Member Info for sageoflondon

Totally agree re lots of great businesses initially make no money - that doesn't mean they are worth £24bn. That is priced only for success given the stage of development. There is a significant risk they won't win the race and may fail completely, for me £24bn seriously overvalues the stage they are currently at. I could understand maybe if they were doing multiple billions of revenue with low profitability etc. It's also a lot easier to scale in a non-regulated area - compliance is very expensive in Financial Services. They also appear to have gone a bit scatter gun in terms of approach. They have lost key staff and also have had concerns raised re the audit of the business in respect of procedures around revenue recognition - always an area of inherent risk in such a business so not overly concerning.

If you can win market share in a time of stress by compressing margin, then that could translate very well to future profitability.

Really good article in the Telegraph on Revolut today - Losses of £200m on turnover of £261m - £24bn valuation. Seriously.

VCs can rarely exit fully when they have such large holdings - it's possible but more difficult. Can have a de-stabilising impact on subsequent share price or may mean the IPO doesn't even get off the ground if backers look like they want out urgently. Might have been possible though. Personally I think the market is right - eventually there will be a decent sized NAV downgrade - possibly multiple downgrades over 12-24 months. Just look at Chrysilis - they seemed to (almost forced to in reality) have grasped the situation and dealt with it, forced by the Klarna valuation etc. I would imagine that would still be in at the prior valuation had it not have needed to raise funds. We shouldn't be waiting for a company to need to raise funds before we accurately appraise it's market value given current market conditions. How is Grow so different - if it doesn't recognise an NAV decrease, it will likely be the only technology focused VC investor not to do so.

The NAV here is obviously heavily dependent upon market conditions - and those conditions were very good (bubble territory in all likelihood - e.g. Cazoo $7bn - today $0.5bn - shocking decline, but people bought it - Cazoo could barely turn a meaningful profit per car in one of the best used car markets in 25 years, let's see how that goes in a recession. The NAV is also very subjective with a significant degree of latitude - or instances like Klarna wouldn't happen - it's only worth what someone will pay - and today that is likely considerably less. Those conditions have changed significantly. I don't see anyway that something like Revolut is still actually valued anywhere near it's last valuation. Somewhere nearer the previous $5bn would be a lot more prudent (but possibly still optimistic) and realistic than $33bn in my opinion. But it's not about one company, this is about the wider market. Grow are not immune to what is happening anywhere else because they are 'different'. The whole premise of what they do is based on investment across a broad portfolio - which will be impacted like everyone else has been / will be (I think the broader technology market has further to fall (particularly for companies that have yet to make or show real profitability, with some real pain along the way). Technology is always going to be higher Beta as some will become profitable, others won't exist in the future - this shows in times of market stress. In a bad market some that might have achieved profitability will likely run out of runway long before they get there. Most of the companies Grow invests in are not profitable - revenue, gross profit are not profits or free cashflow. Ocado has made a Gross profit for many years, but still isn't net profitable after 20 years or so - that's not a lot of good to shareholders, unless you are one of the initial investors. In addition to this the last 3 Grow IPOs have been a disaster which impacts the ability to get future IPOs across the line - it's not Grow specific either, it's market wide, see RBG, Cazoo, Ui Path, Trustpilot, Deliveroo etc. The market is sceptical of overpriced IPOs that are 'over pumped' and crash a few months later when the market realises what it has bought. Just my view. I have no idea whether this will fall to £2 or rise to £5 next week. I am however sure (in my own mind) that we will not see this go back to anywhere near it's previous highs anytime soon.

No capital return and no dividend in that time. At the same time inflation has eroded the value of that investment in cash terms.

Grow management might be confident - I am not confident. I always try and think about what looks sensible and reasonable. I don't trust the NAV at present.

I don't disagree with anything you are saying Macro wise. Interest rates will go up a bit more and then stagnate or come back in my view (but a lot higher than Covid emergency levels), still low overall. Oil will remain high, but well off the 'highs' barring further escalation from Russia. Higher yield bonds will look like good value at today's prices as interest rate expectations fall back, even with some default risk priced in, cash will be king for a while in terms of returns. A lot of the inflation hasn't come through yet however, that will take a while to filter through, but will eventually fall back. I don't however believe this will result in Grow getting anywhere near it's former high at all. Personally I don't believe we should have recognised the huge uplifts on some of the core portfolio. It's still obvious to me that some of the valuations don't stack up - I look at specific valuations as that's all I really have to go on, plus the larger ones have more of an impact on NAV. I will be on the sidelines for the moment. Something like Revolut should have been listed at it's prior valuation, prior to last funding round in my view (for prudence) rather than the overly optimistic nosebleed valuation it got to in the last funding round. This would avoid sufferring a Klarna. So far the 5 year performance of this share has been dismal given the level of risk in terms of total return. Where do you go after a last funding round at $33bn - you either list or fund growth from cashflow.....let's see how that goes. Based on the last few listings we have had they are hardly a roaring success.

