Hoàng Đức Trung, partner, VinaCapital Ventures

While most industries have been hit hard by the COVID-19 pandemic, start-ups continued to receive investments. Việt Nam News speaks with Hoàng Đức Trung, partner, VinaCapital Ventures, about this and the outlook for start-ups post-pandemic.

This year some start-ups have been successful in attracting investment. What do you think makes Vietnamese start-ups attractive to investors despite the pandemic?

Investment in Vietnamese start-ups in the first nine months of 2021 was almost equal to that of 2020 at more than US$600 million, an optimistic sign.

One important lesson from the pandemic is the role of digitisation. It speeded up a transformation that had started. 

No matter the sector – finance and banking, education, healthcare, or consumer – there are enormous opportunities for start-ups to find solutions to the ‘real pain points’ in the economy that start-ups in Việt Nam have great potential to grow with their combination of affordable local human resources and an influx of experienced experts from overseas.

A young population with high internet and smartphone penetration give Việt Nam’s start-ups a huge potential market for all kinds of digital services and products. 

Founders have a good mix of international and local exposure, with the current wave of start-ups considered the 3rd generation. There are more founders who have studied and/or have work experience in developed countries to be ready for regional solutions.  Besides, there is a great supply of good technology workforce from universities and larger corporations. 

Large and young emerging market with a population of 100 million with real pain points in several sectors such as logistics, healthcare, education are waiting to be solved. 

We are fortunate in Việt Nam that the Government’s skillful management of the outbreak has enabled economic activity to resume much faster than in many other countries in the region. In fact, Việt Nam was one of the few economies in the world to post [positive] GDP growth in 2020.

And we are already seeing a resumption in manufacturing and exports.

The Government is also increasing public spending on a range of infrastructure projects such as highways, airports and ports. This spending will likely benefit companies in the construction and building materials sectors.

People are still shopping, a good sign given the [earlier] fears that demand would fall amid COVID-19. The best performer has been the groceries and fresh food sector, followed by household supplies, homecare and healthcare products. 

FMCG will in fact continue to grow, and business are increasing their online sales, improving their IT security systems and expanding their supply chains. 

Finally, Việt Nam’s economy is driven by consumer spending, which makes up close to 70 per cent of GDP.

Retail sales recovered nicely in the third quarter and should continue to grow thanks to the country’s expanding middle class and urbanisation.

Some have called the pandemic an obstacle for every sector and business including start-ups. Do you think it also brought some benefits to start-ups?

COVID has divided start-ups into two categories: zombie and survival. For those start-ups that have been able to attract venture capital investment during the downturn, there is likely to be a decrease in valuation, in particular for later stage deals as they are often valued relatively high in the earlier rounds. 

In the case of mature companies, founders may be under pressure to exit, accelerate their go-to market strategy or sell non-core assets to extend the runway or conduct an IPO to gain access to liquidity. 

Consequently, we expect that a number of survivors will have a better chance to consolidate the market by raising a bigger sum for development and M&A. 

Việt Nam has several late-stage companies such as VNG, Tiki, Momo, and VNPay that seized opportunities amid the pandemic and will grow faster once the situation settles. 

The fundamentals of the country continue to be very positive: a sizable, rapidly digitising population that demands online services and many industry sectors adopting new technology to transform their operations and solve the very real pain points in a range of sectors, from transportation and finance to media, entertainment and retailing. These will drive Việt Nam’s growth for years to come, and create opportunities for investors.

How do you see investments in start-ups panning out once the pandemic is controlled?

Given the new risk environment, investors will be increasing their scrutiny of ventures. Their inability to do in-person meetings to see working prototypes, for instance, or to get a better feel for the team and to build trust will likely drag the discussions out. 

For many funds, there is still plenty of powder in the keg, but keep in mind that in this climate investors may be choosier and, in some cases, press pause on new investments. 

The key factor slowing venture investing right now is price discovery - no one knows what the right valuations are for private companies. In 2019, market participants - founders and venture capitals (VCs) - had a good idea what a series A, Series B, etc should be valued at based on various metrics. Right now it is a lot more confusing. Everyone is doing a lot of negotiations and trying to figure out what the new prices for series A, series B, even angel investments, are, and that takes a little while to work out. When the stock market is bouncing around with thousands of point drops and increases, it is very confusing for everybody.

The bad news is we will see downward pressure on valuations. The good news is that many VCs will see this as an opportunity to invest and may even increase their deal activities.

From an investor’s perspective, how do you see the potential of the Vietnamese start-up market amid and after the pandemic? 

The pandemic has accelerated digital transformation in Việt Nam. It has certainly boosted the growth of internet-related businesses as consumer behaviour has changed. This is not temporary but a long-term sustainable shift in consumer dynamics. We expect to see a lot more activity around e- commerce going forward. This also plays into companies focused on logistics, and we expect more start-ups seeking to improve the efficiency of that sector.

On the banking and payment fronts, banks have been encouraging cashless payment, while demand has increased for online grocery shopping and food delivery services.

Retailers report that orders by phone and apps jumped almost 10-fold from before the pandemic.

Healthcare has obviously come to the forefront during the pandemic, and start-ups that can improve access to information and care could be promising. We expect to see more integration between HealthTech, Fintech, EduTech, and InsurTech in user journeys, and look forward to seeing what Vietnamese entrepreneurs can do in these and other areas. 

What should Vietnamese start-ups do to take advantage of the opportunities brought by these trends?

We have been investing in Việt Nam technology since 2006 and see its enormous potential, given the continued growth of the new-economy market and increasing digitisation trends.

Solutions that help outpace the industry’s benchmarks such as data accuracy, operational efficiency, market penetration, and user experiences will catch the interest of investors because of the following factors. 

First is a sizeable market with viable exit paths. Việt Nam does not have a dominator yet and so virtually any start-up has a chance to succeed 

Second is scalability. Investors place importance on the scalability of a start-up, in which technology and the overall business model can accommodate a large expansion of operations, especially when growing regional. 

Thirdly, ideas and business plans are good but not enough without solid facts and figures that prove a start-up’s products or services are accepted by the market .

Last is team and execution in which local and industry knowledge of founders will help start-ups stay focused and maneuver around obstacles to implement key success factors. VNS