VCs in Vietnam: Scope for domestic development

In recent years, Vietnamese startups have received funding from several venture capital (VC) funds, including the IDG Ventures Vietnam, 500 Startups, CyberAgent Ventures and DFJ VinaCapital.

The startup potential in the country has attracted the interest of the Japanese fund – CyberAgent Ventures’ Asia Internet Fund I – which has invested in five Vietnamese companies, recently.

In fact, the fund is looking to raise its investment in the Southeast Asia region to $50 million by this year.

This shows that VC funds are constantly looking for opportunities in the South East Asia and Vietnam has become an attractive destination for some of this capital.

Also read: Startup Review 2014: Vietnam tech firms find success, expand overseas

While the startup growth rates might make investing in Vietnam attractive, the deployment of funds has not been easy. The country does not have an established operational pipeline and incentives for the VC funds. This is the main reason that there are hardly any domestic funds in Vietnam.

At the same time, regulations forbids a single foreign investor from holding more than 20 per cent of the registered capital of a local firm. This has hampered the foreign VC interest, as they are unable to provide sufficient cashflows to cash-hungry startups, due to the ownership limit.

The startups themselves, matter

Apart from the limiting laws, most of the domestic tech startups, though attractive have yet to mature in their interaction with international funds. Lack of domestic venture capital, means that the local industry has no exposure to the kind of communication required by the VCs.

While the interest in Vietnam is strong, the funds are looking at companies which can deliver.

A couple of months ago, Monk’s Hill Ventures and Digital Media Partners (DMP) announced that they will jointly invest $30 million in Vietnamese tech startups. Particularly, up to $5 million would be poured into promising startups at their early stage.

DMP also pledged to increase the investment further by $3 million each as they expanded. However, none of the startups presenting at the meeting were chosen.

Hannah Nguyen from DMP said: “We look into several elements when deciding to invest, the two most important of which are income and development potential.”

Annual income that makes a startup eligible for the fund’s investment is  $700,000. In addition, the company should be at the status of being ready to expand.

Private travelling tour platform Triip was the most outstanding presentation to call for investment from the two funds, but failed to attract them.

There are startups that get only compliments but not the money; what are the reasons for such tactful refusal? Most young entrepreneurs are too self-confident to prepare a detailed presentation plan.

Before meeting any sponsors, according to Fung Kai Jin, deputy general director of VPBank, it is best to build a well-cared plan stating essential costs, prediction of all possibilities and even an exit strategy for venture capital investors.

The majority of the funds tend to seek a company with a transparent and expandable business model, although they have been repeatedly saying to take the risks and offer opportunities for startups in all industries. They will easily reject projects that are in the sectors with high failure precedents or fierce competition.

Therefore, prior to a funding round, startups had better find a feasible industry for their ideas to grow and convince investors that they can survive.

It is a matter of fact that many Vietnamese startups are overly optimistic with their financial potential. Being unrealistic about the financial situation will become a minus point in the eye of the investors.

Still a delicious pie

There are more than 50,000 newly established enterprises in Vietnam last year, mostly in the small scale. These small and medium-sized businesses often find it hard to access to funding as the local capital market is not yet completely functional.

VC investment is a very different, compared to conventional investment channels. It orients towards the creation of businesses, thereby creating jobs.

Also read: ‘Second-wave startups can expand beyond VN’

Activities in the industry also reflect the growth opportunities for this kind of funding. IDG Ventures’ growth has reached 30-40 per cent per year. Its 40 firm portfolio in Vietnam generated a huge profit that surged 75 times since initial investment.

The numbers have attracted the government, which is now looking to develop a domestic venture capital industry. The Minister of Science and Technology – the managing unit of the Vietnam Silion Valley project – Nguyen Quan has revealed that the ministry was studying to set up domestic VC funds. “This is the right time to build a VC system to tap the local opportunities,” he said.

Related stories: 

Vietnamese fast food chain BanhMiViet to raise seed funding from PVNi

EXCLUSIVE: VN’s freelance support startup vLance plans SEA expansion

Vietnamese search engine Coc Coc raises $14m from Gernamy’s Hubert Burda

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.