Hans Tungmanaging partner in A noteworthy capitalformerly GGV capitalhas many thoughts on the state of enterprise capital today.
With $4.2 billion in assets under management, Notable evolved from 24-year-old international VC firm GGV Capital, and Tung existed when GGV invested in firms comparable to Affirm, Airbnb, StockX, Square and Slack.
This style of experience gives him a lot of specialist knowledge, not to mention a good overview of what is currently happening in the market. We recently invited him to TechCrunch Right podcast discussing valuations, why founders have to play the long game, and why some VC firms struggle greater than others.
We also delved into why he stays bullish on fintech and which sectors in the fintech space he’s particularly excited about.
We also discussed recent changes in your personal company, which is the results of splitting the GGV Capital teams into separate divisions in the US and Asia. GGV’s transformation is the latest in a series of changes we have seen in the enterprise capital world, including staffing changes at Founders Fund, Benchmark and Thrive Capital.
Below are excerpts from the interview, edited for length and clarity.
TechCrunch: At the end of 2022, we talked about downward rounds. Back then you definitely thought they weren’t necessarily a bad thing. Do you continue to have the same attitude?
Hans Tung: I have been in this business for almost 20 years. We take a long-term approach to things. I at all times know that tags don’t matter. It’s like getting a poor guy [report] card or obtaining a test result; it doesn’t really matter until you have a selection. The IPO is actually just a milestone, not the end of the game. The IPO is the starting of interest from public investors. So if you think long term, the momentary rise or fall in valuations doesn’t matter as much as generating a big result at the end.
The company, founders, and management must focus on what it takes to scale the business in order to best manage the company at every stage.
What founders do not realize is that the selection is not between closing the company or going bankrupt. In this case, you’ll select the negative round every time. The challenge comes when you are faced with the prospect of maintaining a valuation or raising a down round. If you do not do this, you run the risk of being shut down later. But if you are close to closing, no one will invest in you.
In terms of the investment landscape, how different is this 12 months from last?
I think this is a continuation of what we saw in the second half of 2023. Of course, artificial intelligence is an exception. Artificial intelligence is definitely overrated right away. You could argue that we are only in the first round or the first half of the first round for AI. That’s why people are willing to overpay […] There are indeed a lot of crazy twists and turns that occur at the starting of a boom, but there will likely be a bifurcation and there will likely be firms that do great and most firms may not.
For the most part, I still caution founders not to compare themselves to sectors that are doing well, but to fully focus on managing their business.
How does your investing pace compare to recent years? How has the slowdown affected VC firms?
I think we are more at the level of 2022, so greater than in 2023. However, 2021 was an exception. It’s not good for business and it is not good for the ecosystem. Without naming names, nevertheless, you may see that what they have been doing in 2021 has had an impact on firms, which has caused them to decelerate much more now, which is unlucky because many of them are great investors. They keep great company and it’s a pity they cannot participate in it due to indigestion.
For example, some firms raised a large round in 2021. Even though the company is growing revenue by about 40% to 50% year-over-year and will likely have the ability to go public soon in the next 12 months or so, from a maturity standpoint […] However, because the valuation they raised in the last round is so high, they have not reached that valuation level in the current public market, where multiples have been significantly compressed. So they have to wait.
As a result, funds that invested in them in 2021 cannot receive money back because there is a lack of liquidity and LPs cannot get their a refund either. So we do not have money recycled back into the LPs, which might proceed to invest in recent funds. The whole system suffers from this.
I used to be surprised to recently report that funding in the fintech space dropped to a seven-year low in the first quarter of this 12 months. What do you think about this?
I think with fintech, given the high inflation environment we have had and definitely high rates of interest, it makes it harder for people to make the decision to pursue fintech. However, if you look at other sets of metrics, in the financial services category, the market capitalization of all public firms in the banking, insurance and financial services space exceeds $10 trillion. Of this $10 trillion, only lower than 5% goes to fintech firms.
So if all of us know that the best fintech firms are growing faster than financial services firms, it’s only a matter of time that their low single-digit penetration and market capitalization will increase over time. So it can have ups and downs. As with e-commerce, fintech may not have many winners, but those that can win will have a huge market.
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