do you think is an acceptable range for the probability of achieving a 5x return? Is it that as long as we believe there is an 80% chance, we will invest? If the probability is below 80%, we won't invest, because any investment has at least a 1% chance of success, right? In fact, the acceptable probability is far from that high. If someone believes that an investment has an 80% chance of achieving a 5x return, they may be overly optimistic about the probabilities and confidence in the investment. From a long-term or high-return scenario, achieving a 5x return is not easy. Looking back at 30 years of public market data, we can find that if we randomly select a company, the probability of it achieving 5x growth is only about 5%. So, if we can find a company that we believe has a 30%-40% chance of achieving 5x growth, that is a very good investment opportunity. As long as the probability is between 30%-50%, we usually consider making an investment. Host: How do you view the investment horizon? From your investment structure, theoretically, the investment horizon is open-ended, and there is no need to consider the time frame too much. However, capital always has an opportunity cost, and it can achieve better compound growth elsewhere. How do you balance the investment horizon and the willingness to wait for returns? Peter Singlehurst: This depends to some extent on the specific type of fund. Some of our funds can cycle capital, and in these types of funds, we can reduce our holdings in investments transitioning from private companies to public companies and reinvest the recovered capital into new private enterprises. When we believe that the new investment company can bring higher potential returns than continuing to hold shares in the public company, we will take such actions. For other more traditional fund structures we manage, such as fixed-term limited partnership funds, while some degree of capital cycling is possible, it is relatively limited. In this case, it is important to maintain high investment standards and to be patient. Taking a recently raised fund as an example, the fund completed its fundraising in 2021, but in 2022 and 2023, our investment deployment was very minimal because the market valuations were still too high at that time. There were various operations in the market utilizing convertible bonds, and everyone was pretending that the company's valuations were still at the levels of 2021. It wasn't until last year that we began to discover some high-quality companies at reasonable prices, and at the same time, some irrational phenomena regarding valuations and investment structures in the market had decreased, so we increased our investment efforts starting in 2024 Host: However, Peter, the current investment prices do not seem to have improved significantly. Perhaps we are looking at different markets, but the current market does not appear to have returned to a rational and calm state. Peter Singlehurst: It depends on your perspective. From the data, the valuation multiples for Series C and later financing rounds in the U.S. are lower than the levels of 2021, although they are still at a high position. I actually don't pay much attention to these data reports because they have a large sample size that includes many ordinary Series C financing cases, while I am more concerned about the few high-quality Series C projects that could potentially yield 25 times returns. Host: Investing is like a game of finding outliers. For those outstanding companies, the market has more understanding of them, and investment funds will concentrate on them more quickly, leading to a significant increase in their financing prices. This is why some Series C and D financing prices are absurdly high now, with massive financing rounds of $5 billion or even $10 billion. Peter Singlehurst: I completely agree with your point. I think the market is increasingly leaning towards a few well-known companies. There is an understandable psychological factor behind this, the entire industry is still digesting the effects of the market overheating in 2021 and the market correction in 2022. When an industry or ecosystem goes through a turbulent period, people seek a sense of security, and this sense of security often comes from conforming to peers and avoiding overly different decisions. We have always been this way, which is also the reason we made corresponding investment decisions in 2021 and 2022. Host: There is a very interesting story about a boy and a teacher. In math class, the teacher asked, "There are 8 sheep in a pen, 1 jumps out, how many are left?" The boy was the only student who answered, "None left." The teacher said, "You are wrong; you don't understand math." The boy replied, "No, you don't understand sheep." This story is wonderful; it vividly reflects our behavior in the investment field. We are like a flock of sheep, blindly following the decisions of the crowd. As you said, if we focus on the fintech sector or Web3 (although I'm not sure if Web3 is still popular now), we might find some reasonably priced investment opportunities. Peter Singlehurst: I think you are right. Therefore, I believe it is very important to broaden our investment horizons. This way, at the right time, we can venture into those hot areas to find quality investment targets while also paying attention to other sectors. Our investment scope covers about 2,000 to 3,000 companies, and as a team, we