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Investing lessons from Hans Tung

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As investors go, GGV managing partner Hans Tung has built a track record that’s more impressive than most. Consistently recognised among the world’s top venture capitalists, he has been named to Forbes’ Midas list nine consecutive times, most recently ranking #3 in 2021.

The Taiwan-born Tung, who moved to Los Angeles with his family when he was 13, started his investing career in 1996 when he joined a private equity firm with operations in Asia. The Stanford graduate spent many years in Singapore, Taipei and mainland China before returning to Silicon Valley in 2013 to join GGV Capital.

An early-stage investing expert, his portfolio has 18 unicorns, including publicly-listed firms such as Airbnb, Peloton and Xiaomi, and private unicorns such as Bytedance, Udaan and Xiaohongshu.

This article looks at the investing lessons he learned throughout his decades-long career and, as he recounted in a recent interview with Twenty Minute VC podcast host Harry Stebbings.

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A rising tide lifts all boats, so figure out the next big thing

Believing that “a rising tide lifts all boats”, Tung says the challenge for a venture capitalist is to keep figuring out the next tide and the next big thing.

Having tried his hand as a founder twice during the first internet bubble in the US, he learned how to start a business from scratch, build a team, work with co-founders and engage with customers. Though his ventures did not pan out, the experiences taught him about what it takes to pace oneself, pace the growth of the company and at which points to make decisions based on limited information. As a result, he notes that the kind of companies he gets to be interested in have a consumer angle.

“I seem to have a sense of how consumer shifts are happening, which platforms [are] rising, and what’s the right time to take advantage of and consult the founders that way. And given what I’ve done in Asia, in the US, and now increasingly Latam, India, [it’s] kind of shown that this kind of method can work in multiple geographies,” he says.

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The best companies are going to be expensive, so go in early

One of the critical lessons he has learned in his career as a multi-stage investor is that “the best companies are always going to be expensive, every single round”.

“And if we’re gonna have to overpay them at a time of investment, because growth is gonna be fast, and they will make up for that high valuation later with the organic growth, you might as well have overpaid them early rather than late,” he points out. “Being early, you have a chance to make more as a result.” 

Many funds believe in that philosophy. That is why you will see the highest concentration of value inflation at the early stage, even if the growth or progress of the company itself doesn’t match the pace of the funding rounds, he explains.

“I invested in some companies with $100 million valuations. When they become 5, 10, 20, sometimes even 100 billion-dollar in valuation, it really doesn’t matter what happens to the rest of your portfolio. That’s the reality of the business that we’re in,” the venture capitalist says.

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No matter the stage, it’s about picking correctly

Given that reality, when you’re paying a billion for a company that could become $50 billion, when does the rubber hit the road with valuation?

Ultimately, says Hans, it’s not about the investment stage; it’s about making the right call about the company’s inflexion point.

He recalls investing in exercise equipment and media company Peloton when it had about a billion-dollar valuation, and today it has a valuation of over $30 billion. At a billion-dollar valuation, however, it was hard getting the round done. Many smart people passed because of valuation and because Peloton was then seen chiefly as a hardware business.

“Obviously, a lot has happened since that made people realise that it’s a subscription business. There was Covid, and growth accelerated. So whether you’re investing early, mid or late, you still have to pick correctly. It’s still about picking the rising tide and picking the best player in that,” Tung says.

He admits that the strategy may sound simple. Still, it’s tough to do when you are deep into analyzing a company and trying to figure out the early signs that indicate that the situation is a rising tide and the inflexion point for growth is just right around the corner.

How he describes the decision-making process reflects his passion for investing and suggests why he has become so successful in his field. “The judgment call it involves and the guts to make that call is what makes this job extremely interesting and rewarding,” he says.

 

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