Hans Tung, managing partner at Notable Capital (formerly GGV Capital), has many thoughts on the state of venture today.
Notable Capital is a venture firm with $4.2 billion in assets under management, focused on investments in the United States, Latin America, Israel, and Europe.
Tung, whose portfolio includes Airbnb, StockX, and Slack, recently appeared on TechCrunch's stocks podcast to talk about valuations, why founders need to play the long game, and why some VC firms are struggling. We talked about why we were there.
He also talked about why he remains bullish on fintech and which areas of the fintech space he's particularly excited about.
He also discussed recent changes in his own company, which evolved from the 24-year-old cross-border company GGV Capital and rebranded its US and Asian operations to Notable Capital and Granite Asia, respectively. GGV's transformation is the latest in a series of changes we've seen in the venture capital world, including personnel changes at Founders Fund, Benchmark and Thrive Capital.
Below are excerpts from the interview, edited for clarity and brevity.
TechCrunch: Last year we talked about down rounds. At the time, you thought they weren't necessarily a bad thing. Do you still have the same mindset?
Hans Tung: I've been in this industry for almost 20 years. We approach things with a long-term perspective. And I've always known that markup doesn't matter.this is like being poor [report] Getting a card or getting a test score doesn't mean much until you actually get the exit. An IPO is actually just a milestone, not the end goal. The IPO is the beginning for public investors to participate. Therefore, over the long term, a temporary rise or fall in valuation is less important than the ultimate outcome.
I think whatever it takes to scale a business is something that companies, founders, and boards need to focus on to manage the business to the best of their ability every step of the way.
I think what founders don't realize is that this choice is not an either-or choice between shutting down and doing a down round. Because in such a situation you will choose the down round every time. The challenge comes when faced with the prospect of maintaining valuation or raising a down round. Otherwise you risk shutting down later.But I'm telling you, if you're close to going out of business, no one will invest in you.
TC: Overall, how different has this year been so far compared to last year in terms of the investment environment?
HT: I think it's a continuation of what we saw in the second half of 2023. Clearly, AI is an outlier. AI is currently highly overrated. You could argue that AI is only in the first inning, or even the first half of the first inning, so people are willing to overpay… There were a lot of crazy rounds at the beginning of the boom. There will be a fork in the road, and some companies will ultimately succeed, but most may not.
In most cases, I still caution founders not to compare themselves to sectors that are doing well and to focus their efforts on managing their business.
TC: How is the pace of investment compared to recent years? How are VC firms affected by the economic slowdown?
HT: I think we're getting closer to 2022 levels. That is, more than in 2023. But 2021 was an outlier. And it's not good for business either. And it's not good for the ecosystem either. I won't name names, but companies are certainly affected by what they were doing in 2021, which has now slowed down even more. This is unfortunate. Because many of them are great investors and belong to great companies, and it's a shame that they can't compete because of indigestion.
For example, some companies raised significant funding in 2021. And that business is growing revenue by about 40% to 50% year-over-year and could be able to IPO him soon, probably in the next year or so from a maturity standpoint, but at a low valuation. The money raised in the last round is so high that it doesn't reach that valuation level in the current public market, where multiples are quite compressed. So they have to wait. As a result, funds that invested in 2021 will not be able to earn cashback as there will be a lack of liquidity and LPs will also not be able to get their money back. Therefore, funds are not returned to LPs that continue to invest in new funds. As a result, the entire system is negatively affected.
TC: We were surprised to recently report that funding in the fintech space fell to its lowest level in seven years in the first quarter of this year. What do you think about that?
HT: Regarding fintech, I think it's more difficult for people to make decisions about fintech given the high inflation environment that we've had and the high interest rates that are definitely coming down, but not anytime soon. But if you look at another metric, financial services, as a category, the market capitalization of all publicly traded companies in the banking, insurance, and financial services space exceeds $10 trillion. And of that $10 trillion, less than 5% belongs to fintech companies. So if everyone knows that the best fintech companies are growing faster than financial services companies, it's only a matter of time before low single-digit penetration and market capitalization increase over time. is. So there will be ups and downs. As with e-commerce, there may not be many winners in fintech, but those that do can have a huge market.
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