have the capability to research and track these companies. For example, last year, we invested in 6 different countries, not in pursuit of investment uniqueness, but because we found excellent companies globally, many of which are not well-known to the public. ** In addition to Bending Spoons, last year we also invested in a Portuguese company, a Brazilian company, an Indian company, and an Israeli company. Speaking of investments in Brazil and India, I might face some criticism for the following views. Brazil has performed poorly in terms of exit channels for large-scale enterprises. Apart from Nubank, which is said to be the only successful case in Brazil in the past 20 years, there are a few other companies, but they are not large in scale. India has consistently performed well in its tech ecosystem, and now is a good time to invest, but we are still waiting for the right exit opportunities. How do you consider macro market risks when investing? I believe it is very unwise to ignore macro market risks. However, as investors, our job is to reasonably assess risks and ensure that the price we pay compensates for the risks we take on. As growth investors, we need to price in the risks and uncertainties that companies face as they grow to several times their current size, while also considering the risks associated with exits and achieving liquidity. We are willing to take on certain risks, provided that we can obtain corresponding returns. Moreover, our investment horizon is very long, which also allows us to bear more risks to some extent. Host: Do you plan in advance for the funding needs of the companies? And do you seriously consider the issue of equity dilution brought about by investments? Peter Singlehurst: Of course, we plan in advance and think about how much funding should be reserved for different companies. Companies like Uber, DoorDash, and Instacart, which consume a lot of cash, have very different funding needs compared to traditional enterprise software companies, which require relatively less funding. We take these factors into account to ensure that the funding needs within our portfolio are structured reasonably. Last year, many of the companies we invested in have already become profitable or are expected to become profitable this year. For these companies, equity dilution has much less impact on investments because they can achieve self-funding. However, if a company is profitable but does not maintain sufficient growth momentum to get back on track, this remains a concerning issue. I believe this is a common misunderstanding in our industry; people always discuss the trade-off between growth and profitability, but in reality, we should focus more on the incremental returns on invested capital and the long-term equity return rates of companies. Host: Does Amazon's development model align with the theory you mentioned? Clearly, Amazon has not been profitable for many years, instead continuously investing funds into new product development and technological innovation. Does this align with your theory? Peter Singlehurst: For our company, Amazon is a profoundly impactful investment. I personally did not directly participate in this investment, but our company first invested in Amazon in 2004. Over the years, we have witnessed Amazon's journey from long-term losses to profitability. ** Tesla is also a similar example; we first invested in Tesla in 2013. In the early stages of investing in these companies, they were all in a loss-making state, and for a long time, we were questioned for holding their stocks. However, over time, we saw their business expansion, growth potential, and enduring competitive advantages gradually emerge, ultimately achieving scale expansion and profitability. Host: Do you think there are any companies now that may not be favored in the early stages of investment but have the potential to become industry giants in the future? Peter Singlehurst: Are you referring to companies like ByteDance? Host: Why do you ask that? How do you view the risks associated with investing in ByteDance? After all, the U.S. government may take actions, such as banning TikTok, which could significantly impact ByteDance's business. Peter Singlehurst: ByteDance is an incredible company that has demonstrated astonishing revenue and profit growth capabilities in the Chinese market. Its products, such as Douyin (the Chinese version of TikTok) and Toutiao, lead in the short video and news information sectors, respectively. ByteDance is a leader in China's online advertising market and ranks among the top three in the e-commerce sector, with a massive scale. Although TikTok has a large user base in the U.S., if it can continue to succeed in the U.S. market, it will undoubtedly have a positive impact on ByteDance's business. However, our investment in ByteDance is primarily based on its performance in the Chinese market. Even if TikTok is banned in the U.S., we believe there is still an opportunity to achieve at least a 5x return on investment in ByteDance. Host: If TikTok's U.S. operations are banned, how much impact would that have on ByteDance's overall business? For example, would the impact be 5%, 20%, or 25%? Peter Singlehurst: Our basic assumption is that TikTok's U.S. operations will be banned; even so, we still believe there are ways to achieve at least a 5x return on investment. Host: When did you invest in ByteDance? Peter Singlehurst: It was around 