20VC Why This Is Just The Start for Consumer Mobile, 3 Lessons China Taught About How To Invest Better In The US & How To Think About The Opportunity Cost of Capital Deployment with Hans Tung, Managing Partner @ GGV Capital

Summary Notes


In a conversation with Harry Stebbings on the 20 minutes VC podcast, Hans Tung, managing partner at GGV Capital, shares his journey from investment banking to venture capital, highlighting his experiences with startups and his role in expanding companies like Skype into China. Tung, a Forbes Midas list regular since 2013, emphasizes the unstoppable trend of globalization and the growing convergence of millennial values worldwide. He discusses his bullish stance on consumer internet, despite dominance by giants like Amazon, and underscores the importance of building diverse teams and focusing on underserved markets. Tung's investment philosophy prioritizes potential over price sensitivity and champions startups that create a strong community, content, and commerce ecosystem, such as Ibotta and Airbnb. He advocates for more diversity in VC and startups and believes in supporting entrepreneurs with a global vision.

Summary Notes

Introduction to GGV Capital

  • GGV Capital is a premier venture fund that partners with entrepreneurs in the US and Asia.
  • The fund focuses on the two largest markets in the world, aiming to support business growth in these regions.

"Yes, we are featuring GGV Capital this week."

The quote introduces GGV Capital as the subject of the podcast episode, highlighting its significance in the venture capital industry, with a unique focus on the US and Asia markets.

Hans Tung's Background

  • Hans Tung is a managing partner at GGV Capital with a successful portfolio.
  • His investments include companies like Wish, Poshmark, musically (now TikTok), Slack, and OfferUp in the US, and Xiaomi, Four Game, and Domob Ads in Asia.
  • Before GGV, Hans worked at Bessemer Venture Partners and played a role in Skype's expansion into China.
  • Hans co-founded two pan-Asian internet startups, which were later sold to telecommunications companies.
  • He has been recognized as a top VC by Forbes Midas List since 2013 and as a top entrepreneur-friendly VC in China.

"Hans Tong, managing partner at GGV, where Hans' incredible portfolio includes the likes of Wish Poshmark, musically Slack and offerup in the US, and then Xiaomi four game and Domob ads in Asia, just to name a few."

The quote summarizes Hans Tung's career achievements and notable investments, emphasizing his influence and success in the venture capital industry.

Venture Capital Entry Point

  • Hans Tung started his career in M&A investment banking in New York after graduating from Stanford.
  • He later moved to Asia, where he transitioned to growth capital investing, which was a thriving sector in the late 1990s.
  • Hans co-founded two startups but realized his strengths lay elsewhere.
  • He decided to become a venture capitalist, starting his VC career with Bessemer in 2005 and moving to China with the firm later that year.

"And then from there I foray moved into growth capital investing because in Asia back in the late 1990s, growth capital is where the action was at."

The quote explains Hans Tung's shift from investment banking to growth capital investing, which was a strategic move given the market dynamics in Asia during that period.

Confidence in Consumer Internet

  • Hans Tung witnessed the rapid growth of Alibaba and the explosion of internet and smartphone users in China.
  • He believes that from 2013 to 2023, the globalization of mobile internet, especially for consumer companies, will be a significant trend.
  • His global perspective fuels his bullish stance on consumer internet, despite some pessimistic views in the industry.

"And I said to myself, over the next ten years between 2013 and 2023, globalization of mobile Internet, especially for consumer companies, will be the most important trend I will ever bet on in my career."

This quote captures Hans Tung's long-term vision and the basis for his investment strategy, which is centered around the potential of consumer internet companies on a global scale.

Assessment of Global Consumer Internet Trend

  • Hans Tung made a career-defining bet on the globalization of mobile internet for consumer companies.
  • He reflects on the progress of this trend, considering the challenges faced by companies like Uber in global expansion and the increasing presence of Chinese companies in Europe.

"Well, in my last four years with GGV, I invested either lead or cold with my col"

The quote is incomplete and does not offer a full insight into Hans Tung's assessment. However, it suggests that he has been actively investing in line with his belief in the globalization trend within his role at GGV.## GGV Capital's Consumer Internet Portfolio

  • GGV Capital has invested in various successful consumer internet companies, including Airbnb, Slack, and top shopping apps in the US such as Wish, Poshmark, and Ibotta.
  • Their portfolio also includes global brands like Peloton, Giphy, and Bustle, and they are witnessing disruption in home, auto, and travel sectors.
  • Investments focus on companies with potential for global expansion.
  • The partnership with Didi, a portfolio company, exemplifies a successful entry model into China for Uber.

"leagues Airbnb Slack, three of the top five shopping apps in the US. That's wishing number two, sometimes number one, alpha number three, sometimes number four, poshmark number five, sometimes number six. And I bought a most recent investment somewhere between twelve to 15. They all have done very well and several of them have become more either becoming or already quite global."

