While announcing the appointments of Eddie Thai and Binh Tran as Venture Partners of 500 Startups in Vietnam, Managing Partner Khailee Ng said, “For us, it was never a question of ‘Is Vietnam ready as a market, but are we ready for Vietnam as a market?'”
Around 90 million in population, Vietnam is the new bright spot in Southeast Asia. With 40 million Internet users and 20 million smartphone users, the country is growing fast prompting global VCs and startups to make an entry.
Sniffing the massive potential early on, 500 Startups — one of the leading seed fund-cum-accelerators in the world — forayed into the country by roping in Thai and Tran — two prominent startup experts.
e27 spoke to the duo to know about the market, 500 Startups’ plans in the country and more.
Here are the edited excerpts:
500 Startups has been bullish about Asian markets with a huge population. While there are also other fast-growing economies with bigger populations and potential in Asia, why has it decided to ramp up activity in Vietnam?
Thai: As a preface, 500 Startups’ ramp-up in Vietnam is not to the exclusion of other countries. Over the next several months, we’ll be announcing exciting developments in many places around the world.
While looking at a particular market, 500 is looking at a combination of market size/potential, timing and our own readiness (especially having the right team and other local partners in place). Vietnam hits the mark on all three.
At around 90 million people, it’s the 14th largest population in the world. Since 1990, Vietnam has been the second-fastest growing economy in the world (excluding economies under US$10B). Internet penetration and smartphone penetration have hit scale (at around 40 million and 20 million respectively). The startup ecosystem has also evolved. And 500 Startups found the right partners to execute their strategy on the ground.
Tran: Vietnam is an important player in the overall strategy for 500 Startups in Southeast Asia. The entire region is showing on a macro-level (population, GDP and e-commerce) that it is hard to ignore, and Vietnam is a large contributor to those macros. For example, Vietnam has the most online users and they spend the second most amount of time online in Southeast Asia.
What are your expectations from Vietnam? What is so special about the startup ecosystem in the country?
Tran: Putting aside the early Vietnamese tech giants such as VNG Corporation, FPT Group and VC Corp, the tech startup ecosystem is relatively young.
What we’re finding in this ecosystem is the best engineering talent in the region, independent of the cost, which is a third of China’s. This local talent is resourceful and self-taught. Combined with the influx of overseas-educated Vietnamese and diaspora from the Vietnam War, these startup founders are enthusiastically building products and services for both local and international markets.
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500 Startups is here to fill the need for pre-seed and seed capital. We plan to invest in promising startups to fill the top of the funnel which is needed for an ecosystem to thrive, allowing our other investment partners to bet on the ones that show breakthrough performance. We want to be the first money in as it is the most important.
What is your first immediate step as Venture Partner at 500 Vietnam?
Thai: We’re currently focussed on building up our local infrastructure, including team and processes. We’re also supporting ecosystem-building activities.
That said, there are a number of very interesting startups that have already come to our attention. We’ve already signed two deals and plan to sign several more in the coming months.
How is the entrepreneurship ecosystem growing in the country, in comparison with other regions in Southeast Asia?
Tran: Vietnam is currently third in the number of startups (1,356) behind Singapore (1,454) and Indonesia (1,707). However, we’re lagging in terms of the number of investors.
500 Startups hopes to fill in this gap. And we think it’s a great opportunity for us to do so because the combination of talent and energy in the scene here is really exciting. Especially, the programming talent here is quite competitive compared to other countries on a dollar-for-dollar basis.
Are startups getting support from the government as well as the private sector? Will you work closely with accelerators to pick startups for investments?
Thai: The government has recognised the role that tech startups can play in boosting overall GDP, employment creation, and improving the lives of Vietnamese people. While Vietnam’s regulatory framework still needs work — including reducing ownership limitations (statutes and process), being more open to new business models and improving contract enforcement — there has been improvement over the past few years.
Just a few weeks ago, one of Vietnam’s Deputy Prime Ministers hosted a meeting of Vietnamese startup leaders to discuss various challenges. The government has also partnered with the World Bank to improve funding for innovation (FIRST), the Finnish government to expand capacity (IPP), etc. And foreign ownership restrictions in several sectors are coming down.