2019; our investment wasn't particularly early, but since the investment, ByteDance has developed very rapidly. Host: How do you view the liquidity issues of ByteDance? I know many limited partners (LPs) who hold shares in ByteDance through direct investments or by participating in different funds, and they are all concerned about when ByteDance will be able to provide exit channels for investors Peter Singlehurst: I believe ByteDance will eventually choose to go public, possibly in the United States or Hong Kong, with one of the locations being relatively more likely. Host: Considering the current state of Sino-U.S. relations, do you think ByteDance still has the possibility of going public in the United States? Peter Singlehurst: Currently, due to some uncertainties between China and the U.S., it is difficult to rule out any possibilities. However, ByteDance has strong profitability, and there are reports that it will buy back its own shares. Host: We just discussed the issue of companies going public, but I actually want to ask, in the context of the current extension of the privatization period for companies, why should a company still go public? Like I heard someone say on the show before, if a company needs a 25-year-old bank analyst to tell it to improve its profit margins, then that company may not be a great company. In the context of the extended privatization window in the capital market, is there still a need for companies to go public? Peter Singlehurst: To be honest, I don't have a very good answer, and that's one of the reasons I choose to invest in private companies and represent clients in private company investments. Host: However, I work at a large public market investment institution. Do you think this affects my investment philosophy? I don't think it changes my investment philosophy; rather, it further strengthens it. Because now the supply of funds in the private equity market is abundant, companies can remain private for a longer time. But I think the reasons behind this are more complex and not solely due to the influence of the private equity market's funding cycle. Nowadays, people are gradually realizing that companies can better focus on business development and build stronger enterprises by remaining private for a longer time. Host: Why do you think that is? Peter Singlehurst: Focus is a key factor. Becoming a public company is not easy; it requires meeting strict disclosure requirements, and the company's shareholders may hold shares for various different purposes, which may not align with the company's long-term development goals. All business activities of a public company are under public scrutiny, and competitors can almost learn all of the company's business information because the company needs to disclose this information in detail to shareholders. This poses a huge challenge for the company. I greatly admire those companies that have successfully gone public and achieved good development in the public market because it is really not easy. Therefore, I believe companies realize that by remaining private, they can better focus on business development. Of course, going public also has some benefits. For example, employees can gain liquidity through an IPO, which can now also be achieved through large-scale private secondary market transactions. If a company has acquisition needs, having publicly traded stock after going public can facilitate that For companies in regulated industries, going public also helps meet regulatory requirements. I was once a shareholder of Epic Games, which has remained private since 1992. I once asked Epic Games founder Tim Sweeney how he views the issue of going public. His answer was interesting; he said that at certain times, going public might be more beneficial than staying private, but for now, remaining private is more advantageous for the company. However, as the company's business develops and it has needs for liquidity, mergers and acquisitions, or regulatory compliance, going public may become a more suitable option. Host: If a company remains private for a long time, supported by substantial funding for development, and we have primarily relied on initial public offerings (IPOs) for investment exits in the past, how can we achieve liquidity now? For example, if Stripe plans to remain private for another 10 years, will we just have to hold onto our shares indefinitely? Peter Singlehurst: I think there have been some changes; secondary financing rounds dominated by large companies are gradually emerging. Companies like Stripe and Databricks are seeing their secondary financing rounds becoming more common. I don't believe there will be a stock exchange specifically for private companies in the future because the equity structure of private companies is very complex, with various classes of shares, special rights arrangements, and issues of corporate control, making it difficult to establish such an exchange. However, perhaps in the future, these private companies will become very profitable, continue to grow, and start paying dividends to shareholders, which could become a way for investors to achieve liquidity. Host: Did you participate in Databricks' $60 billion financing round? Peter Singlehurst: I remember when we first invested in Databricks, its valuation was around $30 billion. In subsequent financing rounds, we participated in some investments, but specifically regarding the $60 billion round, we made