Today’s episode is a recording of a founders’ dinner we hosted in Jakarta last year. In a short Q&A part of the night, Hans answered a wide range of questions, including absolutes, trade-offs, the power of the mass market, patterns recognition across markets, and more. Enjoy!
Hi everyone, my name is Dimitra from GGV capital. So happy that we can have this amazing room of entrepreneurs join us tonight. Hans is only in Jakarta three or four times a year, so we are very happy to have him here. Hans needs no introduction, having invested in large companies, a very rare VC who has invested about 800 million+ dollars in his career and have returned 2 billion+ dollars to limited partners, invested in the likes of Xiaomi, Affirm in the US, and Xiaohongshu and many other companies that I can’t list all of them. Hans counts probably 15 unicorns in his portfolio across China and the US, so we are very excited to have Hans here today.
Thank you everyone for coming. It’s great to see everyone here. I’m Hans, this is probably my fifth or sixth trip to Indonesia. First two trips happened in the 90s, before 1997, then the last two years. I’ve been here three, four times already, so it’s always good to be here. So, thank you.
Guys, thank you, the food is going to start coming out. But if anyone has any questions, we have a bit of Q&A for Hans.
Thanks, Hans. My question is around absolutes, in your perspective and experience, what are some of the common mistakes that companies make as you’ve seen them grow? And on reverse side, what is the pattern of some of the successful companies that you’ve seen grow? And my follow-up question to that is because we make tradeoffs, you know, we have to all the time. What are some of the short-term tradeoffs that we shouldn’t be making? And then, we should be taking the short-term hits, or investments or whatever for the long-term game.
Things that easily don’t work out. Obviously, finding a product market fit is not easy. So, a lot of people don’t end up making that. Most of you here have found that or are close to finding it. Next one is, when people raise too much money and get big headed, and a team gets cocky early, (not the founder), but everyone else around him or her. It’s easy to say, Hey, we raised $3 million, we have arrived, and then they take eyes off the ball and grow too fast. Everybody grows in different directions, that’s usually when things fall apart. Most people don’t manage the next phase of scale very well. I’ve known companies that have gotten to unicorn status and feel like, Okay, now we’re talking, we should be like that, grow at that speed. Therefore, you’re gonna do whatever we do now but you know faster, and that’s when they screw up. I’ve been through with two unicorns that ends up falling apart as a result of that. So, it is painful, very sad when they miss the opportunities there, just got extremely carried away.
The things that the companies that can scale well do, is to figure out how to train the middle level managers, to both empower them, but at the same time, get them to understand how to become more experienced quickly. Alibaba did that well, they try to recruit from people from outside to go inside and it didn’t work. Most of them, they were tissue rejections. So is really depending on how fast the younger people learn and pick up and give them tools and train them, finding ways for them to get more educated. Sometimes it takes more time in the short term, but in the long run, it pays off because they are more loyal to the company. And if they can grow and get experienced, that’s the best thing. How you can mix one or two experience hires with a lot of internal growth? That’s usually the best combination. Too many people from outside can demoralize the people that you already have internally.
The last question you have for me was about tradeoffs. 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. Now another tradeoff that is important is figuring out there’s always so many things you can do, so think hard about prioritizing. I hate the word focus. Because I think ‘focus’ is a term from Silicon Valley, meaning that you only want to do one thing or do one thing well. To win in an emerging market, you have to prioritize, but you have to do everything, but don’t kid yourself of all the work you need to do. But how do you prioritize the most impactful stuff, get it done first. And it helps to do the next thing easier, and easier and easier, is key. So everything that we have done in our last six or seven years, and also thinking about prioritizing, we were greedy. We’re doing a lot of stuff. We went early, we went late. We went bigger, we went into more geographies, but we did things systematically, so we’re able to grow our AUM the way that we did and continue to generate DPI. We always wish we have more money than we can get. But you have to prioritize and figure out how to do things systematically.