Meanwhile, we will certainly be looking at partnerships with others in the private sector. At first, we are exploring augmenting various existing ecosystem-building efforts, such as accelerators and pre-accelerator programmes.
Are you planning to launch any accelerator, along the lines of Distro Dojo?
Tran: Things are moving incredibly fast. Just around this time last year, I met Khailee at the 2014 World Cup in Brazil. He had not yet joined 500 Startups and spoke about potentially raising a fund. Fast forward one year and one of his first investments — GrabTaxi is now at a US$1.8 billion valuation.
At the beginning of this year, I wasn’t planning on participating as an investor in Vietnam, but the ecosystem has evolved much quicker than anticipated. I wouldn’t be surprised if we have a dedicated growth hacking programme (Distro) in Vietnam by this time next year.
Are you looking to launch a proper fund, along the lines of Durian, etc.?
Thai and Tran: Due to US Securities law, we cannot discuss a potential fund in the media at this time.
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What is going to be your strategy? What is the investment philosophy?
Tran: We believe Vietnam is a rising star in Southeast Asia and we’re looking to create a founder-friendly ecosystem that later-stage investors find safe and attractive.
Being the only Silicon Valley-based seed-stage fund in Vietnam, 500 Startups’ investment strategy is to — one, source the best deals through the use of our brand and strong network of 2500-plus founders and mentors; two, screen through those deals, focussing on capital efficient startups that show some level of advantage, whether that be traction, an amazing team, or superior product and finally create a large diversified portfolio of early-stage startups.
What kind of startups are you looking to back? Which are the key focus verticals? Will you invest even in non-tech ventures if required?
Tran: Never say never, but we focus only on software-based tech companies. Some areas that personally excite me are e-commerce, education, banking and payment systems, logistics, business intelligence and travel and tourism.
In how many ventures will you invest in this calendar year? Have you identified any startups yet? What is going to be the average ticket size?
Thai: Over the next 12 months, we will invest in up to 20 startups. We have already identified some. Our pay cheque size will be up to US$250,000. But typically in the range of US$50,000 to US$100,000.
How is the VC funding ecosystem evolving in Vietnam?
Thai: I believe we’re seeing a bifurcation in the VC funding ecosystem in Vietnam, and one that makes sense for many emerging markets. Country-focussed investors earlier invested in a range of stages — from seed through Series B. Now, generally, country-focussed investors are focussed on angel and seed-stage investments, while Series A onwards are now being filled more by regional funds.
That interest from regional funds seems to be high; I’m contacted daily by corporate and institutional investors looking for later-stage startup opportunities. The economics just make sense for this bifurcation.
All the emerging economies are seeing a lot of action in the consumer Internet space. Is Vietnam also seeing a huge growth in this space? Which are the other emerging verticals?
Tran: Yes, especially e-commerce. A decade ago, there were five million Internet users in Vietnam. Today, there are more than 40 million, the second-most of any country in Southeast Asia.
While e-commerce currently represents less than one per cent of overall retail sales (compared to the six to eight per cent in Europe, China, an US), we believe the rapid increase of Internet usage (especially smartphone usage) will help Vietnam hit the six to eight per cent mark soon. Especially, with the bypass of broadband straight onto mobile, startups focussing on mobile payments and on-demand services will be exciting to watch.
Will you also make follow-on investments in startups. For the same, will you work with VC funds in the country?
Thai: We will make follow-on investments in the 10-20 per cent of our initial investments that can still benefit greatly from our biggest strengths (UX design, distribution, and Vietnam/regional expansion).
The other 80-90 per cent of our investments will benefit from support from the next stage of investors, or else fail. So we will definitely be working with other VC funds — inside and outside the country — to support our startups. Especially those who share our ‘founders-first’ philosophy.
Do you want to share anything else with our readers?
Tran: If you think long-term and already believe in Vietnam’s rising opportunity, if you want to help the ecosystem with more than just money, then we welcome you to connect with us to help build the future together. Look out Southeast Asia, because Vietnam is about to change the game.