Hans Tung, a managing partner at Notable Capital, formerly GGV Capital, has a lot of thoughts on the state of venture capital today.

With $4.2 billion in assets under management, Notable evolved from 24-year-old cross-border VC firm GGV Capital, and Tung has been around while GGV invested in the likes of Affirm, Airbnb, StockX, Square and Slack.

That kind of experience lends him a good amount of expertise, not to mention a good view of what’s going on in the market right now. So, we recently brought him on TechCrunch’s Equity Podcast to discuss valuations, why founders need to play the long game, and the reason some VC firms are struggling more than others. 

We delved deep into the reasons he’s still bullish on fintech, and which sectors in the fintech space have him especially excited.

We also discussed recent changes at his own firm, which is the result of GGV Capital’s teams splitting into separate U.S. and Asia operations. GGV’s transformation is the latest in a string of changes we’ve seen in the world of venture capital, including personnel shifts at Founders Fund, Benchmark and Thrive Capital.

Below are excerpts from the interview, edited for length and clarity:

TechCrunch: Last year, we talked about down-rounds. At the time, you thought they were not necessarily a bad thing. Do you still have that same mindset?

Hans Tung: I’ve been in this business for almost 20 years. We’re long-term in the way we approach things. I always know that it doesn’t matter about the markups. This is like getting a poor [report] card or getting a test exam score; it doesn’t really matter until you actually have an exit. IPO is actually just a milestone, not the end game. IPO is the beginning for public investors to come along for the ride. So if you think longer term, valuations going up or down temporarily doesn’t matter as much as generating a big outcome at the end.

Whatever it takes to scale the business is what the company, the founders and board need to focus on doing to manage the business the best they can every step of the way.

Founders don’t realize that this choice is not between shutting down and doing a down round. In that situation, you will choose a down-round every single time. The challenge is when you are faced with the prospect of holding on to a valuation, or raising a down-round. If you don’t do it, you run the risk of shutting down later. But if you’re close to shutting down, no one’s gonna invest in you.

TC: With regard to the investing landscape, how different is it so far this year compared to last?

HT: I think it’s a continuation of what we saw in the second half of 2023. Obviously, AI is an outlier. AI is way, way overvalued right now. You could argue that we’re only in the first inning, or the first half of the first inning for AI. So people are willing to overpay […] You do see a lot of crazy rounds happening at the beginning of a boom, but there will be bifurcation and there will be companies that end up doing great, and most companies may not. 

For the most part, I still caution founders to not compare themselves with sectors that are doing well, but fully focus on managing their business. 

TC: How is your pace of investing compared to recent years? How have VC firms been impacted by the slowdown?

HT: I think we’re more at 2022 levels — so more than 2023. But 2021 was an outlier. It’s not good for business and it’s not good for the ecosystem. Without naming names, you do see firms being impacted by what what they were doing in 2021, and that has made them slow down a lot more now, which is unfortunate, because many of them are great investors. They’re in great companies and it’s too bad that they cannot participate as a result of indigestion.

For example, some companies raised a large round in 2021. Even though the business is growing revenue about 40% to 50% year-on-year and they can probably IPO soon in the next year or so from a maturity standpoint […] But because the valuation they raised in their last round is so high, they are not at that level of valuation in the current public market, where the multiples have compressed quite a bit. So they have to wait.

As a result, the funds that invested in them in 2021 cannot get their cash back because there’s lack of liquidity and the LPs cannot get money back either. So we don’t have that recycling of money going back to the LPs who can continue to invest in new funds. The whole system suffers as a result.

TC: I was surprised to report recently that funding in the fintech space had dropped to its lowest level in seven years in the first quarter of this year. What do you think about that?

HT: I think for fintech, given the high inflationary environment that we had and definitely the high interest rate, it is harder for people to decide about fintech. But if you look at other sets of metrics, in financial services as a category, the market cap of all public companies in the banking, insurance, and financial services space is over $10 trillion. Of that $10 trillion, only less than 5% are in fintech companies.

So if we all know that the best fintech companies are growing faster than financial services companies, it’s just a matter of time that their low-single-digit penetration and market cap will increase over time. So it will have ups and downs. Like e-commerce, fintech might not have too many winners, but the ones that can win will have a huge market.

Want more fintech news in your inbox? Sign up for the TechCrunch Fintech newsletter here.

Want to reach out with a tip? Email me at maryann@techcrunch.com or send me a message on Signal at 408.204.3036. You can also send a note to the whole TechCrunch crew at tips@techcrunch.com. For more secure communications, click here to contact us, which includes SecureDrop (instructions here) and links to encrypted messaging apps.

