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China technology

After Alibaba and Xiaomi, GGV Capital’s Hans Tung is looking for China tech’s next big thing

Veteran investor Tung says secret of his success is to look for the one or two bright spots in a company that are powerful enough to overcome all other problems

PUBLISHED : Tuesday, 24 July, 2018, 6:00am
UPDATED : Tuesday, 24 July, 2018, 4:04pm

Exiting from an investment in Alibaba and making a killing was a “good lesson”, says Hans Tung, managing partner at technology-focused venture capital firm GGV Capital, and it’s one reason why he intends to sit on his own personal stake and related investments in Chinese smartphone maker Xiaomi for longer.

“There aren’t going to be many companies as big as Alibaba and it may end up being the best investment [GGV] ever made,” said Tung in an interview with the Post on the sidelines of the RISE technology conference in Hong Kong recently. “The lessons we learned from that investment though have helped us to do many other things better,” said Tung, who ranks 20th on Forbes 2018 Midas List of Top 100 venture capital investors.

GGV invested in Alibaba in 2003 at a time when Goldman Sachs decided to sell its position in the up-and-coming Chinese e-commerce company. GGV no longer holds any stake in Alibaba, the parent company of the South China Morning Post.

Founded in 2000 and currently with offices in Menlo Park, California, Shanghai, and Beijing, GGV manages nine funds worth US$4 billion that focus on both US and China investments. Its portfolio includes house sharing platform Airbnb, China ride hailing giant Didi Chuxing, messaging app Slack and Beijing Bytedance, owner of popular short video app Tik Tok.

GGV is one of several venture capital firms, such as IDG Capital and Sequoia Capital, which have brought funding to China’s hot technology start-up scene, helping to nurture current giants such as Baidu, Alibaba and Tencent — which have turned investors themselves these days — and newer entrants such as iQiyi and Meituan-Dianping, according to the China Internet Report, co-authored by Abacus, 500 Startups and the Post.

China’s start-ups attract almost half of world’s venture capital investments

Hans Tung joined GGV Capital in 2013 in Menlo Park to focus on cross-border e-commerce, consumer mobile internet, mobile social and Internet of Things (IoT) investments. Tung also serves on the boards of Musical.ly, a lip-synching video sharing app that was bought by Bytedance, and Xiaohongshu, a Shanghai-based online social commerce platform.

Tung has been a venture capitalist for more than a decade. He started his career as an investment banker with Merrill Lynch, covering China and the US tech sectors, including semiconductors.

During the late 1990s internet bubble he tried to start his own business. He founded two companies – an email service and a B2B market place – neither of which worked. Although he didn’t make any money, he learned from these failures and decided to seek a career in the world of venture capital.

“My VC investors didn’t know what was going on then,” Tung said. “I had to tell them what to do so I thought why don’t I do what they’re doing – perhaps I’d do a better job.” Tung added that he learned one very important thing, which was that “venture capital involves betting on something that has to overcome many odds to succeed.”

For Tung, who typically sleeps only five hours per day and has to look over hundreds of investment memos, risks are a fact of life. “About 90 per cent of the memos look exactly alike, risk factors look the same but just come in a different order. “What I look for is the one or two bright spots that are powerful enough to overcome all other problems,” said Tung.

Tung said he spotted this with Xiaomi, which recently listed in Hong Kong, back in 2010 when he was with China-based venture capital firm Qiming Venture Partners.

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Tung was a seed investor in Xiaomi, led by serial entrepreneur Lei Jun, and a former board member of China’s fourth-largest smartphone maker. After he joined GGV, he also invested in several Xiaomi ecosystem companies, including Smartmi, which produces smart home appliances, Chunmi, which makes rice cookers, and 1More, which makes headphones. Before Xiaomi, Tung also invested in Lei Jun’s e-commerce platform vancl.com.

Tung is adamant that people don’t understand Xiaomi’s full potential. Xiaomi has a presence in 74 countries where people can buy smartphones and smart home appliances, he said, and after buying a Xiaomi device they can then use more of its internet services, which Xiaomi develops with local partners, and which can be pre-installed on Xiaomi devices.

“Over time, when that strategy pays off, a lot of people will be surprised by how fast the company can grow,” said Tung.

In China, Tung is looking for firms that can tackle second- and third-tier cities and build ecosystems or invest in local firms in Southeast Asia and other emerging markets, just like Xiaomi and Bytedance, operator of the largest Chinese news app Jinri Toutiao and global short video hit Tik Tok, have done.

In the US, Tung is looking for successful companies that can export what they do to Europe and South America. where the popularity of American pop culture can make it easier for them to scale quickly, like Airbnb. “We may not have another Alibaba in our [GGV] portfolio, but we may have three Xiaomis or five Bytedances,” Tung said.

Tung said he gets super excited when he has good ideas and his eyes light up. But he needs to “wait 24 hours to see if I'm still excited about the same idea tomorrow morning,” before investing.

This Chinese graduate built Yamibuy into a US$100 million business selling Asian snacks in America

Although an industry veteran, Tung is still willing to reach out to people on career networking site LinkedIn. Tung said he first contacted Alex Zhou, founder of Yamibuy, a cross-border e-commerce platform that sells hard-to-find Asian items in America, through LinkedIn messages. Zhou drove two hours from eastern LA to Santa Monica to meet with Tung right after they exchanged messages.

GGV later led an investment of US$10 million in Yamibuy in July 2017.

Tung said the blockchain and cryptocurrency investment environment is currently overheated. “I look at what inefficiencies in the offline world need to be solved and whether any given idea is the best way of solving a particular problem. If it is, we’ll do it. If it’s just a thing that sounds great, we’re prepared to wait until it has more real-world impact.”