20VC Investing Lessons From Rounds In Peloton and Square, Why Great Investing is StockPicking and Sector Penetration & The Next Decade in Venture, Is Tiger's The Right Model with Hans Tung, Managing Partner @ GGV Capital



In this episode of 20 VC, host Harry Stebbings interviews Hans Tung, a managing partner at GGV Capital, who boasts a portfolio with 18 unicorns and has been consistently ranked on the Forbes Midas list. Tung discusses his journey from Taiwan to the U.S., his early exposure to tech at Stanford during the launch of the Netscape browser, and his pivotal moves from Silicon Valley to China, then back again. His investment philosophy centers on identifying sectors at inflection points for growth and choosing companies with the potential for mass market success. Tung emphasizes the importance of cultural collaboration in a global, multi-stage venture firm and shares insights on navigating market timing risks, the impact of digital economy transformation, and the value of staying grounded and focused during board meetings. He also reflects on missed opportunities, like Chime and DoorDash, and the strategy of exiting investments post-IPO. The episode also includes brief mentions of Angel List, Harness Wealth, and Ripling's services.

Summary Notes

Introduction to Hans Tung and GGV Capital

  • Hans Tung is a managing partner at GGV Capital, a leading venture firm.
  • GGV Capital's portfolio includes Alibaba, Xiaomi, Peloton, Airbnb, Slack, and others.
  • Hans has been named to the Forbes Midas list for nine consecutive years (2013-2021).
  • His portfolio includes 18 unicorns such as Affirm, Airbnb, Coinbase, and Peloton.
  • In 2005, Hans moved to China to be one of the first Silicon Valley VCs there, returning to the Valley in 2013.
  • Thanks were given to Hans's partners, Jeff and Glenn, for their question suggestions.

"The guest today has more unicorns in his portfolio than I have done podcast episodes." "He's been named to the Forbes Midas list nine consecutive years from 2013 to 2021." "In 2005, he was among the first Silicon Valley VCs to move to China full time before moving back to the Valley in 2013 to join GGV."

The quotes highlight Hans Tung's successful track record in venture capital, his recognition in the industry, and his pioneering move to China, which was innovative at the time.

Hans Tung's Background and Journey to Venture Capital

  • Hans was born in Taiwan and moved to the U.S. at age 13.
  • Attended Stanford University during a pivotal time (1989-1993).
  • Witnessed classmates join companies like Yahoo and Netscape, which was inspirational.
  • Netscape's IPO in 1995 was a moment of realization for Hans on the potential of tech.
  • His proximity to tech at Stanford shaped his career trajectory.

"I was born in Taiwan and I came to the US specifically in Los Angeles when I was 13 years old." "93 is a special year, as everyone knows, the launch of the Netscape browser." "Netscape went public and never forget sitting... worth billions of dollars and only 18 months year track record and had a loss making PNL."

These quotes outline Hans Tung's personal history, the influential period of his education at Stanford, and the impact of witnessing the early Internet era's growth and investment opportunities.

  • Hans started his career in banking, then moved to growth capital in Asia.
  • He experienced the Asia financial crisis (1998), the Internet bubble burst (early 2000s), and the financial crisis (2008).
  • These cycles taught him the value of perseverance and innovation during downturns.
  • Successful companies like Facebook, Airbnb, and Uber were founded during or after downturns.
  • Venture outcomes are often not clear until several years into the investment.

"Having gone through a few cycles earlier... it gives you perspective on when other people are afraid and stop investing or stop innovating." "Facebook was started in 2004, four years after the market crashed." "You don't know exactly what will happen until year seven, year eight, year nine."

The quotes underscore the lessons learned from economic downturns, the opportunity for growth during these periods, and the long-term nature of venture capital investment outcomes.

Investment Preferences and Approach

  • Hans prefers consumer-oriented companies or those enabling B2C players.
  • His experience in Asia and the U.S. has given him insight into consumer trends and platform shifts.
  • He values the ability to pace the growth of a company and make decisions based on limited information.

"The kind of companies I like to invest is based on what I think I'm good at." "I seem to have a sense of how the consumer shifts are happening, which platforms rising and what's the right tide to take advantage of."

These quotes reflect Hans Tung's investment strategy focused on consumer trends and his ability to identify the next big opportunity in various global markets.

