Vietnam-based multi-asset investor VinaCapital launched a $100-million venture capital vehicle in late August, its second instrument to invest in startups after a fund launched in partnership with Tim Draper’s DFJ.
Khanh Tran, VinaCapital’s head of technology investment and partner at VinaCapital Ventures, said the firm chose the holding company model over a fund model because it did not want the exit deadline looming over its investments. The structure also helps VinaCapital Ventures pursue other models of strategic financing such as joint ventures and co-investments with conglomerates.
“Because of these different types of investment, a holding company makes more sense. It gives us the flexibility to have liquidity for exits as well as a long-term vision for the partnership that we have with the conglomerates,” said Tran.
VinaCapital Ventures announced its first two investments in logistics and transport apps LOGIVAN and FastGo.
Tran said that he saw the prospects of realizing investments in Vietnamese startups in the medium term, thanks to an improving ecosystem and increasing government support.
Why did you launch VinaCapital Ventures now instead of a couple of years ago or when you fully invested the DFJ VinaCapital fund?
Over the last few years, we’ve been focused on the divestment of DFJ VinaCapital. In the last 12 months, we started to think about what’s the next big thing for VinaCapital and for Vietnam in general. We were thinking of the size of the vehicle. We wanted to have something that is significant enough for Vietnam, and only recently did we actually finalize the terms, the size and the structure of the platform. So over the last few years, there was a lot of focus and effort on the divestment of DFJ VinaCapital to bring it to the success that we are seeing today.
What is the status of the partnership fund? What were the returns?
We are very pleased with DFJ VinaCapital’s performance as of today. We are working on the final divestment as well. The notable exits would be Vietnam Online Network that was acquired by CareerBuilder in 2013, Chicilon Media sold to the founder in 2017, and the most recent success of listing Yeah1 at a more than $400-million valuation. We cannot really comment on the specific return numbers due to our confidentiality agreement with the LPs. What I can tell you is our LPs are happy with the performance. They got their money back, took a lot of profit and the account balance is much bigger than the actual cash returned to them.
Based on the data shared with us by DFJ, DFJ VinaCapital’s investment multiple measured by the distribution to paid-in and total value to paid-in, compared to the US market, ranks among the top VC funds in the US, and the US is a much more mature market than Vietnam. I do believe that it’s been a huge success for the Vietnam market and Southeast Asia as well.
VinaCapital Ventures is not following the fund model. Why?
The reason we structured it the holding company way is we don’t want an exit timeline. There’s no mandated investment period. We are doing two types of investments. The first one is the normal venture capital investment where we take a significant minority stake in startups such as LOGIVAN and FastGo. The second type of investment is a larger partnership, co-investment and joint ventures with the PE players and conglomerates in Vietnam.
So because of these different types of investment, a holding company makes more sense because it gives us the flexibility to have liquidity for exits as well as a long-term vision for the partnership that we have with the conglomerates. The intention is once we can deploy the majority of the first hundred million US dollars, we will get more funding at the holding company level.
Does that position you at a different level compared to other VC firms that are looking at Vietnam in terms of deal competition?
I think it is less of competition but more like coopetition. Over the last two to three years, a lot of big VC funds have parachuted in Vietnam. VinaCapital Ventures has the know-how in Vietnam, having been in business in the country for close to 15 years. There is a lot of value we bring to the table when we talk about co-investments with regional funds. So I don’t think there’s a lot of competition in that sense. Our co-investors value us a lot.
In terms of the local environment in Vietnam, we understand that there are not a lot of Series B and C investments. That’s why we work very closely with the early-stage players: incubators, accelerators and seed funds. We are getting more into community building.
VinaCapital Ventures is investing in the range of $2-10 million. Are you looking at Series A-B rounds in Vietnam?
I tend to not use the Series A, Series B terms. What we’re looking for are, by and large, two things. First, the business model is proven — either the company has started to make money or the business model has been proven in the countries similar to Vietnam in terms of demographics, economic factors and things like that.
