With regards to the UK start-up scene, the layers and obstacles to getting British companies to a Google, Facebook or Alibaba level seems “extraordinary depressing,” said the manager of Baillie Gifford’s Scottish Mortgage Trust at a briefing in Edinburgh.
“I wouldn’t draw a distinction between Britain and most parts of Europe -possibly with the exception of Scandinavia- from that point of view,” he added.
“Do we possess people with the real determination, the obsessiveness that goes into this?” And, continued Anderson, it is a question of whether the commercialisation and internationalisation skills are there and if the domestic market is big enough.
“It has been a long time since there’s been a truly great British company,” he said. In order to build one the UK needs networks and people who are so into exploring the next idea and big invention that they would not sacrifice that for a well-paid job at a hedge fund,” he noted.
“What does the UK need to do to build great businesses? What the great start-up leaders have in common is that they don’t pay themselves very much, including Elon Musk who has an annual salary of $37,000 for running Tesla,” said Anderson.
It is more about a culture of dedication, whether there are enough engineers –people that actually know the industry- and that the US West Coast has a completely different model of capitalism, noted the Edinburgh-based fund manager.
Anderson also said there have been periods where most new investments Baillie Gifford makes head in the direction of unquoted companies. Many of the tech companies that the Scottish investment manager invests in do not need capital, and are therefore asking; why should we go public?
There are two factors at play said Anderson: “We started investing in these unquoteds a lot because they didn’t need much capital, and we found really good ones in that space, now these companies are seeing remaining private as one of the ways in which they can invest.”
There is also a need to soften the boundary between quoted and unquoted companies, according to Anderson. “We invest in unquoted companies where we think they have the same attributes in terms of growth prospects, payoffs, competitive advantage, thoughtfulness of management and so on. Sadly it seems to us that’s more possible for unquoted companies than quoted companies these days.” Going in that direction is therefore natural, he said.
According to Anderson, the £50bn invested in unquoted companies is a fraction of what it should be. “Any historical analysis of where the returns will be suggests that that’s great,” explained the fund manager. “We need more of that. Instead there’s this extraordinary belief that it must be a bubble…”
The reason why British and European capitalism is failing so badly is down to the absence of funding, in Anderson’s view, rather than to an oversupply of it to unquoted companies. We need more venture capital, in his view, and there’s a dangerous confusion between risk and volatility today.
“Even if plenty of the unquoted companies will [inevitably] fail, it is the destruction of the vast bulk of the quoted major British companies that would worry me rather than the volatility and disclosure surrounding unquoted ones, which we are doing our best to mitigate,” said the fund manager.
Tesla Motors CEO Musk has said that by 2030, a “majority” of vehicles will be electric. “If we don’t need oil in the future, what will be the price of it then?,” said Anderson. “How can BP and Shell exist in an environment like that?”
