For investors, Vietnamese startups present an exciting bet but tough exit environment and fewer liquidation events may come as a dampener.
IDG Ventures, the first venture capital (VC) firm in Vietnam, has exited from a spate of its portfolio investees, its vice president Nguyen Hong Truong asserts that there are many startups in Vietnam for VCs to invest in, but divestment is an entirely different story.
IDG Ventures, which almost kickstarted the startup wave in the country, invested in what local folks call “the first generation of startups”, including VNG Corp, Vietnamworks, Peacesoft, Vatgia and VC Corp.
The VC space in Vietnam, according to the fund vice president, is interesting yet tricky because most of the time, investors and founders cannot plan their exit strategy. The divestment opportunity, as well as the buyers, can come completely unexpectedly. Also, sometimes it is more difficult to exit from a high revenue business, he shared at a seminar on founders and VCs’ exit hosted by Topica Founder Institute, as the incubator released its report on startup investments in 2015.
In addition, the IPO market, a significant exit route in mature VC markets, is hard to enter as the liquidity of the local market is still very limited, and the listing process requires lots of criteria to meet.
Given this scenario, investors experiment with innovative exit strategies. For instance, they take the startups to other countries and expose them to foreign investors, thereby opening more exit doors.
An example of this case is online advertising agency CleverAds, whose CEO Nguyen Khanh Trinh was present at the seminar, which expanded into the Philippines, Indonesia and Myanmar, making it attractive for South Korea’s Yello Digital Marketing to acquire 50 per cent stake in the Vietnamese venture last year.
e-commerce platform founder Nguyen Hoa Binh, also an angel investor who has funded some 20 startups and recently exited from advertising solution startup Moore, advocated that founders should always look for a way out. “If you are too focused on a product or idea that does not develop at the right time, then you’ll lose other opportunities,” he said.
His strategy was to try multiple projects. Binh believes there would be some good products among that variety which would be attractive for investors, resulting in an exit path for founders.
In 2013, Binh sold half of his payment venture Nganluong.vn in a series A round. Before that in 2008, Peacesoft, the company behind Nganluong.vn, raised series B funding as investors bought the stakes of IDG Ventures Vietnam and partially from the founder.
According to him, exit is not purely about making money, it is capital accumulation to continue to do business. “So exit is not a goal, it’s just a milestone in your business circle,” he said.
Meanwhile, Truong thought founders should consider selling the business, because in some cases, it is better than running the venture. Giving projections, he said, the market could see more buyouts as companies are looking at a bigger play.