Hans Tung of Notable Capital on why founders should play the long game

Hans Tungmanaging partner at Remarkable capitalearlier GGV Capitalhas many thoughts on the current state of venture capital.

With $4.2 billion in assets under management, Notable was spun out of 24-year-old cross-border venture capital firm GGV Capital, and Tung has been around while GGV invested in, among others Confirm, Airbnb, StockX, Square and Slack.

That kind of experience gives him a lot of expertise, not to mention a good idea of ​​what is currently going on in the market. So we recently featured it on JS’s Equity Podcast to discuss valuations, why founders need to play the long game, and why some VC firms are struggling more than others.

We took a deep dive into why he remains bullish on fintech, and which sectors in the fintech space make him particularly excited.

We also discussed recent changes at his own company, which is the result of the split of GGV Capital’s teams into separate US and Asian operations. GGV’s transformation is the latest in a series of changes we’ve seen in the venture capital world, including staff shifts at Founders Fund, Benchmark and thrive capital.

Below are excerpts from the interview, edited for length and clarity:

JS: Last year we talked about down rounds. At the time, you thought they weren’t necessarily bad. Do you still have that same mentality?

Hans Tung: I have been in this business for almost twenty years. We are long-term focused in the way we approach things. I always know it doesn’t matter as far as the markings go. This is the same as becoming poor [report] card or obtaining a test exam score; it doesn’t really matter until you actually have an exit. IPO is really just a milestone, not the end game. IPO is the beginning for public investors to get involved. So if you think longer term, a temporary rise or fall in valuation doesn’t matter as much if it ultimately yields a big outcome.

Whatever it takes to scale the business, that’s what the company, its founders, and the board should focus on to best manage the business every step of the way.

The founders do not realize that this choice is not between closing and doing a down round. In that situation you choose a downward round every time. The challenge is when you are faced with the prospect of holding on to a valuation or raising a down round. If you don’t do this, you run the risk of quitting later. But if you’re close to going bankrupt, no one will invest in you.

TC: In terms of the investment landscape, how different is it so far this year compared to last year?

HT: I think it’s a continuation of what we saw in the second half of 2023. Clearly, AI is an outlier. AI is way overvalued right now. You could say we’re only in the first inning, or the top of the first inning for AI. So people are willing to pay too much […] You see a lot of crazy rounds happening at the beginning of a boom, but there will be a fork in the road and there will be companies that end up doing great, and most companies maybe not.

For the most part, I still caution founders not to compare themselves to industries that are doing well, but to focus solely on running their business.

TC: How has your pace of investment compared to recent years? How have venture capital firms been affected by the slowdown?

HT: I think we are 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 caused them to slow down even more now, which is a shame because many of them are great investors. They are in great companies and it’s a shame they can’t participate due to indigestion.

For example, some companies have raised a large round in 2021. Even though revenues are growing at around 40% to 50% year-on-year and from a maturity perspective they could probably go public soon in the next year […] But because the valuation they raised in their last round is so high, they are not at that valuation level in today’s public market, where multiples are quite compressed. So they have to wait.

As a result, the funds that invested in it in 2021 cannot get their money back because there is a lack of liquidity and the LPs cannot get money back. So we don’t have to deal with recycling money going back to the LPs, who can continue to invest in new funds. The entire system suffers.

TC: I was surprised to recently report that funding in the fintech sector fell to its lowest level in seven years in the first quarter of this year. What do you think of that?

HT: I think for fintech, given the high inflation that we had and certainly the high interest rates, it’s harder 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 publicly traded companies in the banking, insurance and financial services industries is over $10 trillion. Of that $10 trillion, only less than 5% is in fintech companies.

So if we all know that the top fintech companies are growing faster than financial services companies, it is only a matter of time that their penetration and market capitalization will increase in low single digits over time. So there will be ups and downs. Like e-commerce, fintech may not have many winners, but those that can win will have a huge market.

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