Photography by Ian Biggs
As with any investment, your capital is at risk.
Part of the craft of private company investing, Peter Singlehurst suggests, is readiness to act on “lightbulb moments”.
He had one on an Edinburgh hilltop a few years ago, while walking with an investment banker friend. She mentioned Bending Spoons, the high-growth acquirer and improver of consumer-facing software and platforms. Singlehurst wasn’t up to speed on this European tech champion. Milan, its home city, wasn’t known as a seedbed of billion-dollar tech startups.
“We were on Calton Hill swapping company stories,” he recalls. “She told me that this firm bought app businesses in need of revitalising. It stripped out operating expenses and made them very, very profitable.”
At that time, Bending Spoons was preparing to acquire Evernote, a popular note-taking app. It has since transformed it into a slick, bug-free profit engine.
“The lightbulb went on because what she said about Bending Spoons reminded me of Constellation Software, held by our public companies team and similarly successful in the business-to-business market. I asked her for an introduction.”
Meeting in Milan
Singlehurst flew to Italy in early 2023. Spending time with co-founder Luca Ferrari familiarised him with the vision of what Ferrari describes as a “25 per cent private equity, 75 per cent tech company”.
Three years later, Bending Spoons – named after the famous mind-over-matter scene in the film The Matrix – is one of the largest holdings in The Schiehallion Fund, Baillie Gifford’s specialist private companies investment trust. Singlehurst has managed it since its launch in 2019. Other big holdings include SpaceX, Databricks and TikTok parent ByteDance.
At the time of Schiehallion’s introduction, Bending Spoons was already becoming a magnet to European tech talent, rivalling Silicon Valley’s ability to attract the best people and fast-track their development. Ferrari, he learned, wanted the tech conglomerate to be “like [Warren Buffett’s] Berkshire Hathaway, the defining investment company of the age”.
Its acquisitions weren’t then household names, but since that early encounter, as well as Evernote, the file-sharing service WeTransfer, video platform Vimeo and early internet icon AOL have joined the dozen companies in the ‘Spooniverse’. They now share streamlined capabilities, including AI models, analytics, billing systems, customer support and marketing operations.
Photography by Steven Cook
The “Spooniverse” playbook
The Bending Spoons treatment gives these established apps a new lease of life as slicker, more capable products, for which customers are happy to pay a bit more. The company then uses the free cash flow this generates to buy further companies.
Its aim is not to sell on the refurbished acquisitions, but to hold them indefinitely, while the benefits compound.
Experience shows that a Bending Spoons takeover tends to turn out well for these mostly US companies and their users. That glow of success feeds into another key aspect of Ferrari’s vision: turning the company and its competitive-but-co-operative vibe into its own greatest product.
Bending Spoons works hard at being Europe’s top talent-attracting machine. Its workers rival Silicon Valley’s in terms of skill and ambition. Living costs are lower in Milan than in California, so the company can offer attractive packages that are still substantially lower than the Valley’s. Last year, the company had 800,000 applications for 200 jobs.
Forging trusting relationships
With private company investing, Singlehurst says, “the relationship comes first”. The understanding that he forged with Ferrari after that trip to Milan led to Schiehallion’s initial $20m investment to help with the acquisition of Evernote – “a fairly standard cheque for us”. The trust has since followed up on that in successive funding rounds. Meanwhile, the Italian firm’s valuation has risen from under $1bn to approximately $11bn at the end of last year.
“It creates value by being incredibly good at running these products and making them better at much lower cost,” Singlehurst adds. “This often means fewer people, though the ‘ruthlessness’ of that has been exaggerated. They’re guided by how to make the product the best it can be, using however many people it takes. Often, it’s ensuring a future for firms that might otherwise not have had one.
“It’s tempting to look back on what worked out well and say: ‘Oh, it was obvious.’ But when we invested, the risk was that a company that had done amazing things, taking over lots of little businesses, wouldn’t be able to pull off the same trick with big ones.”
“The astonishing thing,” Singlehurst continues, “has been the quality of its execution. It’s difficult to point to any missteps.” The resulting combination of people and process gives the firm an unassailable lead over would-be imitators.
