Investors in Vietnam cash out profitably from tech deals as exits pick up

Risk capital investors in Vietnam have reasons to smile for they have been able to cash out profitably from portfolio companies.

According to data available with Cento Ventures and ESP Capital, the number of exits in 2018 in the burgeoning technology sector jumped to 14 from three a year ago. In terms of value, investors garnered a total of over $250 million from exits, including a $103-million IPO, in 2018 compared to $41 million in 2017.

During the first half of 2019, the country has already witnessed as many as 10 exits worth $36 million in the technology sector.

So far, most of the exits clocked in the country have been through corporate M&A – in the form of trade sale and corporate buyouts – and in the range of $20 million.

“In spite of the humble data, we had exits and the number is increasing,” said Vy Le, general partner of ESP Capital. “This is an inspiring outlook for new funds to enter the market.”

A single private equity (PE) and venture capital (VC) investment cycle usually lasts 5-7 years, respectively, after which fund managers normally exit by way of trade sale, public listing, recapitalisation, and secondary sale.

Trade sale is the most common exit for private equity investments as trade buyers in the same industry are often more likely to realise synergies with the business and are therefore, the most natural acquirers of the business. Typically, a public listing takes place during positive market conditions as prevailing at present.

Exits in Vietnam’s tech space

Data by DealStreetAsia’s deal tracking and Golden Gate Ventures’s Bamboo reports

Year of announced/reported deals

“We (Vietnam) haven’t had as many of the mega valuations as yet. I attribute that mostly to the ecosystem stage,” Eddie Thai, investment partner at 500 Startups, said about the nascent development of the local tech sector.

He said Vietnam’s share of exits in Southeast Asia has increased from about 2 per cent in 2010-2013 period to 18 per cent in 2014-2015. Even as he does not have insights on the percentage in the last couple of years, he is bullish on the future, given that the general capital market is developing and Vietnamese startups are increasingly building products that can expand regionally.

On a larger scale, Golden Gate Ventures, in its Southeast Asia exit report released this month, predicted at least 700 anticipated startup exits from 2023-2025.

Major drivers of future exits include regional unicorns reinforcing their position through acquisitions, growing corporate investments and more active participation from global PE firms.

And, Vietnam, said experts, is beginning to have them all as more foreign players from the entire Southeast Asian spot big opportunities in the country.

Take Indonesian unicorn Traveloka for instance. Last year, it acquired Vietnam’s MyTour, while Grab helped South Korean firm Access Ventures and Vietnam-based family office Phoenix Holding exit e-wallet startup Moca.

Grab recently earmarked as much as $500 million to invest in Vietnamese businesses, especially in local startups.

On the corporate side, conglomerates have mulled over the idea of beefing up startup funding, with the biggest corporate VC fund belonging to behemoth Vingroup at $100 million.

“We help companies integrate within the firm (Vingroup) to help them testify their technologies so that they can grow, or we look at companies that can help our company digitize,” Linh Thai, head of Vingroup Ventures, told investors at a recent closed meeting.

“If we invest in something, we can become their first large customer. It’s not just the money, it’s the value of having a large customer on your list,” she continued.

Other corporate players that have VC arms include FPT Corporation, CMC, telecom giant Viettel and VPBank – all of them are betting big on the technology sector.

In terms of PE, on the other hand, active funds in the region like Northstar Group, TA Associates and Warburg Pincus have had their first big bets on Vietnam’s technology sector.

Before these two majors, Goldman Sachs and Standard Chartered PE had backed fintech company M-Service. A near-future exit could potentially happen as Affirma Capital, following the management buyout of Standard Chartered PE, would be probably eyeing exits of the older portfolio.

“There will always be a combination of bits and atoms. But PE investors may be doing themselves a disservice by looking at technology as something to be avoided,” commented 500 Startups’s Thai.

While exit metrics such as return multiple and internal rates of return are private, general returns look lucrative, according to industry experts. Eddy Hong, founder and CEO of Korean investor Nextrans, told us that multiple for early-stage investments could be as high as a hundred times while participating in later rounds could generate less than 10x.

Sample this: VinaCapital DFJ initially invested about 24.7 billion dong ($1.18 million) in Yeah1 in 2008, according to local media reports. It was said that the firm exited Yeah1 in a $100-million transaction. That’s 85x over the course of 10 years. In Foody, which we had reported that Sea Limited acquired an 82 per cent stake for $64 million, it was said that Cyberagent Capital’s last partial sale of the food media company was valued at 156 billion dong ($6.7 million).

Tech challenges

In 2015, Nam Do, now co-founder of shared office space operator UPGen, had said that Vietnam lacked an ecosystem, opining that the tech sector had still lacked the support of multiple stakeholders – be it the government or investors.

Today, his co-working space company has raised money from both private equity and venture debt investors.

“It has changed so much,” Linh Thai of Vingroup Ventures echoed. “10 years ago, it took longer to load a Youtube video than it was to actually watch it.”

Along with improved infrastructure, the market has also adopted advanced technologies present in the region to produce new business models for investors to capitalise on, added Khanh Tran, partner at VinaCapital Ventures, at the same mentioned meeting.

“Startups are now connected to corporate customers and (are) enabled to raise their voice through dialogues with policymakers. This is something we have not seen before.”

Asserting with perspective of an overseas investor, Hong said Vietnamese entrepreneurs have a high learning curve and are good at O2O business models. He said a lot of his portfolio companies have grown 20 per cent per month.

According to his Vietnamese counterpart, Cyberagent Capital’s Shark Tank judge Dzung Nguyen, the quality of local founders has improved in the sense that they are now more user-centric and focus on traffic lesser.

Two years ago, it was very hard to get a big-ticket deal in the country’s tech sector. Since 2018, a new wave of Vietnamese startups raising $50-100 million rounds has started gathering steam, the Cento-ESP report said.

This is the premise to see more Vietnamese companies approaching $0.5 billion and eventually $1 billion valuation mark in the years to come.

Unicorns as success stories

VNPAY, the QR-code payment firm that recently received bulky fundings from SoftBank and GIC, might have become Vietnam’s second unicorn after VNG Corporation, although there is no official announcement about VNPAY’s valuation.

“Our next unicorns will be such heavily funded companies,” opined ESP Capital’s Le.

And it will take shorter to see the following batch of unicorns arising. It took Tiki nine years from a garage-based bookselling startup to the ‘Amazon of Vietnam’, but it will take only four to five years for current young startups to come to that level, Le said.

“If we have more unicorns, it will send a positive signal to later-stage investors,” she advocated.

The pace of Vietnamese startups being able to raise follow-on rounds is slower than the Southeast Asian region, as the country faced a gap in the $20-million range of funding.

At the same time, investors are required to be disciplined with valuation. But “are valuations at each stage rationalised against the risk-return profile at that given time?” asked Eddie Thai from 500 Startups.

“We do look closely at unit economics. Unit economics are not always positive at the time we invest, but the founders should have a reasonable understanding of how they can get to a strong profitable unit economics.”

Finally, local VCs are convinced that valuation does not only reflect numbers but are based on whether a startup is capable of solving a lot of the existing pain points. They believe the next big tech companies in Vietnam will come from e-commerce, fintech, logistics, healthcare and travel, as well as companies that are able to build regional stories, said experts.

 

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.