This quote lists successful investments made by GGV Capital, highlighting their presence in the top ranks of US shopping apps and their global reach.

"Now, with respect to China, sure, Uber met some resistance and ends up doing a deal with DD, which is a portfolio of ours. But I don't think the outcome is bad for Uber."

The quote discusses Uber's strategic move in China by partnering with Didi, suggesting that forming strategic partnerships, rather than going alone, can be a successful entry model into new markets.

E-Commerce Market Dynamics

  • GGV Capital sees significant opportunities in e-commerce, despite Amazon's strong market share.
  • In China, Alibaba and JD.com dominate with over 90% market share, yet there are thriving e-commerce unicorns.
  • E-commerce penetration is still growing, with the US market having ample room for growth compared to China.
  • GGV invests in companies that offer unique and differentiated services from Amazon.

"Ecommerce in the US. This is why we invest in wish, in poshmark, in house, in Ibada, in offer up, because each one of them is doing something different and unique from Amazon."

This quote explains GGV Capital's investment strategy in e-commerce, focusing on companies that differentiate themselves from Amazon's offerings.

"So US is still plenty. China, the online e commerce market is roughly about $1 trillion a year across. That benchmark this year in the US is well over half a trillion. So it's still a huge market for any startup to look at."

This quote emphasizes the size of the e-commerce market in both China and the US, indicating that despite the population disparity, the US market remains substantial and attractive for startups.

Lessons from China's Market

  • Entrepreneurs should target mass markets beyond their immediate circles to build massive businesses.
  • Offering affordable luxury with a focus on high volume and repeated purchases is key.
  • Building a diverse and international team can facilitate global scaling.
  • These insights are derived from the speaker's experience in China and are applicable globally.

"Think of the mass market, think of the underserved markets. Think of market that's beyond just yourself, your circle, but to greater part of the world."

This quote encourages entrepreneurs to think broadly and serve a wider audience, not just a niche market, to create substantial businesses.

"Don't worry about high margin, worry about high volume, don't worry about selling it one time, two times."

This quote suggests that entrepreneurs should prioritize affordable pricing and products that encourage repeat purchases to achieve high sales volumes.

"You want to have a team of immigrants, of people who come from different parts of the world, have some common experiences because they have worked in the valley, for example, or similar schools."

The quote advocates for building a diverse team with varied backgrounds, which can contribute to a company's ability to expand globally.

Market Creation and Expansion

  • Starting with a focused pain point and expanding the total addressable market (TAM) is a successful strategy.
  • Houzz is an example of a company that created a market by addressing the complexities of home remodeling.
  • The platform offers a unique combination of community, content, and commerce, differentiating itself from Amazon and driving user engagement.

"I think if you start with something that you know is a pain point, for a particular focus segment of the users focus on solving that problem."

This quote highlights the importance of identifying and addressing specific consumer pain points as a starting point for market creation.

"It's a lot of pain to go through to find the right architect, the right designer, the right contractor to look at which style of house you like, both inside and outside."

The quote describes the specific pain point that Houzz addresses, illustrating the potential for market creation by solving complex consumer problems.## Consumer Behavior and Market Advantage

  • Consumer habits can provide significant market advantage to companies.
  • Frequent engagement with a platform or service, even if not daily, can challenge larger competitors like Amazon in their respective categories.

"The fact that [I] go back so frequently gives them an advantage over Amazon in their category."

The quote emphasizes the importance of customer retention and frequent use as a competitive edge against larger companies.

Price Sensitivity in Investment

  • Price sensitivity varies among investors; some prioritize potential growth over current valuation.
  • The focus is often on the potential size of the opportunity and the quality of the team.
  • Investments are weighed against the opportunity cost of capital allocation.
  • High-growth potential can justify higher valuations.

"I don't mind to pay valuation that's a bit higher for the right team and for the right category, it all has to be within reason."

This quote reveals a willingness to invest at a higher valuation if the team and market opportunity are promising, indicating a strategic approach to investment decisions.

Reserve Allocation for Investments

  • Reserve ratios can vary from one-to-one to one-to-two, depending on the fund's cycle and whether capital is being recycled.
  • Allocation strategies are flexible and can change based on the availability of promising investment opportunities.
  • The reserve ratio is adjusted to balance the desire to support entrepreneurs with the need for prudent capital allocation.

"We tend to have a reserve ratio somewhere around one to one or one to two."

The quote explains the typical reserve strategies employed to ensure there is additional capital available for follow-on investments.

Investment Decision Making

  • Follow-on investments are treated similarly to new investments.
  • The balance between supporting portfolio companies and evaluating new investment opportunities is critical.
  • Protective investments may be necessary to maintain one's position in a company.

"We always want to balance the two, our desire to support entrepreneur and also, is this a good investment?"

This quote highlights the dual focus on supporting existing investments while also considering the potential returns of new opportunities.