some investment but did not significantly increase our investment. Host: Do you think Databricks has the opportunity to achieve a 5x return based on its $60 billion valuation? Peter Singlehurst: We believe there is an opportunity, but it is important to note that our investment strategy in the $60 billion financing round was different from a larger investment. We invested a small amount of additional funds but did not make a large-scale increase in investment. Host: Do you think many private equity investors making large-scale investments are shifting from venture capital to pre-IPO investment stages, and will they face risks? Peter Singlehurst: Over the past 10 years, there have been some changes in the investment field of growth-stage private companies. These companies were typically publicly traded and held by public market investment institutions. However, now companies are choosing to remain private for longer periods, and traditional long-term investors are gradually being squeezed out of this field, creating a gap in the market. Some opportunists have taken the chance to enter, including hedge funds and growth-stage funds established by some early-stage investors. They have started investing in these companies, but they previously had no experience investing at this stage and scale. After 2021, many of these investors were eliminated from the market, but some have remained and have reached a considerable scale. I hope they can accumulate real investment experience and learn how to manage portfolios at this stage and scale. Because we want rational investors in the market who can make informed decisions and conduct in-depth analyses of companies, thereby making market pricing more reasonable. Although there are some such examples now, I believe the market is moving towards institutionalization and specialization. For instance, we are shareholders of Anduril, and we invested in this company for the first time last year. In the round of financing we participated in, apart from internal personnel, most of the new investors were traditional public market investors who also had some private equity investment capabilities. This is because the company needs experienced investors who can provide support during this growth stage and help the company transition smoothly to the public market. Host: Can you talk about the logic behind the decision to invest in Anduril? I am very optimistic about Anduril and have many thoughts about investing in it. But why are you so interested in it? Peter Singlehurst: I can elaborate on the situation of this company. Anduril reminds me of the patterns we previously saw in two other companies, namely Tesla and SpaceX. Anduril develops products that are mostly software-driven, but they solve very challenging technical hardware problems. They have proven the feasibility of their products, and there are consumers willing to buy them, so there is no issue with product-market fit. Moreover, the market they are in is vast and has not changed much over the past few decades. Currently, there is a significant gap between Anduril and its closest private competitors. The same was true for Tesla in 2013 and SpaceX in 2018. It is this combination — solving extremely difficult hardware problems, being in a slowly changing industry, and having a gap with other private competitors — that makes us very interested in Anduril. They have proven the feasibility of their products, and there are consumers willing to buy them, so there is no issue with product-market fit. Moreover, the market they are in is vast and has not changed much over the past few decades. Currently, there is a significant gap between Anduril and its closest private competitors. The same was true for Tesla in 2013 and SpaceX in 2018. It is precisely this combination - solving extremely difficult hardware problems, being in a slowly changing industry, and closing the gap with other private competitors - that makes us very interested in Anduril. Host: You mentioned that they want to bring in people who are familiar with the public market and also participate in private equity investments. We see some companies adopting evergreen fund structures, believing that as private equity investors, they can obtain asymmetric information, thus managing their portfolios more effectively than public market investors or limited partners (LPs). Do you agree with this view? Or do you think there is an essential difference in mindset between managing private equity portfolios and public market portfolios? Peter Singlehurst: I believe there are significant differences between the two. For example, the way investment opportunities are sought in the private market and the public market is completely different. However, the core analytical issues are roughly similar. Although the sources of information differ, companies investing in either private or public markets are looking for businesses with the same characteristics, simply put, those that have the potential for multiple growth and can achieve high equity returns. I think there is a significant ideological difference in being a good shareholder in growth companies; not only are private equity and public market equities different, but growth investing and venture capital are also different. Host: You compared Anduril with SpaceX and Tesla, which I think is very reasonable. However, we see that both SpaceX and Tesla are influenced by Elon Musk's political stance. How