Hans Tung, one of the six partners from the US and Shanghai-based venture capital firm GGV Capital, is someone who bet in the Indian market even before it started to show growth — he invested in e-commerce marketplaces Snapdeal and Flipkart back in 2012.
Seven years later, after Tung placed his bets in India, GGV Capital is exploring opportunities here. He says since China was growing faster than India between 2012 and 2016, the fund didn’t come here. GGV, which has backed over 300 companies and boasts of creating 50 unicorns, is meeting companies in New Delhi and Bangalore now.
Tung spoke to Avanish Tiwary and Hu Jianlong, detailing the changing startup ecosystem in India, US and China.
The Passage: GGV has been operating in China for over a decade and the performance is really impressive, considering most of your investing team is overseas Chinese. How did you manage this?
Hans Tung: Out of six partners at GGV, three are Americans, myself included as a Taiwanese American, two are Singaporeans, and one is mainland Chinese. All of us have quite an international background. We know not just China, but overseas markets, including the US and Southeast Asia.
Apparently we know what we are doing and can find the next unicorn. We are also good at analysing trends of what’s going to happen next, across geographies.
If you study what happened in Japan, Taiwan and Singapore, you know that the subway system is going to be very important to deal with congestion. We learnt how Japan’s rail system made a huge difference, and then you see the number of subways in China. Even with the transportation system building up, traffic congestion in top cities in China is getting worse.
We studied subway maps of top cities in China back in 2005. Compared them to Japan’s in 2009. We knew that Beijing was building the subway system fast, but is it keeping up? I can’t imagine a scenario where you can’t drive your car to CBD (Central Business District) in Beijing three times a week. That will be too much. So what do you do? Ride-share.
We knew that at some point regulations would be friendlier to ride-share. If you do country to country comparison, it becomes quite obvious what governments needs to do. That is how we make our decisions.
International perspective is quite important for the India market. Since 2011 we have seen Indian founders come to China, specifically to Shanghai and Shenzhen, because some of the problems they wanted to solve in India were already solved or being solved by somebody in China.
The Passage: Do you think Indian entrepreneurs come up with innovative ideas or are you seeing a lot of copycat models?
Hans Tung: Chinese companies started out by copying or being inspired by US companies. I don’t see anything wrong in it. I think in India we will see models adopted from China, US, Southeast Asia and some India-specific models. I think a developing market should have all components.
We do investments from a country’s evolvement standpoint. If you are solving a problem that makes sense in an urban state, or solving SaaS internet penetration, then chances are that problem is already solved in either China, Japan or Korea. So why not look at those models first and make customisations needed for the India market.
The Passage: Why do you think Indian companies are not as likely to go for listing as compared to Chinese and US companies?
Hans Tung: It’s not that Indian companies don’t go for IPO. They don’t have much revenue to go for IPO. Given that India has lower GDP per capita, Indians are now trying to scale to get substantial revenue to go for IPO. That will change as the GDP per capita rises.
The Passage: Do you have a plan to start an India office?
Hans Tung: The short answer is no. We are still learning. We will cover India from Singapore, China and the US. Having said that, GGV invested in Alibaba before it opened its office in China. So it doesn’t matter if we have an office in India or not, we will not shy away from investing in India.
The Passage: Many Chinese companies have already made multiple bets. Do you think you are late?
Hans Tung: [Laughs.] No, I don’t think so.
There is a big gap between India, China and the US. India is somewhere between 20 and 26 unicorns, China has 113 and US has 150 unicorn. So the gap between the number two and number three is a huge one. It is totally understandable because India’s GDP per capita is USD 1800, in China it’s USD 9,000 and in the US it’s USD 50,000. There is still room for India to grow. I think in China as soon as the per capita hit USD 4000, e-commerce took off. There is tremendous growth opportunity for India. So, I don’t think anybody is late to India yet.
The Passage: Are VCs worried about India’s constantly changing regulations?
Hans Tung: In general, VCs don’t like it when regulations change very often. China has had its fair share of regulation changes too, so we are familiar with that. Southeast Asian countries too change regulations. This is a nature of the emerging market. If Indian regulations changed to fast-track innovation, that would of course be welcomed by the VC community.
The Passage: You recently opened an office in Singapore. Why now?
Hans Tung: We have some big investments in Southeast Asia, for example, my partner Jixun Foo led our initial investment in Grab in late 2013. Two out of our six GPs are Singaporeans, I was a Permanent Resident there, so we understand Southeast Asia relatively well. We also have key LPs there. We see that a lot of Chinese founders are looking at Southeast Asia, plus companies in Indonesia and Vietnam are growing rapidly. Indonesia only has a handful of unicorns today with more growth ahead for the region.
The Passage: You invested in Snapdeal in 2012. What was the motivation behind that deal?
Hans Tung: At that time I could see a parallel between what was going to happen in India and what had already happened in China in the internet space. I am curious and interested in fast-movers and fast-learners in the India market.
The Passage: Performance of Snapdeal in the past few years hasn’t been great.
Hans Tung: It doesn’t matter. You come to a new market, one or two deals don’t go right. We also invested in Flipkart. So we made money off Flipkart. These are my personal investments. GGV has so far not made investments in India.
The Passage: Do you think a third e-commerce company can make it big in India, after Flipkart and Amazon?
Hans Tung: In China, it’s not just Alibaba and JD, it’s also Pinduoduo and Xiaomi. There are seven big e-commerce companies in China, with the dominance of Alibaba. All seven have different business models. I think Paytm, Amazon, Snapdeal and Flipkart, all four of them are sizeable. Whether they are good or not is debatable, but they all are big. I think there will be others.
The Passage: Would the startup ecosystem in India take after China or the US?
Hans Tung: It will be a combination of both. In the retail business there are a lot of similarities between India and China. In the enterprise market India and US will have similar solutions. In China it will take a while for SaaS businesses to emerge. The labour cost is low and all big companies build the tools in-house. Interestingly, we are seeing a lot of B2B2C models emerging. In India we will see companies trying to do more B2B and some are already exporting to US. We also see Indian companies trying to do B2B for Indian SMEs. So we are seeing both kinds of enterprise models emerging in India. In the consumer market there are definitely more similarities between Indian and Chinese companies.
Chinese SaaS companies should have US and Chinese clients, but they only have Chinese clients. In India, SaaS companies have both US and Indian clients. There is more variety here.
The Passage: In the past few years, the performance of Indian entrepreneurs in Silicon Valley has been very good. But there are few Chinese executives or entrepreneurs there.
Hans Tung: A lot of Chinese entrepreneurs go back to China to work in Chinese companies. Alibaba, Baidu, Tencent and ByteDance have many Chinese executives who have worked in the US. Lu Qi, he was a senior executive, but even he left US for China. Because China is so big. The gap between top internet companies in China and the US is so big that many executives go back to China. In general, we have seen that Indian executives are more international and they communicate better.