hans tung managing partner ggvc

Common mistakes founders make, investment theses, and what makes Indonesia different? Q&A with Hans Tung

Hans Tung
Managing Partner, GGV Capital
hans tung
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This Q&A comes from a recording of a founders’ dinner we hosted in Jakarta last year. Hans answered a wide range of questions, including absolutes, trade-offs, the power of the mass market, pattern recognition across markets, and more - here are some highlights.

What are some of the common mistakes that companies make as they evolve?

The first mistake I’ve seen is not finding the right product-market fit. The next is when people raise too much money. It’s too easy to get excited after each fundraising round and lose your focus. They lose sight of what’s important and start branching out in different directions. That’s usually when things fall apart. Most people don’t manage that next phase of scale very well – they get very carried away. I’ve witnessed two unicorns that ended up falling apart because of that – it is painful and very sad.

Conversely, what are some of the common things that successful companies do?

If you can scale well, chances are, you have figured out how to train your middle managers well. You’ve likely figured out a way to empower them and set them on a path to gain experience quickly. Some companies try to recruit people from outside the company and it ends up not working out. Why? Most of the time, they were tissue rejections. You need to learn how to mix experienced hires from the outside, with a decent amount of internal growth. That is the best combination. Too many people plucked from outside can and will demoralize your internal staff.

What are some of the tradeoffs that we should – or should not – be making as companies grow?

I’m of the belief that you have made a certain number of mistakes to get to the right answer. I’m not super smart, I think I just have more data points, for people to make decisions. So when I see founders who are not afraid to try many things, but each time making sure the downside is protected, but trying things quickly, ends up getting to the right answer sooner. The ones that think, think, think, plan, plan, plan – tend not to do as well – because nobody is smart enough to get it right the first time.

What’s your approach to investing? What’s your framework in building your investment thesis – especially in first-world countries?

When I moved from China back to the US in 2013, a lot of people were curious as to why. They said, Hans, the U.S. is already ‘discovered’. Silicon Valley is the most competitive VC market there is.

Well, since moving back, my portfolio includes Wish, Poshmark, Affirm, Airbnb, Slack, Peloton, Lime. Those are deals I did in the last six years. So, one big play a year plus, additional stuff in China like ByteDance and Xiaohongshu. What I learned is that, even in the developed market, there’s a bias towards doing things that’s high-margin, high-branding, more high-end because they feel they can always go a step down later.

Most companies in the U.S. tend to do things that are in the US, and rarely concentrate efforts on going global. I’ve found that some venture capitalists don’t think about going global very much. But I do. So that’s already one differentiation. Second thing is that Uber did not have Uber X until year four of their operations. And they only did it because Lyft has something like that. So they copied and did it. It took awhile for them to realize that for Uber to go big, they need to focus on a mass market. In the US, the mass market does not exist in San Francisco, LA, and New York. Mass market is heartland America. If you’re willing to think about the mass market, there’s actually a lot of potential that not many people realize.

Right now, the trend in the US is gearing towards cloud and SMB tech, or people building SaaS in different verticals. I’d say not enough people spend time on that. So for us, we see opportunities everywhere in the US already. We’re very bullish on infrastructure tech, for security and other full-stack solutions.

In infrastructure tech, it is a very competitive market. Everybody is competing against each other, and it comes down to which venture capital firm is willing to invest in business development, in talent recruiting, in data, and in PR for the portfolio company. The ones are willing to do that and do that well have an edge. Having a venture capital firm that can provide similar solutions, but more of a local touch has an edge. For GGV, I don’t think it’s that hard to compete in the US at all.

China took the world’s factory approach to economic development, India took the world’s back-office approach. In both of these cases, there’s been a lot of technology diffusion and productivity gains in the labour force. That’s why the talent pool is deeper than Indonesia. So for Indonesia, where the talent pool is, frankly speaking, quite weak compared to these two, how do you solve a problem like this, where you see a future where things like performance marketing and engineering are totally outsourced to India. How can people in Indonesia solve the talent gap?

That’s obviously a big question. Indonesia has ITB (Bandung Institute of Technology), the Stanford of Indonesia. But it’s only limited to 200 Computer Science graduates every year from a class of 2,000 to 3000 students. That’s a huge bottleneck. Going the India route does make sense, because they’re cheaper and hungrier, in some cases, even better. Indonesia right now is ahead of India. So, India does look up to Indonesia for job opportunities. Take advantage of that while you can, and get engineering support from India while it’s still possible.

To grow Indonesia’s talent pool and to deepen their experience, I still go back to two things. Going after the warungs and making SMB tech a key focus for the tech scene here, these two can help to train more engineers and also improve the efficiency of the local economy.

Using China and Alibaba as an example. Alibaba was amazing, right? But you don’t go from 180 million to half a trillion, just because you’re amazing. They had a significant impact on the country – making the new economy grow fast and become more efficient. When we started investing in China in 2000, GDP growth in China was 14% a year. It has come down every year since we started investing in China. In theory, it should be a bad market to invest, how can you go from 14% a year to 5% a year. You’d think: That country must not be doing well. But it’s a tale of two cities. There’s the old economy that continues to decline, but the new economy continues to improve. Why did the new economy improve? Because Alibaba empowered and enabled all these online merchants. They believed that going online was the future of the economy, and the rest of society followed!

To sum up, it doesn’t matter how highly skilled or talented your human capital is, if it’s not linked to nation-building. Your skills should go towards helping Indonesia develop better infrastructure, mindset and habits for the new economy.

Specifically to Indonesia and maybe broader to Southeast Asia, what are your investment thesis of the verticals or the business models that you think are going to have the highest degree of scalability, and what do you think are the key barriers in each of those top three verticals?

Take India as an example, B2C is much harder to scale. We think that there’s so much inefficiency in B2B, that’s probably the area we will start first. That covers B2B retail, agriculture, and so forth. FinTech is another area that people spend money and time on, for obvious reasons. Education, because you want to have engineers, you’ve got to train people to be better students and perform better and develop. Now, India has something else that other regions doesn’t have as much, which is more enterprise companies that can go global. And all the enterprise companies from India are coming either to Indonesia or to the US. So that’s what we’re thinking about for India.

Here, in Indonesia, there’s a lot of interesting things happening. The verticals you’re in like logistics, consumer goods and brands, social commerce, working with warungs, travel, are some of the verticals that we are already looking at.

As entrepreneurs, we spend a lot of time talking about pattern matching and x for y. Could you kind of flip that around? In what areas might Southeast Asia or Indonesia be different, unique or more challenging?

Indonesia has a lot of natural resources. One thing that will be interesting for me is that I love to see more manufacturing happen here and to take advantage of natural resources. It’s no secret that the US government really wants to push manufacturing out of China. As that happens, how much that will actually come to Indonesia, is going to be important.

How can Indonesia benefit? It seems like quite a bit of people have moved to Vietnam already. But if more come to Indonesia, it will be different. Having said that, Vietnam is a much smaller market compared to Indonesia, but the talent and the base is also present in Vietnam. Could Indonesia tap Vietnam as well? In the meantime, you should build up more resources in Indonesia. When there’s more manufacturing activity across the board, all sectors happening here, building consumer products will be easier, building gadgets will be easier. Everything just becomes simpler.


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