do you view this risk? Peter Singlehurst: I am concerned about this. People often overlook that SpaceX has an excellent management team, not just Elon Musk. The members of this team can maintain a low profile, perhaps because Musk is too dazzling. This gives us some reassurance, but it is indeed a problem. However, if regions like Canada (SpaceX's second-largest market) and Mexico (the third-largest market) cancel contracts with SpaceX, it won't matter how low-profile the management team is. Host: When will this situation become a critical weakness? As we see more companies like Anduril, SpaceX, and Tesla increasingly involved in defense, hard technology, and committed to solving extremely challenging technological problems, I worry that this generation of investors, including myself, may not keep up in this new and challenging technological field. It is no longer sufficient for companies to achieve multiple growth through investments as it used to be. So, has the rule of thumb for becoming a venture capitalist changed? Peter Singlehurst: I never consider myself an expert or investor in technology. I invest in companies, in businesses. These businesses often leverage technology to create highly scalable and high-return business models. But I am not a technology researcher; I am a researcher of companies and business models. My team includes people who are more interested in technology itself, while also loving investment and business My focus - which may give me an advantage in growth investing over venture capital - lies in understanding excellent companies rather than excellent technologies. Host: What are you most concerned about in the investment field today? Peter Singlehurst: De-globalization. We are global investors, and our success over the years has come from seeking interesting investment companies worldwide. We often tell clients that Baillie Gifford's first investment was in a rubber plantation in Malaysia, where the rubber produced was used for the tires of Ford Model T cars. Our first private equity investment was also not in the United States, but in China. We are based in Edinburgh, Scotland, where there are not many companies available for investment, so our investment scope and client base have always been global. From an investment perspective, and from the perspective of human development, I am concerned about entering an era of increasing barriers and weakening connections between countries, as I believe this is detrimental to investment and to our human development. Host: Do you still think China is a huge investment opportunity? Peter Singlehurst: I believe so. China remains a highly potential investment market. Host: Are you still actively investing in the Chinese market? Peter Singlehurst: Yes. In the public market, we have a team in China that continuously monitors investment opportunities. Investing in China certainly carries additional risks, but taking risks should also yield corresponding returns. I strongly agree with the saying, "Be greedy when others are fearful, and be fearful when others are greedy." Right now, everyone is cautious about investing in China; if everyone says China is uninvestable, you better question that viewpoint and ask yourself, "Is that really the case? Should I go investigate?" I hope to visit China this summer; I haven't been there for a long time. We will continue to seek investment opportunities in China. Host: Can you introduce Baillie Gifford's investment process? Regarding private equity investments, what is your internal investment decision-making process like? Peter Singlehurst: The investment decision-making process is essentially a multi-layered screening process. For example, last year we engaged with 1,000 companies, researched 600 private financing projects, conducted preliminary screenings on 65 projects, conducted in-depth research on 30 projects, and ultimately made 11 new investments. Our research ultimately culminates in a "10Q" report, and if you've seen one, you'll find that these reports are not like PPTs but resemble academic papers. Every Thursday afternoon, our entire team sits down to discuss these reports. The duration of each discussion is gradually increasing because everyone feels there is always more to discuss at the end of each session. Currently, each discussion lasts for an hour and a half The investment committee will meet on Friday afternoon, with only 4 members deciding on investment projects. Of course, there will inevitably be some follow-up matters. For our special fund, these 4 people are the core decision-making team. Host: What is the range of investment amounts for these 11 investments? Peter Singlehurst: The investment amounts vary significantly because we invest from different pools of funds, ranging from $10 million to $150 million. Host: What are the differences in process and mindset when investing? Peter Singlehurst: When making follow-up investments, we re-examine the investment projects, update the "10Q" report, and reassess the potential for a 5x return. Generally, there are roughly three decision scenarios. If we are going to double down on a company, we must see the potential for a 5x return; if it’s a small follow-up investment, as long as the company is on the right development path, that’s a routine operation for a good investor; of course, there may also be a decision not to follow up, such as when we do not see the expected execution results or believe