Hans Tung, a managing partner at Notable Capital, formerly GGV Capital, has a lot of thoughts on the state of venture capital today.

With $4.2 billion in assets under management, Notable evolved from 24-year-old cross-border VC firm GGV Capital, and Tung has been around while GGV invested in the likes of Affirm, Airbnb, StockX, Square and Slack.

That kind of experience lends him a good amount of expertise, not to mention a good view of what’s going on in the market right now. So, we recently brought him on TechCrunch’s Equity Podcast to discuss valuations, why founders need to play the long game, and the reason some VC firms are struggling more than others. 

We delved deep into the reasons he’s still bullish on fintech, and which sectors in the fintech space have him especially excited.

We also discussed recent changes at his own firm, which is the result of GGV Capital’s teams splitting into separate U.S. and Asia operations. GGV’s transformation is the latest in a string of changes we’ve seen in the world of venture capital, including personnel shifts at Founders Fund, Benchmark and Thrive Capital.

Below are excerpts from the interview, edited for length and clarity:

TechCrunch: Last year, we talked about down-rounds. At the time, you thought they were not necessarily a bad thing. Do you still have that same mindset?

Hans Tung: I’ve been in this business for almost 20 years. We’re long-term in the way we approach things. I always know that it doesn’t matter about the markups. This is like getting a poor [report] card or getting a test exam score; it doesn’t really matter until you actually have an exit. IPO is actually just a milestone, not the end game. IPO is the beginning for public investors to come along for the ride. So if you think longer term, valuations going up or down temporarily doesn’t matter as much as generating a big outcome at the end.

Whatever it takes to scale the business is what the company, the founders and board need to focus on doing to manage the business the best they can every step of the way.

Founders don’t realize that this choice is not between shutting down and doing a down round. In that situation, you will choose a down-round every single time. The challenge is when you are faced with the prospect of holding on to a valuation, or raising a down-round. If you don’t do it, you run the risk of shutting down later. But if you’re close to shutting down, no one’s gonna invest in you.

TC: With regard to the investing landscape, how different is it so far this year compared to last?

HT: I think it’s a continuation of what we saw in the second half of 2023. Obviously, AI is an outlier. AI is way, way overvalued right now. You could argue that we’re only in the first inning, or the first half of the first inning for AI. So people are willing to overpay […] You do see a lot of crazy rounds happening at the beginning of a boom, but there will be bifurcation and there will be companies that end up doing great, and most companies may not. 

For the most part, I still caution founders to not compare themselves with sectors that are doing well, but fully focus on managing their business. 

TC: How is your pace of investing compared to recent years? How have VC firms been impacted by the slowdown?

HT: I think we’re more at 2022 levels — so more than 2023. But 2021 was an outlier. It’s not good for business and it’s not good for the ecosystem. Without naming names, you do see firms being impacted by what what they were doing in 2021, and that has made them slow down a lot more now, which is unfortunate, because many of them are great investors. They’re in great companies and it’s too bad that they cannot participate as a result of indigestion.

For example, some companies raised a large round in 2021. Even though the business is growing revenue about 40% to 50% year-on-year and they can probably IPO soon in the next year or so from a maturity standpoint […] But because the valuation they raised in their last round is so high, they are not at that level of valuation in the current public market, where the multiples have compressed quite a bit. So they have to wait.

As a result, the funds that invested in them in 2021 cannot get their cash back because there’s lack of liquidity and the LPs cannot get money back either. So we don’t have that recycling of money going back to the LPs who can continue to invest in new funds. The whole system suffers as a result.

TC: I was surprised to report recently that funding in the fintech space had dropped to its lowest level in seven years in the first quarter of this year. What do you think about that?

HT: I think for fintech, given the high inflationary environment that we had and definitely the high interest rate, it is harder for people to decide about fintech. But if you look at other sets of metrics, in financial services as a category, the market cap of all public companies in the banking, insurance, and financial services space is over $10 trillion. Of that $10 trillion, only less than 5% are in fintech companies.

So if we all know that the best fintech companies are growing faster than financial services companies, it’s just a matter of time that their low-single-digit penetration and market cap will increase over time. So it will have ups and downs. Like e-commerce, fintech might not have too many winners, but the ones that can win will have a huge market.

Want more fintech news in your inbox? Sign up for the TechCrunch Fintech newsletter here.

Want to reach out with a tip? Email me at maryann@techcrunch.com or send me a message on Signal at 408.204.3036. You can also send a note to the whole TechCrunch crew at tips@techcrunch.com. For more secure communications, click here to contact us, which includes SecureDrop (instructions here) and links to encrypted messaging apps.