Hans Tungmanaging partner Remarkable capitalearlier GGV capitalthinks rather a lot concerning the current state of enterprise capital.
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 firms like Affirm, Airbnb, StockX, Square and Slack.
This style of experience gives him an excellent level of experience, not to say an excellent overview of what’s currently happening out there. That’s why we recently brought it to TechCrunch Equity capital Podcast discussing valuations, why founders have to play the long game, and why some VC firms struggle greater than others.
We also took a deep dive into why he’s still bullish on fintech and which sectors in fintech he’s particularly enthusiastic about.
We talked about that too recent changes in his own companyThis is the results of GGV Capital’s teams being split into separate US and Asia operations. GGV’s transformation is the newest in a series of changes we have seen on this planet of enterprise capital, including personnel changes at Founder’s Fund, Benchmark and Thrive Capital.
Below are excerpts from the interview, edited for length and clarity.
TechCrunch: At the tip of 2022 we talked about down rounds. At the time, you thought that wasn’t necessarily a nasty thing. Do you continue to have the identical attitude?
Hans Tung: I even have been on this business for nearly 20 years. We take into consideration things in the long run. I all the time know that the markups don’t matter. It’s like becoming poor [report] card or receipt of a test exam grade; It doesn’t matter until you really have an exit. The IPO is definitely only a milestone, not the tip game. The IPO is the start for public investors to become involved. So in case you think long run, it is not so necessary that valuations temporarily rise or fall, but quite that there’s a big result ultimately.
Whatever it takes to scale the corporate, that is what the corporate, the founders, and the board have to deal with so as to run the corporate as best as possible every step of the best way.
What the founders do not understand is that this election is not about closing down or doing a down round. In this case, you select a down round each time. The challenge is that you simply are faced with the prospect of holding on to a valuation or causing a downturn. If you do not do that, you risk switching off later. But in case you’re about to shut, nobody will put money into you.
How different is the investment landscape to date this 12 months in comparison with last 12 months?
I feel it is a continuation of what we saw within the second half of 2023. Obviously, AI is an outlier. AI is currently way, way overrated. One could argue that we’re only in the primary inning or first half of the primary inning for AI. So persons are willing to overpay […] While a number of crazy rounds occur firstly of a boom, there shall be divisions and there shall be firms that find yourself doing well and most firms may not.
On the entire, I still caution founders not to check themselves to industries which might be doing well, but quite to focus entirely on running their company.
What is your investment pace in comparison with recent years? What impact is the downturn having on VC firms?
I feel we’re closer to 2022 levels – more so than 2023. But 2021 was an outlier. It’s not good for business and it is not good for the ecosystem. Without naming names, you possibly can see that firms have been affected by their activities in 2021 and that has caused them to decelerate rather a lot now, which is unlucky because a lot of them are great investors. They are in great firms and it’s a pity that they can not participate resulting from indigestion.
For example, some firms made large capital increases in 2021. Although the corporate is growing its revenue by about 40-50% year-over-year, maturity-wise they’ll probably go public soon in the following 12 months or so […] But since the valuation they raised of their last round is so high, they usually are not at that valuation level in the present public market where valuation metrics have fallen quite a bit. So they must wait.
This signifies that the funds that invested in them in 2021 cannot get their money back because there may be an absence of liquidity and the LPs do not get any a reimbursement. So we’ve no return of cash to the LPs, who can proceed to take a position in recent funds. The whole system suffers from this.
I used to be surprised to recently report that fintech funding had fallen to its lowest level in seven years in the primary quarter of this 12 months. What do you concentrate on it?
I feel that with high inflation and high rates of interest, it’s harder for the fintech industry to decide on fintech. However, taking a look at other metrics, the market capitalization of all listed banking, insurance and financial services firms within the financial services category is over $10 trillion. Of that $10 trillion, fintech firms account for lower than 5%.
So if everyone knows that one of the best fintech firms are growing faster than financial services firms, it is barely a matter of time that their market penetration and market capitalization will increase within the low single digits over time. So there shall be ups and downs. As with e-commerce, there might not be too many winners within the fintech space, but people who can win could have an enormous market.
Want more fintech news in your inbox? Sign up for the TechCrunch Fintech newsletter Here.