the valuation is unreasonable. Host: Is there any investment that, in hindsight, you think you should have made but passed on? Peter Singlehurst: Yes, Coinbase. We should have invested in Coinbase. Host: Why didn’t you invest? Peter Singlehurst: At that time, I created a very complex spreadsheet to estimate the trading volume and liquidity that Bitcoin needed to achieve a 5x return for Coinbase. I thought this model was brilliant, but it turned out to be completely wrong. Host: Are you concerned about over-relying on models? Peter Singlehurst: Yes, it is always a risk. And it’s not just a model issue; sometimes we over-analyze rationally and complicate things. Some of the best investment opportunities are actually quite obvious, although not all investments are so apparent. If we talk about the most obvious investment, it goes back to when I was doing public market investments. In 2013, we invested in Tesla, which seemed very obvious at the time. In 2013, they had already sold tens of thousands of Model S cars, and many people were paying deposits to reserve the car, proving they could make the cars consumers wanted, as evidenced by the previous Roadster. The issue at that time was execution—could they produce enough cars? But looking at the company's team, there were people with experience in building car factories and achieving large-scale production. So at that time, the decision to invest in Tesla seemed very obvious, with Tesla's market value at $3 billion Host: I will conduct a quick Q&A. I will make a brief statement, and you just say your thoughts. What is something you believe, but many people around you do not? Peter Singlehurst: I believe that as a multi-disciplinary, global investor focused on growth equity investments, I can still create real value for clients. Host: If you could buy and hold one stock for 10 years, which one would you choose and why? Peter Singlehurst: Bending Spoons. Because I think their business model and corporate culture are outstanding, and they have the opportunity to acquire companies with good products but poor management, creating significant profits and free cash flow. Host: What do you like most about their business model? Peter Singlehurst: They have a universal set of tools that can optimize any consumer digital application from the user's perspective, increasing revenue and improving operational efficiency. Their target market is essentially those companies in the venture capital ecosystem that have good products but are poorly managed. By bringing these companies under their umbrella, Bending Spoons can turn good products into excellent businesses. The core risks mainly lie in the sensitivity of acquisition prices and whether this model can be sustained at a larger scale. Interestingly, I previously spoke with the CEO of a company they acquired, who said the acquisition process was very interesting, with no haggling—just a straightforward proposal. If they were willing to cooperate, great; if not, that was fine too. The whole process was very smooth, and I appreciate this straightforward approach. Host: If you knew you wouldn't fail, what would you do? Peter Singlehurst: If I knew I wouldn't fail, my risk tolerance would definitely increase infinitely, and I would take some seemingly absurd risks because I would know I would succeed. Perhaps I would become an early-stage biotechnology investor, knowing that every ultra-early company I invest in would develop blockbuster drugs, leading to astonishing returns. Host: Who is the CEO of a publicly traded company you respect the most, and why? Peter Singlehurst: I have great respect for Kristo, the CEO of Wise. He is an outstanding leader who is passionate about transferring funds in a low-cost and efficient manner. He cares deeply about customers and the business and has unique and profound insights into building companies. I have witnessed the growth of Wise and have seen him continuously improve alongside the company's development. Host: If you could change one thing about Baillie Gifford's investment decision-making process, what would it be? Peter Singlehurst: I wish I had more time for every investment decision. Right now, the time to digest the team's work and make investment decisions is always tight. I would like to have three to five times, or even ten times, the time to think deeply about these investment decisions. But there are only so many hours in a day, and we can only work within the existing time frame. Host: OpenAI is valued at $30 billion, Grok at $5 billion, and Anthropic at $6 billion. Which one would you buy, and which one would you sell? Peter Singlehurst: Oh my, do I have to choose one to buy? If I could, I wouldn't buy any of them. It's not because I don't have faith in these companies, but because I'm still not sure how to establish a lasting competitive advantage in the field of large language models. Without a clear investment logic, I can't determine which company to buy. Don't you think productization and branding are important? Branding, especially consumer-facing brands, and the distribution channels of products are indeed important. That's also why I think Google is one of the most undervalued companies right now. Look at their consumer-facing distribution channels and their potential in the field of artificial intelligence; Google has huge opportunities. By this logic, you would also mention Microsoft, right? Yes, Microsoft has similar advantages. Host: