Notable Capital’s Hans Tung on why he thinks founders need to play the long game

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Hans Tung, a managing partner astatine Notable Capital, formerly GGV Capital, has a batch of thoughts connected nan authorities of task today.

Notable Capital is simply a task patient pinch $4.2 cardinal successful assets nether management, focusing connected investments successful nan U.S., Latin America, Israel, and Europe.

Tung, whose portfolio includes nan likes of Airbnb, StockX and Slack, precocious sat down pinch TechCrunch’s Equity Podcast to talk valuations, why founders request to play nan agelong crippled and why immoderate VC firms are struggling. 

He besides fto america cognize why he’s still bullish connected fintech and what sectors successful nan fintech abstraction person him particularly excited.

We besides discussed recent changes astatine his ain firm, which evolved from 24-year-old cross-border patient GGV Capital and rebranded its U.S. and Asia operations to Notable Capital and Granite Asia, respectively. GGV’s translator is nan latest successful a drawstring of changes we’ve seen successful nan world of task capital, including unit shifts astatine Founders Fund, Benchmark and Thrive Capital.

Below are excerpts from nan interview, which has been edited for clarity and brevity.

TechCrunch: Last year, we talked astir down rounds. At nan time, you thought they were not needfully a bad thing. Do you still person that aforesaid mindset?

Hans Tung: I’ve been successful this biz for almost 20 years. We’re semipermanent successful nan measurement we attack things. And I ever cognize that it doesn’t matter astir nan markups. This is for illustration getting a mediocre [report] card, aliases getting a trial exam score, it doesn’t really matter until you really person an exit. IPO is really conscionable a milestone, not nan extremity game. IPO is nan opening for nationalist investors to beryllium on for nan ride. So if you deliberation longer term, valuation up aliases down temporarily doesn’t matter arsenic overmuch arsenic generating a large result astatine nan end.

I deliberation that immoderate it takes to standard nan business is what nan institution and nan founders and committee request to attraction connected doing to negociate nan business nan champion they tin each measurement of nan way.

I deliberation that what founders don’t recognize is that this prime is not betwixt shutting down and do a down round, because successful that situation, you will take a down information each azygous time. The situation is erstwhile you are faced pinch nan imaginable of holding connected to a valuation, aliases raise a down round. If you don’t do it, you tally nan consequence of shutting down later. But I’ll show you if you’re adjacent to shutting down, nary one’s gonna put successful you

TC: Overall, pinch regards to nan investing landscape, really different is it truthful acold this twelvemonth compared to last?

HT: I deliberation it’s a continuation of what we saw successful nan 2nd half of 2023. Obviously, AI is an outlier. AI is way, measurement overvalued correct now. You could reason that we’re only successful nan first inning, aliases nan first half of nan first inning for AI, truthful group are consenting to overpay…You do spot a batch of crazy rounds happening astatine nan opening of a boom, but location will beryllium bifurcation, and location will beryllium companies that extremity up doing great, and astir companies whitethorn not. 

For nan astir part, I still be aware founders to not comparison themselves pinch sectors are doing well, but afloat attraction connected managing their business. 

TC: How is your gait of investing compared to caller years? How person VC firms been impacted by nan slowdown?

HT: I deliberation we’re much astatine nan 2022 level. So much than 2023. But 2021 was an outlier. And it’s not bully for business. And it’s not bully for nan ecosystem. Without naming names, you do spot firms being impacted by what what they were doing successful 2021 and that has made them slow down a batch much now, which is unfortunate, because galore of them are awesome investors, they’re successful awesome companies, and it’s excessively bad that they cannot participate arsenic a consequence of conscionable indigestion.

For example, immoderate companies raised a ample information successful 2021. And moreover though nan business is increasing gross astir 40% to 50% twelvemonth connected twelvemonth and they tin astir apt IPO soon successful nan adjacent twelvemonth aliases truthful from a maturity standpoint…but because nan valuation they raised successful their past information is truthful high, that they are not astatine that level of valuation successful nan existent nationalist market, wherever nan multiples person compressed rather a bit. So they person to wait. And arsenic a result, nan costs that invested successful them successful 2021 cannot get cash back, because there’s deficiency of liquidity and nan LPs cannot get money backmost either. So we don’t person that recycling of money going backmost to nan LPs who proceed to put successful caller funds. The full strategy suffers arsenic a result.

TC: I was amazed to study precocious that backing successful nan fintech abstraction had dropped to its lowest level successful 7 years successful nan first 4th of this year. What do you deliberation astir that?

HT: I deliberation for fintech, fixed nan precocious inflationary situation that we had, and decidedly precocious liking complaint that’s coming down, but not coming down quickly – it is harder for group to determine astir fintech. But if you look astatine nan different group of metrics, financial services arsenic a category, nan marketplace headdress of each nationalist companies successful nan banking security financial work abstraction is complete $10 trillion. And of that $10 trillion, only little than 5% are successful fintech companies. And truthful if we each cognize that nan champion fintech companies are increasing faster than financial work companies, it’s conscionable a matter of clip that debased azygous digit penetration and marketplace headdress will summation complete time. So it will person ups and downs. Like ecommerce, fintech mightiness not person excessively galore winners, but nan ones that tin triumph tin person a immense market.

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