While restructurings and boardroom reshuffles are necessary to pull back a failing startup from the brink, it is a costly exercise that can be avoided with timely investor-management diligence.
This is the third and last article in the series of stories that DealStreetAsia is producing on the issues plaguing Vietnam’s startup industry.
When Pham Minh Tuan, co-founder and CEO of Vietnam’s Topica Edtech Group, stepped down from his post in January this year, there were echoes of the more tumultuous boardroom exits at WeWork and Uber a few months earlier.
Tuan was replaced by the company’s chief financial officer, Nguyen Huy Duc, following pressure from investors led by Singapore’s Northstar Group. They felt that the online education provider was “not using their invested capital effectively,” sources had told DealStreetAsia at the time.
Topica, once among the frontrunners in Vietnam’s edtech race, had failed to keep up with the times. The company, which started out in 2008, offered online courses aimed at upskilling young job seekers. However, it was too slow to diversify into high-growth areas like children’s education.
Its most recent product, Kidtopi, launched in 2019 for 5-12 year-olds, was a late entrant into the individualised English tutoring market, where rivals One on One English, GrabLingo, and Google-backed Elsa Speak had already gained a foothold.
Topica also lagged younger rivals in technology adoption. For instance, Kyna for Kids, launched in 2018, had innovated with its AI- and gamification-based learning modules. Similarly, Elsa Speak leveraged AI and speech recognition to help users improve their English speaking skills.
The lack of direction resulted in younger rivals closing in on Topica in terms of enrollments.
Vietnam’s edtech players
|Company||Year of establishment||Number of courses/lessons||Enrollments||Funding|
|Elsa Speak||2015||1,500 lessons||7M (2020)||$10.3M|
|Topica||2008||3,000 courses||2M (by end of 2019)||> $50M|
|Kyna||2012||> 500 courses||700,000 (2020)||Undisclosed (Seed & corporate rounds)|
|Antoree||2014||3,400 lessons||500,000 (2020)||Undisclosed (seed round)|
|GrabLingo||2016||NA||10,000 (by end of 2018)||NA|
|One on One English||2018||6,500 lessons||NA||Targeting to raise $3M|
Users were also questioning Topica Uni, a platform offering tertiary education launched in 2009. Learners, across online education forums, said Topica Uni degrees were not being recognised during their job hunts. “These degrees are only appropriate for people who already have a job and need a degree as a bureaucratic token for promotion or a pay raise,” commented an account named haiquancn2 on Lamchame.com in 2018.
These pitfalls urged Topica’s concerned investors to push for drastic changes.
In December, Topica axed up to 70 per cent of its 1,500-plus employees, according to industry sources. While the company did not confirm the number of jobs terminated, it said in a January 2020 statement that the retrenchment was part of “cost optimisation, product and quality enhancement, and expansion into children’s education”.
As part of the restructuring, Topica also shuttered its offices in Indonesia, and the Phillippines, limiting its presence to Vietnam and Thailand. Moreover, Topica Uni was retired.
The latest restructuring was to help Topica transform from being a sales-driven company to a product-driven business, according to a former Topica investor. “Tuan had built a company which was good for Vietnam tech 1.0. [But] with Northstar’s investment and its expertise [of investing in edtech in the region], Topica had to be different,” the investor added.
Topica, founded by Tuan and Cao Cong Minh, was among the early movers in Vietnam’s edtech space. Its precursor was CRC-TOPIC, a World Bank-sponsored business incubator led by the two entrepreneurs. Minh was CEO of Topica’s Kidtopi platform until June 2020. He is currently self-employed, according to his LinkedIn profile, while Tuan continues on the board of Topica.
The company gained a foothold in Vietnam’s nascent edtech market with popular products like Topica Native, an English learning platform for adults, and Edumall, a marketplace of multi-skill courses. By end-2019, Topica had enrolled 2 million learners across 3,000 courses.
The company also amassed funds from several high-profile investors. Most notable was Northstar’s 2018 investment of $50 million—the biggest in an online education startup in Southeast Asia at that time. The company’s roster of investors also included venture capital firms IDG Ventures, Cyberagent Capital, Patamar Capital and Openspace Ventures.
“Topica is a great example of a company meeting a market need which is not fulfilled by anyone in Vietnam, or Southeast Asia,” Patamar Capital’s partner Shuyin Tang had told the website Inspiration Women Series in 2017.
The investors also had boardroom seats in the company. Openspace Ventures’ vice president Lana Duong was a board member, while Tang was a board observer at the startup, according to their LinkedIn profiles. Northstar, too, got a board position after its 2018 investment.
Despite the investor oversight, Topica failed to maintain its initial lead in the sector.
“Edtech in Vietnam is facing the same old problems as they [the companies] don’t spend enough time experimenting with and innovating around new monetisation strategies,” said Darren Nguyen, chief investment officer at Icebreaker Capital. “This is why many have failed.”
Staying on top of challenges
The painful reorganisation at Topica, offers important management lessons.
A senior consultant at a Singapore-based specialist risk consultancy firm pointed out that startup investors generally make their investments based on network reference. She recommended investors do their due diligence thoroughly and ensure that the founders are fit to undertake new business strategies.
Quest Ventures’ managing partner James Tan says he follows a similar strategy: “We have a long process when we make an investment decision. We have all the partners and associates interact with the founders first, because ultimately even if I am the one deciding which company to invest in, I will not be the only one to follow up with them in the next 10 years,”
While risk management is often discussed in investment contracts, investors should keep themselves abreast of what is going on at the company. Having a board seat and regular conversations with the management help.
“Staying close to the management does not mean you don’t trust them,” added the Singapore-based consultant. Many well-funded startups in the region—Lazada, Bukalapak and M17, to name a few—have gone through senior executive reshuffles to strengthen their management capability through challenging times. “Restructuring in a startup should not be taken as something negative,” she said.
Under its new CEO, a leaner Topica is now transforming into a more product-focused company.
The company has invested $3.5 million in Kidtopi. In addition to customised lessons, Kidtopi’s technology can measure the level of kids’ concentration and excitement as they learn. It also assists parents in monitoring the children’s studying process, according to its website.
“There has been an interesting new range of business models emerging around children’s learning processes, as well as equipping the child with more foundational knowledge. This is where the edtech market in Vietnam will accelerate exponentially in coming years,” noted Quynh Vo, programme director at the accelerator and investor Zone Startups.
Topica will also launch new AI-based products this year, DealStreetAsia has learned.
Some of its existing products, like Topica Native, are also getting an upgrade. A new version of the English learning service for adults, Native Gen 6, was launched after the restructuring started. It claims to enhance the customised experience for learners. Native Gen 6 has seen enrollments grow from 60,000 in 2018 to about 115,000 currently.
Northstar is assisting in the transition. It pumped in another $17-18 million early this year, according to the sources cited earlier. Northstar declined to comment when reached.
“This [reorganisation] is the result of a survival-of-the-fittest kind of situation,” said Vo. Being lean and agile is applicable to any technology company, particularly edtech, according to her. “This would mean having a focused products team, which also helps to limit the burn rate in a crowded market.”
Topica’s shift to providing better online learning experiences and its entry into the kids’ segment is timed to tap growing market opportunities. Edtech in Vietnam was estimated at $2 billion in 2019 and is projected to grow at a 20 per cent compounded annual growth rate (CAGR) till 2023, according to a Ken Research study last year.
The COVID-19 pandemic, and the tendency of people to stay at home, will only fuel this trend.
“The viable model for edtech would be interactive virtual classes, which focus more on interactions between attendants and teachers because the interaction is the most painful pitfall for edtech,” said Darren Nguyen.