Yeah. Thank you. My question is on how you look at investing or your framework in building your investment thesis. So I think for third world country like Indonesia, whenever I speak to VCs, they always tell me that the way to look at investing in Indonesia is always about, oh, let me see what models works in the US and China. And then I’m gonna try to find an equivalent to that in Indonesia. But in a first world country, how do you look at investing?
When I moved from China back to the US in 2013, a lot of people ask me why, Hans, the US is ‘already discovered’, Silicon Valley is the most competitive VC market there is, just look at Sandhill road, all these big names. What is GGV doing here? And what are you doing here? Since I moved 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 and plus, additional stuff in China like ByteDance and Xiaohongshu. So, what I learned is that, even in the developed world market, there’s a bias towards doing things that’s high margin, high branding, more high end because they feel they can always go down later.
Good examples like Uber versus Lyft. Lyft only does one thing. And Uber did in multiple geographies, they had Uber, Uber Eats and other stuff. So Uber valuation is four times of Lyft. Most companies in the US only do stuff that’s in the US, they don’t know global. So VCs don’t think about 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 operation. And they only did it because Lyft has something like that. So they copied and did it. They never realized that for Uber to be big, they need to focus on a mass market.
So in the US, the mass market does not exist in San Francisco, LA, and New York. How do you serve the heartland America and do that? Well, most founders in the US don’t think about that. So if you’re willing to do that, it gives you a lot of things to do in the US. People in Park Heights and people in Upper East Side don’t think about it. And right now the trend in the US starts going to the cloud. And this SMB tech, people building SaaS in different verticals. Not enough people spend time on that. And New York within is happening, but west coast VCs tend to stay on the west coast. So for us, we see opportunities everywhere in the US already. And this is just on SMB tech, and on consumer ready. We’re very bullish on infrastructure tech, for security and other full stack solutions that there is, and in that market is very competitive. Everybody is competing against each other, now it comes down to which VC is willing to invest in BD, in talent recruiting, in data, and in PR for the portfolio. The ones are willing to do that and do that well have an edge. So having a VC that can provide similar solutions, but more of a local touch has an edge. So for us, I don’t think it’s that hard to compete in the US at all.
Now in terms of emerging markets, the VC can say you are the X of what. You can do that, but at the same time do you really understand what makes those models work in those countries? When you bring over here, what are the right applications you need to make, in order to make it work here. So it’s interesting how just because the concept works well in one market doesn’t mean the copycat supposedly is worse. And knowing how the local market is different is key. In China, B2C did well, B2B won’t. So, a lot of Chinese investors are not going to look at B2B in other markets because that’s not seen to work in China. But there’s a reason that B2B didn’t work in China, because manufacturing was everywhere. You don’t need sourcing help, because people can find sourcing very easily. But in other markets, manufacturers are a lot more fragmented. Therefore, B2B has more inefficiencies that can be improved. So, understanding the sociology of the countries you’re looking at is much more important than just copying the model. And China went through that process too. 15 years ago, China was copying everything that US has, didn’t matter if it fits China or not, people just copied. And afterwards, they learn that the copy doesn’t work. You need to know what’s the problem you’re solving locally. And overtime, how to solve local problems is the key.
So I have a question on Indonesia. If you look at China and China took the world’s factory approach to economic development, and they produce and they make stuff, India took the world’s back office approach, and they produce engineers and tech services for some of the biggest companies in the world. In both of these cases, there’s a lot of technology diffusion and productivity gains in the labor 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 for a problem like this, you see a future where things like performance marketing and engineering is totally outsourced to India. How can people here solve the talent gap?
That’s obviously a big question. Obviously you have ITB, the Stanford of Indonesia. But it’s only limited among 200 CS graduates every year from a class of 2,000 to 3000 students. So that is obviously a huge bottleneck. I think 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 opportunity. Take advantage of that while you can, and build up a big operation there as possible. It’s possible to hire from Vancouver or Ontario possibly, but unless you have friends there or you came from there, less likely. So I think India in terms of getting engineering support is still the best solution.