Concerns with Rapid Financing Rounds

  • Hans discusses the trend of back-to-back financing rounds with little progress in between.
  • He acknowledges the excitement but also the risk of failure for both companies and funds.
  • The best companies tend to be expensive every round, and early investment can lead to greater returns.
  • Venture capital is a hits-driven business, and successful companies can compensate for losses elsewhere in the portfolio.

"This year in particular, we do see fundraising rounds happening almost every two months for some of the companies." "The best companies are always going to be expensive every single round." "If you're going to have to overpay them at a time of investment... you might as well overpay them early rather than late."

These quotes discuss the current investment climate with rapid financing rounds and the strategy of investing early in companies that show promise, despite high valuations, for potential high returns.

Valuation Sensitivity in Growth Investing

  • Valuation becomes a critical factor in growth investing, especially post $300 million mark.
  • Investors must be sensitive to price due to the impact on multiple expectations and potential returns.
  • There is a debate whether high valuations matter if the company's future valuation could be exponentially higher.

"When does the rubber hit the road on valuation?"

This quote raises the question of when valuation becomes a significant concern in the investment decision-making process.

"And what I mean by that was I was always taught that when you're growth investing post 300 million in valuation, I mean how you've got to be a lot more sensitive to price because this really matters in terms of multiple expectation."

The quote explains that after a certain valuation threshold, price sensitivity becomes more important due to its influence on expected investment multiples.

Multistage Investment Strategy

  • Multistage investing allows investors to enter at various company growth stages, which can lead to significant returns.
  • Peloton's investment example illustrates a successful multistage investment, with its valuation rising from $1 billion to over $30 billion.
  • Investing at the right time and picking the best player in a rising tide are key to successful growth investing.

"That's why it favors folks who can be multi state investor."

This quote highlights the advantage of being a multistage investor who can invest at different stages of a company's growth.

"I remember investing peloton at about billion dollar valuation, today it's over 30 billion."

Hans Tung reflects on the successful investment in Peloton, which has significantly appreciated in value since the time of investment.

Outcome Scenario Planning in Growth Investing

  • Investors must consider the potential exit multiples when evaluating growth investments.
  • There is an inherent difficulty in predicting outcomes beyond a 3 to 5x return in growth-stage investments.
  • The Peloton case study shows how understanding the underlying business model and consumer behavior can lead to a successful investment.

"Is three to five x attractive enough on growth checks? What is an attractive enough potential exit multiple for you to be like, yeah, we should take this bet?"

Harry Stebbings asks about the attractiveness of potential exit multiples in growth-stage investments and what would justify taking the investment bet.

"You have to pick ones that has a special possibility for a lot more."

Hans Tung emphasizes the importance of selecting investments that have the potential for returns significantly higher than the typical 3 to 5x.

Market Sizing and Total Addressable Market (TAM) Analysis

  • The affordability and accessibility of products like Peloton can significantly expand the TAM.
  • Payment plans and partnerships with financial services like Affirm can make high-end products more accessible to a broader audience.
  • Investing in companies that are part of a growing ecosystem can be a strategic move.

"You said they're about enlarging the pie."

Harry Stebbings discusses the importance of market expansion and TAM analysis in the context of Peloton's growth.

"My question too is, when you look at that, are there any takeaways for you or lessons when it comes to maybe not being flippant, but also thinking more strategically about market sizing and Tam analysis?"

Harry Stebbings inquires about the lessons learned from the Peloton investment regarding market sizing and TAM analysis.

Competition in the Investment Landscape

  • The current investment landscape is highly competitive, with firms like Tiger Global and D1 Capital Partners moving quickly to issue term sheets.
  • Some firms have adapted by becoming multistage and global investors, leveraging insights from various geographies to make informed decisions.
  • Building conviction and understanding local market nuances are key to succeeding in this fast-paced environment.

"How does one compete in this landscape?"

Harry Stebbings asks about strategies for competing in the fast-paced and competitive investment landscape.

"But when you're on so many deals, the time you have spent on each board or each company is a lot less."

Hans Tung points out the trade-off between the number of deals and the quality of engagement with each portfolio company.

Unbundling of Venture Capital

  • There is a trend towards unbundling venture capital services such as investing, board membership, and portfolio services.
  • Tiger Global is an example of a firm that focuses on investing without taking board seats, which may indicate a shift in the venture capital model.
  • The future may see a balance between providing essential services on a global scale and maintaining a manageable portfolio size.

"Do you think naval spoken before about the unbundling of venture into investing itself, board membership, portfolio services, do you think kind of tiger is the embodiment of that unbundling?"

