Silicon Valley-based venture capital fund 500 Startups recently closed its 20th deal from its $10-million Vietnam fund by backing a fintech blockchain startup.
Speaking to DEALSTREETASIA, Eddie Thai, one of the US firm’s two local partners, said that the fund aims to boost its investments to two or more deals per month this year. “At the same time, we will continue supporting our portfolio companies. We’re proud of the progress they’ve made so far and we want to continue helping them attract talent, enter new markets, and raise capital,” he revealed.
According to a report from Hanoi-based accelerator Topica Founder Institute, 500 Startups was the most active Vietnam-focused venture capital firm (excluding accelerators) in 2017.
In an exclusive interview with this portal, Thai talks about the fund’s plans and expectation of Vietnamese startups in 2018 and beyond.
How many investments have you made so far? Which sectors have these primarily been in?
We recently closed our 20th deal, a financial blockchain technology startup. Most of our investments have been in fintech, edtech, e-commerce, adtech, and media and entertainment. Many aim to serve Vietnam or Southeast Asia broadly; many others aim for markets beyond Southeast Asia.
How have you been able to close the deals in such a short span of time?
We’ve been able to do this partly thanks to great deal flow – we’ve come across many strong founders, and we’re fortunate that so many of them are excited to bring on a supporter like 500 Startups, with our global perspective and track record.
Also, we’ve been able to do this partly by having a relatively lean investment process. For example, whereas we’ve heard of investors in Vietnam requiring 6+ months to close a deal, we aim to finish deals in 1-3 months with the help of standardized documents, our professional back office team, and an awesome manager, Hau Ly. And whereas many investors ask for a large stake in a company (30-50 per cent or more of a company) 500 Startups Vietnam typically offers our support for less than 10 per cent.
But we’d like to do more deals faster. So we continue to spend time improving our systems and processes. We’re also planning to double the size of our investment & portfolio support team.
What about exits so far? Who are normally the buyers?
When we invest in companies, we expect that we will spend a long time with them since it usually takes a number of years for a company to reach its full potential. So we were pleasantly surprised that one of our portfolio companies, Wifi Chua, has been acquired by a Vietnamese buyer (Appota).
We expect most acquisitions to be farther out though, and not only buyers from Vietnam but also potentially other parts of Southeast Asia, China, Japan, and Korea.
What’s the goal for 2018?
Last year, we averaged about one investment per month. In 2018, we want to increase that to 2+ per month. At the same time, we will continue supporting our portfolio companies. We’re proud of the progress they’ve made so far. For example, more than 70 per cent of our portfolio companies are able to raise downstream capital within 18 months of our initial investment. We want to continue helping them attract talent, enter new markets, and raise additional capital.
Besides investing in and supporting our own startups, we also want to spend time upgrading the Vietnam startup ecosystem. Founders are getting better and foreign venture capital investors are becoming more aware of Vietnam, but there’s still a lot of work to be done and many more people that could get involved. Before this year we spent a lot of time sharing about Vietnam tech to the world.
In 2018, we want to share about tech with Vietnam. Many Vietnamese people now recognize “Industrial Revolution 4.0”, but not everybody knows what it means for them or how to take advantage of it. So we want to talk with Vietnamese SMEs and corporations about how they can adopt or develop new technology. We want to advise policymakers about how to improve the regulatory environment for innovation. We want to help students have practical experiences in technology innovation and entrepreneurship. And we want to work with wealthy Vietnamese who will invest in the future of Vietnam as a startup nation.
Do you consider investing in non-tech companies? Will Vietnamese startups remain attractive to VC investors the way people have been talking about?
500 Startups Vietnam is a technology venture capital fund, so we do expect all of our companies to be tech or tech-enabled. And I believe the long-term outlook for technology companies is bright because technology will inevitably penetrate most aspects of life. Technology should no longer be considered its own sector, but rather a layer that cuts across most other sectors. And there seems to be substantial Vietnamese talent ready to build that future.
However, every market is subject to ups and downs. Vietnamese tech is no exception. I am cautiously watching potential negative factors such as too much startup hype (drawing some students, professionals, and investors into the startup “game” when they may not yet have a clear vision of what’s ahead of them); superficial money-chasing (e.g. copycatting, needless applications of blockchain, etc. rather than building deep and differentiated solutions); foreign HR vacuums (overseas companies soaking up local tech talent); legacy perspectives about legal matters (less respect for contracts among some businesspeople; some draft policies that may constrain digital commerce and innovation), etc.
These factors may combine to create headwinds for Vietnam tech in the near-term, and during that time there could be some difficult lessons for many people, including maybe us. But even during that difficult time, I think there would be lots of gems waiting to be discovered. And, again, the long-term outlook for tech is bright.
Is it true that Sequoia has made its first investment in Vietnam into a 500 Startup portfolio company?
Respecting our companies’ confidentiality, we generally don’t comment on specifics about their operations or fundraising. But I will say that investors have taken great interest in our companies. Some of the more notable downstream funders include Sequoia, Social Capital, Google Launchpad, UOB (the giant Singaporean financial group)… the list goes on.
How would you compare the tech and VC scene in Vietnam to that in other parts of Southeast Asia?
The region overall is quite vibrant and also becoming increasingly connected, so even though we can talk about advantages like Vietnam’s tech talent, Singapore’s regulatory environment and financing, Indonesia’s market size, etc., in reality, the boundaries are blurring. At the same time, competition from Chinese and American giants is obviously going to increase. Southeast Asian startups and investors alike need to be fast, agile, and assertive in getting and integrating resources and opportunities wherever they are.
Investments into Vietnamese startups has gone up in the past few years. Do you think it will continue to increase in 2018? Do you see larger funding rounds by new international funds in this market?
I don’t like making short-term predictions since there are natural blips due to business cycles, company-specific factors, and outright randomness. But in the next several years I do expect overall funding for technology companies in Vietnam to continue to increase, for three main reasons: economies all around the world will continue to shift from analog to digital; many of today’s early-stage Vietnamese startups should continue to grow and, therefore, be prepared for larger investment rounds, and some other tech markets outside of Vietnam are likely to become saturated and/or relatively overpriced, so international investors are likely to shift their attention to less-saturated markets like Vietnam.
There are already many established funds with dry powder looking at Vietnam, and new larger funds continue to be established. We look forward to sharing about the best Vietnamese startups with them.
The responses to this portal’s questions are Eddie Thai’s and do not necessarily reflect the views of 500 Startups.