What is the thing you have changed your mind about the most in the past 12 months? Peter Singlehurst: There are many. For example, I have been wrong for years about the concept of creating value for companies. I used to say that during the growth investment phase, the concept of creating value does not apply; companies should know what to do. In terms of operations, companies mostly know what they are doing, but I overlooked the specific needs of growth companies in many areas, such as how to go public effectively, how to become a great public company, how to build an excellent independent board team, and so on. It was only in the past few years that I realized growth companies need help in many ways, and we have the capability to support them. Host: Has your investment mindset or the type of companies you like to invest in changed since becoming a father? Peter Singlehurst: I feel that my investment approach hasn't changed, but my worldview has changed significantly. Host: What changes have occurred in your worldview? Peter Singlehurst: When you become a parent, a small life is born. This small life starts very small and quickly grows up. You will care immensely for this small life and bear an unimaginable responsibility for it. This sense of responsibility is unmatched by anything else. After becoming a parent, the beauty in life becomes even more beautiful, and the difficulties become even more difficult; everything is magnified. Host: Why do so few people leave Baillie Gifford? In the venture capital industry, people are always coming and going, but the people at your company seem very stable, and the company is still in Edinburgh. Edinburgh is a very livable place, but I don't mean to offend Edinburgh by saying this; I just find it a bit strange. Peter Singlehurst: Our company has a history of 115 years and is a partnership that adopts an unlimited liability intergenerational partnership model. From the perspective of profit distribution, the profits belong to the company, and then we pay employees through bonuses, similar to a synthetic profit distribution method. The company's operating model is that generations of partners are responsible for the operation of the company and serving clients. The goal of the company is to create maximum value for clients while ensuring that the company can be better passed on to the next generation of partners. I think that’s why those of us who have worked at Baillie Gifford for a lifetime have a deep sense of responsibility towards both clients and the company, hoping to run the company better than when we joined and then pass it on to the next generation of partners. Baillie Gifford is an amazing institution, and as an investment learner, I have great respect for the team here and their stories. Host: One last question, looking ahead to the next 10 years, what are you most optimistic about? Peter Singlehurst: I hope to end this conversation on a positive note. I am very excited and optimistic about the current market environment as the company enters a growth investment phase. Going back to what was mentioned earlier, companies with annual revenues of around $200 million have reduced product risks. Now, there are a large number of venture-backed companies entering the markets we are focused on, just like many people throwing spaghetti at the wall (trying various opportunities), we can see which ones succeed. For growth investors, this is a great time because there are many experiments underway, and we can see which models work. Moreover, there are more experienced entrepreneurs and business managers than ever before, and human resources are better than before. Host: Can I interrupt? Those companies with annual revenues of $200 million and a growth rate of around 15% may not be good enough for you, nor for private equity firms, and they may not meet the listing standards. What will happen to these companies? Peter Singlehurst: I believe this is an opportunity for Bending Spoons. Although these companies perform mediocrely as independent entities, Bending Spoons can acquire them, improve their products, achieve profitability, and make these companies very valuable. While these companies may not develop well independently, they can generate significant free cash flow in the hands of the right capital allocators. Host: Would you go to Bending Spoons as Chief Financial Officer (CFO) if Luka called to invite you? Peter Singlehurst: Their current CFO David is doing an excellent job, and I might not be able to contribute much if I went. Speaking of why I feel optimistic about the next 10 years, the current capital environment is also important. While some areas of the market are still quite active, overall, market funding is neither excessive nor insufficient, in a relatively ideal state. There is enough capital for investment, but not so much that it affects the long-term quality of business development. Overall, the large number of entrepreneurial attempts, abundant human resources, and adequate financial capital make me very optimistic about investing in this market. Host: Peter, thank you very much for taking the time to participate in this conversation. You are very humble, with unique thinking, and I have greatly benefited from our discussion. I cherish our relationship and appreciate your candid sharing today. Peter Singlehurst: I'm also glad to see you again, Harry. I really enjoyed this conversation, thank you for inviting me