Harry Stebbings discusses the potential unbundling of venture capital functions and whether Tiger Global represents this trend.

"I think that Tiger hasn't decided to build up a portfolio services team yet."

Hans Tung notes that Tiger Global has not yet invested in building a portfolio services team, which could be part of the unbundling trend in venture capital.

Global Investment Strategies

  • Global investment strategies involve understanding pricing differences across markets.
  • Overpopulated markets can lead to inflated valuations, whereas emerging markets may offer more attractive pricing.
  • Expansion into new geographies requires knowledge of local market dynamics and the ability to apply successful theses across different regions.

"But I do have to ask, you mentioned the expansion in terms of know, I obviously invest globally now too, and it's very striking for me. Like Pakistan might have just let a series b. The pricing is fundamentally just so different to the US."

Harry Stebbings comments on the striking differences in pricing and investment opportunities between the US and emerging markets like Pakistan.

Comparison of Investment Markets

  • Investing in new markets is initially met with caution until an inflection point is reached.
  • After the inflection point, there is a rush of capital, inflating valuations.
  • Markets require time to justify high valuations through growth.
  • This pattern has been observed in Southeast Asia, China, and outside the US.
  • Early Chinese tech companies would often pitch themselves based on analogous US companies.
  • Stock picking and sector penetration are critical skills in investing.

"Every time we look at new market initially it will be something that needs to be proven out so people are cautious. And once you reach that inflection point where people think, oh, this could be the next big thing, then short term, a lot more capital rush in and the valuation blows up."

The quote explains the cautious approach investors take with new markets until they recognize potential, which then leads to a surge in investment and inflated valuations.

"We have seen that movie played a few times already, whether it's Southeast Asia or China, outside the US."

Hans Tung is indicating that the pattern of cautious investment followed by a rush of capital is a common occurrence in various markets outside the US.

"Again, it sounds trite, but stock picking is a very important skill set, even with a rising tide."

Hans Tung emphasizes the importance of selecting the right stocks to invest in, even in a generally favorable market environment.

Sector Penetration and Market Timing

  • The rate of sector penetration is crucial in investment decisions.
  • Avoiding market timing risk is a concern for investors.
  • Multistage investing allows for better timing and understanding of a sector's growth trajectory.
  • Sector growth perception influences asset allocation decisions.
  • Investing in companies like Peloton and Square early has been beneficial despite initial challenges.

"Penetration is low enough, but growing over time. It will afford you to build a much bigger company as penetration of any particular service or platform rises."

Hans Tung discusses the opportunity to grow companies significantly as the market penetration of a service or platform increases over time.

"We constantly, almost every week talk about is this sector at the point in time of its trajectory that's at an inflection point or will rise the fastest over the next few years?"

This quote shows the ongoing discussions among investors about identifying the optimal point in a sector's growth trajectory to invest.

"Because you get to see and choose, okay, I love the sector, I love this founder, but it's just a bit too early or they're at a tough spot. We should come back to it later when we see that it can grow fast again."

Hans Tung explains the advantage of multistage investing, which allows for strategic timing of investments based on a sector's growth potential.

Exit Strategies and Returning Capital

  • Determining the right time to exit an investment and return capital to LPs is complex.
  • GGV Capital has a strong preference for private investments.
  • They adopt a strategy of gradual exits over time to avoid market timing.
  • Decisions on exits are influenced by deep sector knowledge and company familiarity.
  • Crossfund investments are considered for companies with significant growth potential post-IPO.

"We have sort of adopt approach of being willing to exit evenly, quarter by quarter, a finite amount between five to 10% and do that over a three, four year period so that we're not trying to time the market."

Hans Tung describes GGV Capital's strategy for exiting investments gradually over time to mitigate the risks associated with market timing.

"Because when you've been with company for a long period of time and you know the market, you know the sector, you have that familiarity. It's easier to have the conviction that it will do well."

The quote highlights the advantage of long-term engagement with a company, which provides the confidence needed to make informed investment decisions even after the company goes public.

Learning from Investment Misses

  • Reflecting on missed investment opportunities is important for growth.
  • Missing investments in successful companies like Chime and DoorDash has led to a reevaluation of the multistage investment approach.
  • Continuous learning and adaptation are key in the investment process.

"But sometimes even in the process of doing that, I still need to remember that it's still a history driven business and I missed something early. It's okay, got to go back to it and reengage."

Hans Tung acknowledges the importance of revisiting missed opportunities and maintaining a historical perspective in investment decisions.

