Hans Tungmanaging partner at Worthwhile chapterearlier GGV Capitalhas many thoughts on the state of venture capital today.
With $4.2 billion in assets under management, Notable grew out of 24-year-old cross-border VC firm GGV Capital, and Tung was there when GGV invested in companies such as Affirm, Airbnb, StockX, Square and Slack.
That kind of experience gives him a lot of expertise, not to mention a good view of what’s happening in the market right now. So we recently brought him to TechCrunch’s Equity podcast to discuss valuations, why founders need to play the big game, and why some VC firms struggle more than others.
We also dug deep into why he’s still bullish on fintech and what areas of the fintech space he’s most excited about.
We talked too recent changes in his own company, which is the result of splitting GGV Capital’s teams into separate businesses in the US and Asia. GGV’s transformation is the latest in a series of changes we’ve seen in the venture capital world, including staff changes at Founders Fund, Benchmark and Thrive Capital.
Below are excerpts from the interview, which have been edited for length and clarity.
TechCrunch: At the end of 2022, we talked about falls. At the time, you thought it wasn’t necessarily a bad thing. Do you still have the same mindset?
Hans Tung: I have been in this business for almost 20 years. We are long-term in the way we approach things. I always know it doesn’t matter the markings. This is like becoming poor [report] card or get an exam score. It doesn’t matter until you actually have an exit. The IPO is really just a milestone, not the end game. The IPO is the beginning for public investors to come together. So if you’re thinking long-term, valuations going up or down temporarily don’t matter as much as getting a big result in the end.
What it takes to scale the business is what the company, founders, and board need to focus on to manage the business as best as possible every step of the way.
The founders don’t realize that this choice is not between shutdown and liquidation. In this case, you will choose one negative round each time. The challenge is when you are faced with the prospect of maintaining a valuation or raising a down round. If you don’t, you run the risk of closing later. But if you are close to closing, no one will invest in you.
In terms of the investment landscape, how different is it so far this year compared to last year?
I think it’s a continuation of what we saw in the second half of 2023. Obviously, AI is something extreme. AI is very, very overrated right now. You could argue that we are only in the first inning, or the first half of the first inning for AI. So people are willing to overpay […] You do see a lot of crazy rounds happen at the beginning of a boom, but there will be a bifurcation and there will be companies that end up doing great, and most companies might not.
For the most part, I still caution founders not to compare themselves to areas that are doing well, but to focus fully on running their business.
How does the pace of your investments compare to recent years? How have VC firms been affected by the slowdown?
I think we’re more at 2022 levels — so more than 2023. But 2021 was an outlier. It’s not good for business and it’s not good for the ecosystem. Without naming names, you see companies being affected by what they did in 2021, and that has slowed them down a lot more now, which is unfortunate because a lot of them are great investors. They are in large groups and it is too bad that they cannot participate because of indigestion.
For example, some companies raised a big round in 2021. Even though the business is growing revenue by about 40% to 50% year-over-year and they will probably be able to IPO soon in the next year or so in terms of maturity […] But because the valuation they raised in the last round is so high, they are not at that valuation level in the current public market, where multiples have been quite compressed. So they have to wait.
As a result, the funds that invested in them in 2021 cannot get their cash back because there is a lack of liquidity and LPs can’t get money back. So we don’t have that recycling of money going back to the LPs who can continue to invest in new capital. The whole system suffers as a result.
I was surprised to report recently that funding in the fintech space had fallen to a seven-year low in the first quarter of this year. What do you think about this?
I think for fintech, given the high inflationary environment that we’ve had and certainly the high interest rate, it’s more difficult for people to decide on fintech. But if you look at other sets of metrics, in financial services as a category, the market capitalization of all public companies in the banking, insurance, and financial services space is over $10 trillion. Of that $10 trillion, only less than 5% is in fintech companies.
So, if we all know that the best fintech companies grow faster than financial services companies, it is only a matter of time that their low-digit penetration and market capitalization will increase over time. So it will have ups and downs. Like e-commerce, fintech may not have too many winners, but those that can win will have a huge market.
Want more fintech news in your inbox? Subscribe to the TechCrunch Fintech newsletter here.
Want to get in touch with a tip? Email me at maryann@techcrunch.com or send me a message on Signal at 408.204.3036. You can also send a note to the entire TechCrunch crew at tips@techcrunch.com. For more secure communications, click here to contact uswhich includes SecureDrop (instructions here) and links to encrypted messaging applications.