Now what can be done in Indonesia to have that talent pool, to get a lot more experience, I still think that going after the warungs and make the SMB tech a key focus for the tech scene here, can help to train more engineers and also improve the efficiency of the local economy. For China was different, Alibaba was amazing. But you don’t go from 180 million to half a trillion, just because you’re amazing. It must be the impacts of you that made the country more efficient, so the new economy grows fast. When we start investing in China in 2000, GDP growth, economy 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. 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 new economy continue to improve. Why did new economy improve? Because Alibaba made all these merchants online richer? And they believe that the online way is a better way, and the rest of society followed! So if there’s no nation-building, new economy doesn’t improve, it doesn’t matter how smart Alibaba guys are. So whatever people do here, if what you’re doing is helping the country develop a better infrastructure, mindset, and habits for new economy, then Indonesia will do well.
Guest contribution: Because what you’re asking is kind of like fundamental issues that’s been going on in Indonesia, in terms of talent pools and everything. And I do suggest that it requires all of us in here, in Indonesia to actually commit to really develop the people here. It’s not easy. The major reason that the talent pool is not here is that a lot of people still not expecting that they can get a really good job, or it’s very difficult. But in my experience, we started two years ago, and now we have more than 300 engineers all in Indonesia, and we spent time, we spent resources. We make sure that we commit to them and in all levels. There’s a senior talent, junior talent, fresh graduates, and train them from the very beginning. And now I truly believe that each one of them can compare to global talent. I can have my engineers talk to Facebook engineers and Google engineers, and they will be on the same par. And so I think that is the kind of thing that all of us here need to commit, because otherwise, we will never be able to create this larger talent pool, so will basically outsourcing our core functionalities, engineers and technology to somewhere else, which then begs the point, what’s the point of doing all of this?
So 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, let’s say.
Take India as example, B2C is much harder. We think that there’s so much inefficiency in B2B, that’s probably the area we will start first. And that will cover retail, cover 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 got to train people to be better students and perform better and develop. So, these are some of the obvious things that we do. 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 is coming either here or to the US. So that’s what we’re thinking about for India.
Here, in Indonesia, you guys are all doing interesting things, that’s why we invite you to come here. So the reason the verticals that you guys are in, are the things that we’re looking at already. What is logistics, whether it’s consumer goods and brands, whether it’s social commerce, whether it’s working with Warungs, travel, these are all things that are happening in Indonesia.
To me, as entrepreneurs, we’re obviously like optimistic people, glass is half full, you have to be right. And obviously, we spent a lot of time talking about and thinking about pattern matching and x for y. And could you kind of flip that around the whole world, in what areas might Southeast Asia or Indonesia be different? So rather than kind of following models, what are areas that might be different, unique, more challenging, or that’s a pattern I haven’t seen before.
Obviously, Indonesia has a lot of natural resources here. One thing that will be interesting for me is that I love to see more of manufacturing happen here and take advantage of natural resources. Obviously, it’s no secret that US government really wants to push manufacturing out of China. And as that happens, how much that will actually come to Indonesia, is gonna be key. China benefited because with what happened between Japanese government and US government in 1985, Japanese yen continue to appreciate, and when Japanese yen appreciate, Korean won, and Taiwanese NTD, all rose as well. And it doesn’t make sense. If you are a manufacturer in Taiwan, your exchange rate went from 40 to one to 25 to one, so you have to move operations elsewhere, and everybody’s going to China. Now US government’s pushing Chinese manufacturing to make a shift.
How much of that can Indonesia benefit? It seems like quite a bit of people move to Vietnam already. But if more come to Indonesia, it will be different. Having said that, Vietnam is a lot smaller market than Indonesia, but the talent and the base is also there. Could Indonesia tap Vietnam as well? In the meantime, we’ll build up more resources here. I think when there’s more manufacturing across all boards, all sectors happening here, building consumer products will be easier, building gadgets will be easier. Everything just becomes simpler.
Great. Thank you.
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