The second is the strategic angle. We look at joint ventures and co-investment opportunities with the key industry players in Vietnam. We are thinking about conglomerates in real estate, F&B and retail to invest in innovation in these industries. So this is mostly strategic and there is no fixed range for ticket sizes we’re going to do.
So that means that you are sector agnostic?
Basically, we have a balanced pipeline. There is a stronger focus on the fintech space. We’re also looking at business models that might not be fintech today but have the potential to grow their user base where they have the right purchasing power. Those are potential plays for fintech services later.
How is the fintech sector developing in Vietnam?
I was at a workshop in Hanoi that we co-organized with the Stake Bank of Vietnam and Asian Development Bank, where we brought a lot of regulators and key industry players from other countries to Vietnam to see how we can help shape the fintech regulatory sandbox. We strongly believe that this is the foundation for fintech companies in Vietnam.
I think over the next 6-12 months, the SBV will be working on the regulatory sandbox. We can expect a boom in new local fintech companies over the next one to two years. And in the financial services industry, banks are all trying to innovate and transform digitally to cut costs. The fintech community will be the key ingredient for the whole industry to grow.
Due to the great unbanked population in the country, how will the regulatory changes and partnership with the banks create an impact?
This is why it’s key for banks and fintech startups to work together. Fintech firms themselves don’t have the right capital and the right reach to educate the market and the people, while banks already have a relationship with a lot of customers. You see what happened in the ride-sharing industry — Uber and Grab spent so much money to actually change the behaviour of the people. Anyone can learn from that lesson, and banks need to be open to fintech.
I was at the National Fintech Challenge, where there were 40+ banks and a lot of fintech companies discussing how they can collaborate. Those are positive signals. So yes, there will be a lot of challenges in terms of educating the market, but I think the tipping point will come much earlier in the fintech space versus the ride-sharing space.
What impressed you when you first met the founders of FastGo and LOGIVAN?
When I met Tuat (founder of FastGo), I was very impressed by him. He is a serial entrepreneur and has been working in technology for close to 15 years. The special thing about Tuat is that he is not just a tech guy. In Vietnam, when we talk to the engineers and technologists, they only focus on the product. So it is very rare to find someone who has the business acumen and understands the technology part of the solution as well.
We were impressed by the growth pace of FastGo. The company had been founded for only three months when we met him, and it was growing so fast. When we spoke to the founder, he said the end goal was to create a million jobs in Vietnam and Southeast Asia. We like that investment angle. In order for them to achieve that goal, of course, Vietnam is not the only market they’re targeting. So that’s why they need more funding to fuel that growth. It’s not a surprise to me that Tuat is looking for another round.
LOGIVAN is a different story. I have a lot of personal attachment with Linh [Pham, founder, LOGIVAN]. We were both educated in the UK. We worked for Goldman Sachs in the UK for a short while. We both got back to Vietnam with a strong desire to help the country be a better place. Linh’s family is in the trucking business, so she is solving the real pain point of the whole trucking industry where 70 per cent of the trucks return empty. The cost of logistics in Vietnam is 23 per cent of GDP, which is high.
Such companies today are solving big problems in Vietnam and potentially other countries in the region. That’s the reason for the consortium to invest in LOGIVAN. We hope that with the right support, LOGIVAN will win in Vietnam and also can scale at the regional level.
Do you think that investors should have a long-term view of the market? They might have to be really hands-on, so it takes a long time for them to go along with the investee companies and grow them to a certain point before they can exit and make a profit.
I would say it would be a mid-term play. For Tuat, he founded his first company 14 years ago. The time was different, and the full ecosystem was not there to help them. Look at Yeah1, it took us 10 years to realize the investment.
But today, everything is very different. You see how the government is pushing for the 4.0 (tech-driven) economy. The government realizes technology will be a critical part of economic development. You also see founders like Linh coming back to Vietnam, bringing their overseas work experience. They realize this is the time they can reconnect with their heritage, and they really want to add value to the country. Evidently, you will see companies like FastGo and LOGIVAN grow to the regional level much bigger than the last generations of startups. I cannot give you how many years or months, but we hope that this generation of founders and startups will be successful much further.