Kuala Lumpur and Shanghai-based Gobi Partners, which is among the most active investors in this region, including making two investments in Vietnam, shares the view that fragmentation in Southeast Asia is not a negative issue, and rather, it should be celebrated, as it creates more opportunities for partnerships, when compared to developed markets.
Victor Chua, Gobi Partners’ investment director for the ASEAN market, listed the travel sector and consumer tech as hot avenues for investment in Vietnam, during an interaction with this portal, while also adding that the VC was looking to work with corporates, telcos, banks and travel groups, in that country.
Gobi’s first investment in Vietnam was in early 2016, when it put in $500,000 round in curated travel platform Triip.me, and it followed it up with a second investment where it joined hands with Captii Ventures and invested in fintech firm OnOnPay in November the same year.
In this exchange with DEALSTREETASIA, Chua discussed consumer technology, the firm’s focus areas for Vietnam and trends for 2017.
Can you share a bit about the timing of your entrance to Vietnam?
On average, it takes us about two months to make the relation. For Vietnam specifically, Triip took us six months because much of the effort was spent on understanding how people in Ho Chi Minh City did their business, understanding the country’s dynamics and how, as a foreign investor, we could support.
With OnOnPay, it is a different process, because we are co-investing with an investor who have validated the idea before us. It was also to figure out how people in Hanoi did business. Arguably, Hanoi and Ho Chi Minh City are two very different cities. As a VC, you need to spend more time here with the local partners, stakeholders and startups, so that you don’t do the wrong thing at the wrong timing.
What are your areas of focus in Vietnam?
Giving it a background, different countries are at different stages of growth. If you look at Malaysia or Singapore, there are a lot more series A – B startups than countries like Thailand, Vietnam or the Philippines. Whereas in Indonesia, there are the likes of Traveloka and GoJek, who are much more advanced because of the capital influx, which might not necessarily be a good thing if you talk about the equilibrium between growth and inflation.
Whereas in Vietnam and Thailand, you’re at the very early stage of the tech boom. Most of the companies you see at these markets are pre-seed or seed stage companies. That’s why a lot more handholding is to be done.
But this is also a good thing, because Vietnam is able to learn from the more advanced countries in terms of how to build a regional company. So in Vietnam, I’m focusing on the really early stage companies to see how we can support them and guide them through later stage investments.
There is no specific vertical of focus for us, but it will be a bonus if we can get companies who can work with our existing exposure here. We have Triip, OnOnPay and Offpeak with operations in Vietnam. If there are any companies that are synergistic with the companies we have in Vietnam, or even in other countries, it will be fantastic.
Being an entrepreneur is a very lonely journey. But what if you have a peer who shares the same investor with you, who can at least not competing with you and provide complimentary support?
We want to focus on the big industries. Travel sector is huge, because for every travel decision you make, you need also to decide what to eat, where to stay, what to go around and what to do. That’s why travel is exciting. It encapsulates a much larger industry than we can see.
The other focus for me in Vietnam is to look for local potential partners to work with, especially the corporates, telcos, banks and travel groups. As a VC, our contribution to the startups is also limited in a sense that we don’t have the same strategic value to bring to the table as if we own the companies who can immediately become their clients.
What we have is the independence as a full-time investor who can support the entrepreneurs on an ongoing basis.
Corporates have the resources, yet they don’t have the right approach. That’s where VCs come in place to help facilitate the process.
What’s your investment philosophy? Do you have to change it as you enter this market?
VC is a long-term investor, therefore your philosophy shouldn’t change over a short term of time, or from market to market. My fundamental belief is that when you’re investing into a startup, you want to figure out how this startup can expand beyond their own vertical. That’s why the strategy for me is to always look for complimentary companies and sectors that grow together, such as food, travel and payment. It’s about how you can push them together to create much more value.
You should look at the portfolio as a portfolio. Manage the portfolio and look at what’s the correlation between the invested companies. At least, that is scientific.
Again, part of my philosophy is to get more corporates to work with us, including those from the manufacturing sector as well, because technology is eating up any industries. Back in 2001, the stars were very traditionally ones. Whereas in 2016, most of the top market-cap companies are tech companies, like Microsoft, Intel, Amazon and Facebook.
Tech is the cheapest way for you to expand, and working with tech startups is the most convenient, less burdening approach so that you can just plug and play.
Vietnam, as well as several other markets in the region, are fragmented. Can you define the fragmentation?
A lot of people say about fragmentation as a very negative thing. In fact, we should celebrate fragmentation, this creates a lot of opportunities for partnerships between the more developed markets.
Outsiders like companies from China, US and Japan are looking at coming here but are worried about fragmentation. Hence, it increases the opportunities for them to work with the local partners.
Internally, the whole fragmentation problematics are not so much of an issue. If you look at most of the startups who have a regional ambition, most of them have multi language websites and multi currency offers. VCs will worry about how to exit, to attract bigger players to work with, if a startup focuses on only one single market and not be able to scale.
So fragmentation is actually a blessing in disguise, where it helps wipe out less competent entrepreneurs and push up more competent founders, who want to tackle not just the 90 million people market but the 600 million Southeast Asia market.
Among the ASEAN countries, it also means that there are opportunities for each country to work with another. It creates a lot more flows which helps push up more activities. Governments should be happy with that, because it creates a more vibrant economic scenario.
Each country should play to their own strengths, because there are things that more advanced markets like Singapore can’t do but others can. These are the nuances in the market that people should see through to understand that fragmentation actually helps encourage more professionalization.
What’ your take on consumer tech in Vietnam?
Consumer tech is still going to be hot. It goes back to my philosophy that I want corporates to be more active. They are strong in building a fundamental business, but have problem with reacting fast to consumer changes. And that’s what tech companies are good at because they are the interface between the corporates and the consumers.
For consumer tech companies, you should focus on getting more data, understanding more of spending behavior. These are the key data points that corporates and investors would like to see.
Consumer tech is going to be there. However, companies always have to outwit competitors. For example, it will be very difficult for a company to sell fashion products to survive anymore if they just set another e-commerce platform. You will need a huge balance sheet to do that.
I personally like femtech, and bullish about the beauty and cosmetic space. There is no clear leader in this space yet.
Even though I said consumer tech is still going to be hot, you’ve got to focus on a niche, a differentiation so that you can compete amongst the rest of the others.
What is the trend you’d like to see in 2017?
I’d like to see companies that are synergistic with each other. In Vietnam, the travel sector is hot. Vietnam is opening herself to the world, and the travel sector can lead to a lot of other things, such as food, accommodation, logistics and entertainment.
Vietnam is a very young country, and a lot more women are coming out to do business and performing better than men. Because of that, women have more consumption power compared to how it was 10 years ago. Products that address the female market is very attractive as well.
I am not going to overlook the fact that telcos and banks here are actually doing a lot more than how they were. We might not have seen much real action happening, but the fact that there’s already intention to do is one big step for most of the corporates.
What’s your expectation for a startup?
We like hungry entrepreneurs who want to build companies that are larger than what people commonly think they can achieve, who have the ambition to go out and conquer the world. Of course, ambition is not enough. They must be able to roll up their sleeve and go out to the field, build a product and recruit good key talents on board.
Another important thing for me is whether the entrepreneur has the right attitude in the sense that she/he has the right confidence. Some might be arrogant but they should be able to listen to the customers, investors, business partners and competitors. If you’re not willing to listen, you’re probably not fit into a startup.