Globalization of Technology and VC

  • Technology and venture capital have become global industries, influenced by political and economic changes.
  • There's a convergence of values among the younger generation worldwide, particularly Gen Z and millennials.
  • Younger users are more connected, less skeptical, and more open to influence from peers across the globe.

"There's definitely convergence amongst younger users worldwide."

The quote points out the global similarities among younger consumers, which can inform investment strategies in technology and consumer markets.

Millennial Brand Loyalty in E-commerce

  • Millennials and Gen Z do not automatically gravitate towards established brands; they seek recommendations from peers and influencers.
  • Brands must engage with consumers on social media platforms to build popularity and loyalty.
  • Transparency and authenticity are key to winning trust and fostering frequent interactions with young consumers.

"A brand has to figure out how to become popular on Facebook, on Instagram, even on Snapchat, on social media like Pinterest, and so forth."

This quote underscores the importance of social media presence for brands looking to build loyalty with younger demographics.## Personal Interests and Inspirations

  • Hans Tung enjoys reading books on outliers, tipping points, and quick decision-making.
  • He has a passion for history, particularly Japanese, Chinese, and European history.
  • Hans sees parallels between historical societal changes and modern transformations.
  • He also reads about building championship sports teams to understand high-performing team dynamics.
  • These interests help him think through problems and assist CEOs in various industry sectors.

I think I learned a lot from reading outlier and tipping point, blink and so forth. I also like to read books that talks about history. I love history, so I study japanese history, chinese history, european history in particular.

The quote highlights Hans Tung's sources of learning and inspiration, which include books on behavioral science and history, contributing to his strategic thinking in investment and advising roles.

Globalization and Investment Beliefs

  • Hans Tung believes in the unstoppable trend of globalization despite skepticism from others.
  • He supports companies like Wish, which sell products globally, including to diverse consumer groups.
  • His belief in globalization influenced his decision to move back to the U.S. to join his colleagues in Silicon Valley.

I believe that globalization is an unstoppable trend and a lot of people have doubts, especially given the recent results of elections in multiple countries.

This quote emphasizes Hans Tung's strong conviction in the trend of globalization, which shapes his investment strategies and decisions.

Silicon Valley and Global Expansion

  • Hans Tung observed Chinese companies like Alibaba, Tencent, and Xiaomi expanding globally.
  • He also noticed U.S. companies like Airbnb and Uber growing internationally and considering China.
  • These observations led him to believe that the trend of global expansion by major companies is irreversible.
  • He chose Silicon Valley as his base for its diversity and as a strategic location for global investments.

I felt that it is a irreversible trend because the experience and knowledge and scale companies from these two countries have built from their home market have allowed them to do even more beyond rest of the world.

Hans Tung's quote explains his rationale for returning to the U.S. and his view on the global expansion of companies as an irreversible trend that presents investment opportunities.

Preferred Reading Material

  • Hans Tung enjoys reading Dan Primack's newsletter, The Information, and Ben Thompson's Stratechery.
  • He also reads Ben Bajarin's newsletter.
  • These sources provide him with insights and analysis relevant to his work in venture capital and technology.

I do like Dan Primax's newsletter. I also like the information and Ben Thompson's strategy is something I read often as well.

The quote lists the newsletters and blogs that Hans Tung regularly reads, indicating the types of industry insights he values for staying informed.

Diversity in Venture Capital and Startups

  • Hans Tung wants to increase diversity in the workplace, including gender, ethnicity, and socioeconomic backgrounds.
  • His firm has a high percentage of women, including in leadership positions.
  • He is passionate about backing entrepreneurs from diverse backgrounds who have the potential to change the world.

The biggest thing I want to change is seeing more diversity in the workplace.

This quote reflects Hans Tung's desire to foster greater diversity within the venture capital and startup ecosystem, which he sees as crucial for innovation and progress.

Investment in Ibotta

  • Hans Tung's firm invested in Ibotta, a leading cash rebate app, due to its forward-thinking interface and potential for mobile commerce.
  • The investment decision was made rapidly, reflecting the firm's agility and confidence in the team.
  • Ibotta's location outside of Silicon Valley and its mass market appeal in the U.S. were attractive factors.

Ibotta is the number one cash rebate app and they build an interface about two months ago that they launched that is extremely forward thinking.

This quote explains the reasoning behind the investment in Ibotta, highlighting the app's innovative approach and alignment with the firm's investment criteria.

Acknowledgements and Contacts

  • Hans Tung expresses mutual respect for his colleagues and fellow investors.
  • The podcast hosts thank Hans Tung for his participation and provide his Twitter handle for listeners to follow.
  • The hosts also promote their own social media and discuss partnerships with Naturebox and Lisa for healthy office snacks and mattresses.

Sure, I have a lot of respect for them as well. They're just great investors.

The quote shows Hans Tung's appreciation for his peers in the investment community, emphasizing the importance of respect and recognition among professionals.

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