The previous peak has likely gone for a good few years. The price of GROW (and underlying valuations contributing to our NAV) had got ahead of itself/ themselves in some instances. It will be a while before the NAV reliably increases to get back to a level that supports the previous highs here. Given our NAV has yet to 'officially' decrease we are likely in for some NAV stagnation / falls in my view - investors have made the NAV adjustment for themselves here to take account of any potential setbacks e.g. say Klarna....(I know we don't hold, but I mean in terms of valuation shock). This is a decent long term investment but will be volatile along that path. Drip feed in over a number of years adding as you go - not for the faint hearted however and with a significant amount of risk like all early stage VC investments. Very cyclical to. This has followed US tech today....or at least the 'yet to make a profit' part of the market.

I agree - I work in an organisation impacted - implementation costs should be the biggest concern re IFRS 17 from an investor perspective - huge in any organisation - think SOX, however I don't believe IFRS 17 alone will have a significant impact on share price.

It could disappear but I think that's unlikely - I think what is more likely is it continues to lead the market, albeit growing at a much slower rate, with lower margins going forward as it has to compete more to keep cost down. This will ultimately impact valuation multiple etc. Valuation is likely to come back a bit further in my view. This for me is an excellent buy - just not at the current price. No hurry to get in. Let's see how the next 6-12 months pan out and reassess the situation.

The price doesn't look that low to me? Roughly 4 times forecast revenues, supply side problems, inflation and the lack of ability to pass all of it on due to already premium pricing, growth also looking relatively pedestrian. Is it worth 4 times revenue?

If you believed this was a decent buy at circa £5 surely this is an excellent time to buy. That Klarna fundraising has clearly spooked a lot of investors - 85% down valuation. Cazoo down at 70 cents a share probably hasn't helped either - albeit Grow has offloaded a lot of that. Cazoo has to have been one of the biggest destroyers of capital on the Nasdaq.

The other piece of course is the plunging pound which will drive yet another wave of inflation in a number of areas. It's doing wonders for a lot of the dollar earnings in my portfolio and corresponding dividends, but very negative for prices in the UK.

I agree re oil price eventually coming down, but that takes a while to feed through on the way up and down. We haven't seen a lot of the retailer / producer inflation that's due yet - there is always a lag, particularly where contracts / stock result in delays in feed through. For me interest rates are going to around 2.5-4%. Probably in the middle of that somewhere UK wise. That's enough to cause some a lot of pain with a mortgage rate at say 4-6%. Hopefully inflation back to 2-4% in the next couple of years. Maybe...I don't think that's going to increase the values of things like Klarna back to their peak etc. That was a temporary bubble in my view.

Klarna looks to have been marked down considerably more than 25% - 85% roughly I believe. Revolut's value increased from $5.5bn to $33bn in roughly a year - nothing had really changed from a business perspective in that time - just what a few investors were willing to pay. When valuations are so subjective they can move massively up and down. 25% doesn't seem particularly conservative. Now if Grow had said we have held at $5.5bn particularly given likely downward shift etc that would be conservative. Until there is more substantive evidence on valuations - i.e. future funding rounds in similar portfolio companies I think this discount is fully justified.

Now that's a good idea if profitable. Obviously will force incumbents to come to the table with a better offer!! Benefitting all...

possibly holders below 5% threshold reducing - these don't require notification do they on a TR1 - If a holder with say 3% reduces by 0.5% has the same impact as someone with 10% moving down by 0.5% all else being equal - just no notification required. Who knows.

I don't have any idea re the short-position here. I am assuming it was very high when we were up at almost £12. Could still be there though.

Ok found it. I have to say I am shocked by that - but that's my concern with something like Revolut. I fear the actual value is now less than we have it in the books for - in reality. Regardless of whether it needs more money or not - it still has a value based on current market conditions etc. Not true for all of our portfolio - I think Klarna has some unique challenges on top of more general market conditions that have led to this.