Baillie Gifford made its first private company investment in 2012, in Chinese ecommerce firm Alibaba. Now its tally stands at more than 160. Singlehurst credits the firm’s success in the field to knowledge and relationship-building expertise accrued over 14 years.
Backing capital discipline
Late last year, Schiehallion, Baillie Gifford’s first dedicated private growth portfolio, moved from the specialist fund segment to the main market of the London Stock Exchange (see page 5). Now the seven-year-old trust offers the public a way to take a stake in the increasing number of companies choosing to stay private for longer or, indeed, forever. Singlehurst’s message is that, amid various novel ways to access the expanding private asset market, Schiehallion provides a time-tested, low-fee option.
Schiehallion reflects the firm’s public-markets heritage, he suggests, in its focus on a concept “almost anathema in the venture capital world”: return on equity. While early-stage VC investors pour capital into startups to fuel growth, Schiehallion hunts for companies at the point where they can scale into highly profitable businesses, without needing constant top-ups. Too much venture capital, he believes, creates “startup foie gras” – immature firms force-fed with cash that become bloated and inefficient.
Bending Spoons is a good example, he says, of getting it right. Launched with just €40,000 in capital, it has always needed to be cash-positive, pulling itself to profitability by its own bootstraps before taking outside capital. That aligns with Schiehallion’s preference for strong returns on relatively modest investments.
But finding, analysing and cultivating such companies is where that ‘craft’ comes in.
“In public markets, you have the same access and the same information as every other investor,” Singlehurst says. “Your only advantage is your insight.
“In private markets, you can still have better insight than competitors, but access and information can each provide that extra edge. It doesn’t guarantee you’re always going to do a good job, but it means more ways to differentiate yourself.”
In practice, getting access and information is an intensive and complex business. Since the likes of Bending Spoons don’t publicly disclose key details about themselves, investment managers must speak to more people, including other shareholders, board members and industry experts.
“You need to triangulate what you’re being told. Meetings and phone conversations can be the only way to get information, which is why our 10-strong Private Companies Team met more than 900 companies last year. It’s a different way of working.”
Schiehallion’s managers travel the world in search of off-the-radar opportunities. Last year, Singlehurst was in China, where he was “blown away” by the calibre of businesses he met, particularly in hardware and robotics.
“These were companies that had real products, real revenues, real profits, still growing quickly, that were streets ahead of companies trying to do similar things in the US,” he says.
“I’m a big believer in ‘be greedy when everyone else is fearful and fearful when others are greedy’. Everyone is fearful of China right now.”
Singlehurst himself has been at the heart of Baillie Gifford’s drive to provide clients with private market opportunities since 2014. It was then that investment managers on the firm’s Long Term Global Growth Fund (LTGG) became frustrated at all the growth going on outside public markets.
With their hands full managing tens of billions of dollars’ worth of client assets, they asked for a volunteer to explore this emerging sector. In another, formative, lightbulb moment, Singlehurst put his hand up.
Since then, his role has been to “make sure that we are sourcing the world’s best high-growth private companies, that our process leads us to the best possible decisions. Once we’ve created a portfolio, we aim to be exceptional owners of those businesses. When it’s the right time to move on, we move on.”
Singlehurst sees that time as far in the future for Bending Spoons, which last year completed or announced $3.9bn in new acquisitions.
More broadly, as the rate at which new private company products and business models are developed speeds up, Schiehallion’s aim is to find more companies turning their own lightbulb moments into enduring growth. Experience equips the Team to support them on the long climb ahead.
Peter Singlehurst
Joint Manager, The Schiehallion Fund
Peter Singlehurst is the head of Private Companies at Baillie Gifford and manager of The Schiehallion Fund. He joined the firm in 2010 and became a partner in May 2022.
Bending Spoons is also owned by Baillie Gifford European Growth Trust
Important information
The Schiehallion Fund has a significant investment in private companies. The Fund’s risk could be increased as these assets may be more difficult to sell, so changes in their price may be greater.
The views expressed in this article should not be considered as advice or a recommendation to buy, sell or hold a particular investment. The article contains information and opinion on investments that does not constitute independent investment research, and is therefore not subject to the protections afforded to independent research.
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