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.
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.