Influence of Past Successes and Failures

  • Avoiding the influence of past successes or failures on future investment decisions is challenging.
  • Studying history, sports, and continuous self-improvement helps maintain objectivity.
  • Embracing the Kaizen philosophy and the Mamba mentality can enhance decision-making.
  • The potential for growth in internet services remains significant.

"How not to have that effect when thinks about things is extremely important."

Hans Tung stresses the importance of not letting past experiences unduly influence current investment decisions.

"And that constant willingness to improve yourself is how I deal with some of my past failures or past misses."

The quote reflects Hans Tung's commitment to self-improvement as a way to overcome past investment mistakes and prepare for future opportunities.

Hans Tung's Style of Board Membership

  • Hans Tung emphasizes the importance of making impactful comments rather than speaking frequently in board meetings.
  • He believes in focusing on a few critical issues for management to remember and act upon.
  • Tung's approach is about being impactful without overwhelming with too many tasks.
  • He values prioritization and the ability to sift through noise to identify key action items.
  • The goal is to achieve meaningful progress by addressing one or two important points per meeting.

"I always believe that in each board meeting they're only for each person. Making the one or two or most three impactful comments is important because management is presenting a lot of facts and a lot of data and a lot of analysis, how to go through all that and figure out what are the most important things to work on."

The quote explains Hans Tung's belief that board members should limit their contributions to a few significant comments that can guide the management effectively.

Hans Tung's Favorite Books and Their Impact

  • Hans Tung's favorite Western book is "Outliers" by Malcolm Gladwell, particularly the concept of the 10,000-hour rule.
  • He appreciates Gladwell's insights on the importance of one's background and opportunities in shaping success.
  • Tung's favorite Eastern book is the biography of Tokugawa, a significant figure in Japanese history.
  • The biography of Tokugawa resonates with Tung due to its themes of self-improvement and resilience in the face of adversity.

"Malcolm Gladwell's outliers. And his 10,000 hours rule makes a lot of sense to me as someone who is constantly finding ways to improve ourselves."

The quote reflects Tung's appreciation for the idea that dedication and practice are crucial for mastery and success.

Challenges in Hans Tung's Role at GGV

  • Hans Tung sees the evolution of the industry as a significant challenge in his role at GGV.
  • He strives for global, multi-stage integration and unity within the team across various geographies and cultures.
  • Tung acknowledges the difficulty of building a culture of sharing and collaboration, especially across different cultures.
  • He believes overcoming cultural differences is key to creating a unique and successful organization.

"So how do we be global, multi stage and build that togetherness as a single team, single organization, across these different stages and geographies and cultures is not easy."

The quote highlights the complexities of managing a diverse, global team and the importance of unity and collaboration.

Advice Hans Tung Gives But Finds Hard to Follow

  • Tung advises careful consideration during life's pivotal moments, where decisions have significant impacts.
  • He suggests seeking solitude and quietness to develop an intuitive sense of direction.
  • Tung shares personal decisions that shaped his career, such as moving to China and back to Silicon Valley.
  • He emphasizes the importance of making swift yet well-considered decisions with the support of colleagues.

"There are only going to be a few moments in life, two or three times, where the decision you make makes a huge impact, not only to yourself, but also the people around you, the ones you love."

This quote underlines the weight of critical decisions and the process Tung recommends for approaching them.

Decision-Making in Tough Situations

  • Hans Tung believes that preparation and reflection lead to a clear inner voice that guides decision-making.
  • He has confidence in his ability to identify key factors and make decisions, thanks to his experience and practice.
  • Tung acknowledges the possibility of missing things but maintains a positive outlook on his decision-making skills.

"Usually your inner voice emerges and it helps me to navigate and I can quickly figure out what are the two things I need to grab, ham my hat on and say, here's the two things I need to believe in to make this work, and therefore I should do it or not."

The quote describes Tung's trust in his intuition and thought process when faced with challenging decisions.

Hans Tung's Recent Investments and Their Rationale

  • Tung discusses his excitement about recent investments in various companies across different geographies.
  • He sees the digitization of the economy as a significant trend, accelerated by the COVID-19 pandemic.
  • Tung believes that technology will continue to impact multiple sectors globally, despite potential regulatory challenges.
  • He feels fortunate to be part of an era of technological innovation and impact.

"Digital economy was a concept that was discussed back in the 90s, but through Covid, you really see that happening."

The quote emphasizes the acceleration of digital transformation across the economy and the opportunities it presents.

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