March 27, 2020
This is the web version of Term Sheet, Fortune’s newsletter about deals and dealmakers. Sign up here.
At a nearly $40 billion valuation, Zoom is now considered more valuable than General Motors ($32 billion) in public markets. Could its dominance at the moment lead to a shift in how venture capitalists invest during the pandemic?
That thought came to me after a catchup with GGV Capital’s Hans Tung last week. The investor, whose career has spanned two recessions and who has watched the Chinese economy grow into its size today, has invested in Airbnb, Affirm, Slack, and Xiaomi.
He spoke of how he is thinking about investing in the middle of coronavirus, as well as one of his long-time passions that has skyrocketed in recent weeks: Education technology.
Here’s our conversation, lightly edited for length and
Some investors think work-from-home technologies are here
to stay even after things improve. Has your investing thesis changed as a
result of coronavirus?
We’re definitely spending more time on digital health,
online education, and online communication in general—including work from home.
As more and more people will be working from home for now, these tools will
make the process more efficient. These are some of the areas that we’ve been
tracking before, but we will definitely double down on moving forward.
Much of your career was spent investing in China. How has
that experience carried over to the U.S.?
Over the last two years, I have actually done more investments in New York than we have in China. And that’s because we are seeing a lot in global markets taking lessons from the country, where so much has happened in the last 20 years. When it comes to urban-related tech investments in places with high density, a fast-rising middle class, or industries that need to be disrupted by tech, lessons from China become a huge help for cities—whether it’s in New York, Bangalore, or New Delhi.
For edtech: In China, it grew out of necessity. The
concentration of teachers tends to be in the top cities, so if you want access,
online learning is the way to get that. Now, it’s about delivering content in a
more social and entertaining way. One of GGV’s major investments in China is Zuoyebang—the sharing on
the platform is incredible.
Are you thinking about the kinds of edtech investments
you would like to be making?
First of all, a stock I really like, and I bought a lot of
over a year ago, is Zoom. Every school now is doing online distance learning
and using the platform—yet the quality of Zoom calls have not degraded over the
last month. So you just know this tech is extremely scalable. It’s just
So I think we will invest in companies that know how to
leverage the best tech tools out there rather than ones that create their
technology from scratch in order to deliver quality education content. So we
are going to be more interested in content players who know how to use IT well,
rather than technology players that know how to build online education tech.
It’s the start of what some say is a recession. Sequoia
recently sent out a note telling portfolio companies to
expect shrinkage. How are you advising startups?
In many ways, it’s like past financial crises like in ‘08-09
or even ‘97-98, during the Asian financial crisis. But the human element and
the seriousness of the coronavirus, working from home, non-essential services
closing, etc.—that impact is much different.
It’s extremely unfortunate but people’s lives will be
impacted. Companies will have to reduce their burn and staff and assume their
revenue will be reduced especially in the travel sector, the hospitality
sector, advertising—and even beyond that. The extent of what is being affected
is more than expected because [of the ripple effect].
it’s about letting the employees know that you are there for
them and will do the best you can. While tough choices will have to be made to
keep the company afloat, the founders and senior executives will share the
burden of pain and take on salary reduction, giving options to those who remain
committed, and not risk defaulting as a company during this crisis. It’s never
an easy choice, and we try to be as creative and empathetic as we can to
minimize impact on employees.
You’re invested in Airbnb, which is at the frontline of
this storm right now. Any updates?
We have a call scheduled with them to catch up and I can’t
comment much. But I will say it’s a very solid company, with an amazing
platform and great communication with their hosts. I think regardless of
whatever short-term volatility they may experience, they will come out stronger
than ever. We’ve been with Airbnb for a while now and so we know how resilient
that community ecosystem is.
How has coronavirus impacted your day-to-day?
We’re not actively looking at completely new deals. GGV is
still closing new investments but these are companies we have been in
discussion with at least since last year or last round. Founders who were
thoughtful about building relationships with curated venture firms have an edge
here as both sides have gotten to know each other over months. We are less
likely to invest in brand-new companies until the dust settles. We are focused
on helping our existing portfolio weather through this black swan event.
Right now I have about 10 to 15 calls a day. Most are with
portfolios to touch base and see how they are doing, and to see how we can be
helpful with advice.
For every dollar we put in a new company, there’s a dollar
less for our existing companies, so you want to save them and make sure they
have enough ammunition—I think the right thing to do right now is to not keep
on making a lot of new investments.
MEANWHILE: Multiple industries are facing layoffs or
furloughs to deal with coronavirus fallout. One brutal difficulty that comes
with coronavirus: Modeling how long it will take for the world to get a handle
on the virus or find a cure. As Gad Levanon, head of the Labor Markets
Institute at the Conference Board, puts
it in a piece for Fortune:
“Management needs to consider the severity and duration
of the drop in business. The harsher and longer the drop, the more reason
businesses have for initiating layoffs. How long this recession will last is an
open question, but it’s undoubtable that the coronavirus pandemic has put
millions of jobs in jeopardy; the unemployment rate could reach double digits
Clarification: Due to a transcription error, an earlier version of this article suggested that GGV had invested more in New York City than in China over the last two years. This article has been updated to reflect that it’s Tung who has invested more in New York City than China in that time frame rather than the whole firm.