Shortened runways push Vietnamese startups towards opportunistic pivots

Drastically shortened runways and uncertainty over the COVID-19 pandemic are forcing Vietnamese startups to pivot and scramble for opportunistic wins as mere survival becomes the top priority.

“The most important point is that a startup must exist and have a solid foundation to break through after the epidemic ends,” said Steven Nguyen, chief executive of vacation rental startup Luxstay.

According to the latest report of Vietnam’s National Economics University, the first two months of 2020 saw 16,151 enterprises suspend their operations, up 19.5 per cent over the same period in 2019, while 2,807 enterprises were dissolved.

In Southeast Asia, fundraising typically gives startups a runway of about 12 to 30 months, venture investors told DealStreetAsia. For most startups, the pandemic has drastically shortened runways as activity across broad swathes of the economy has come to a standstill.

In a recent webinar, Monk’s Hill Ventures partner Justin Nguyen urged startups to “throw away [their] 2020 plans” and come up with new plans for the next three to six months of lockdown. “It’s important to get a default alive state because we don’t know how long this is going to last,” he said.

Jeffrey Seah, a partner at Singapore-based VC firm Quest Ventures, said well-managed companies could see runways halved, while the more average ones could be looking at a buffer of fewer than six months. Good companies could potentially extend their runway by up to 12 months by getting additional capital, but the weaker ones will struggle to find more funding, he added.

Cocoon Ventures, which also operates out of Singapore, has advised its startups to stretch their runway to at least 24 months on the expectation of a recession that lasts for at least 12 months.

Le Han Tue Lam, general manager at South Korean venture firm Nextrans, said that even after the pandemic is over, businesses might need two to three months to restart and get back to a regular business cycle.

These pressures have forced startups to take an extremely short-term view. Funds which were originally raised to fast-track development in line with the ambitions and dreams of founding teams are now being rediverted to more urgent needs. Grand plans and ambitions are giving way to whatever works.

For Luxstay, that has meant going as far as acquiring businesses in a completely different industry: media.

CEO Steven Nguyen said that Luxstay, which raised $4.5 million in May 2019, has cut marketing costs and reduced personnel expenses by 30 per cent as its booking rate has halved in the past two months. Funds that would have been used for marketing are now ammunition in a merger and acquisition budget as the company seeks out media channels that have a significant user base so that the company has another source of revenue while the tourism sector stalls.

“We are adjusting our costs to ensure the lifetime of the firm is as long as possible,” Nguyen said.

Hotel booking app operator Go2Joy Vietnam, formerly Appro Mobile, has fared slightly better with daily average bookings declining 5 per cent and revenue shrinking 13 per cent from March, according to CEO Simon Byun.

“As we are mostly targeting domestic hotel demand, the impact on Go2Joy is not as fatal as the other online travel agencies which are mostly targeting tourists and business travellers,” he said. “However, I’m not sure how big a damage would be incurred if this situation continues for long. It’s not about the shrinkage of the tourism market, it’s about the world economy itself which will affect everyone’s income.”

Go2Joy, which is backed by South Korea’s KB Investment and recently raised $2.5 million in a Series A round led by the venture arm of South Korea’s STIC Investments, had been aiming to reach 1 million users within the first half of 2020 with plans to target Thailand and the Philippines for its next phase of growth.

“The firm is discussing closely with the investors about the situation and considering to adjust this year’s KPI target matrix in order to prolong the runway longer,” said Simon, who added that his firm has refocused its marketing on online channels.

Other startups are rewriting business plans to capture demand created by the pandemic.

Business-to-business food-tech startup Kamereo, which connects restaurants and F&B businesses directly to suppliers to cut down on the intermediate sale stages, has launched a business-to-consumer service called KameMart to help families order and receive food for home cooking.

eDoctor, which recently raised $1.2 million of pre-series A capital, has stopped offline healthcare services and launched a telehealth service that helps to support customers over the phone.

There is an aspect to the startups’ response that goes beyond survival, and it comes from the investors’ perspective.

Hoang Thi Kim Dzung, head of Japan-based VC firm Genesia Ventures in Vietnam, said investors are scanning the landscape for market potential after the “corona shock,” so funds focusing on seed-stage opportunities and with strong financial resource will still be determined to find and invest in strong startups. Of course, getting deals done despite the interest is difficult at this moment.

With everyone at home, “maybe startups will have difficulty persuading investors to invest a lot of capital at a high price as the founders expected,” she said.

Nextrans’s Lam said that “the ability to call for the next round” could possibly be the key challenge for Vietnam’s startups today, more than simply revenues or staff costs.

“Basically if any startup can survive seven months, they can survive longer,” she said.

Nguyen Thi Bich Ngoc contributed to this story.

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.