Q&A: IDG Ventures Vietnam's Henry Nguyen

Q: Is sentiment on VC in Vietnam improving?

A: If you look over the past couple of years, just on a government level there has been more effort to promote entrepreneurship and technology start-ups. Even the word start-up has become part of the vernacular – when I think back more than a decade to when we started, there wasn’t a term of venture capital. There has been a change in mindset about start-ups and this is happened throughout the whole ecosystem, so it includes more investment activity. A lot of wealth has been created by a leading generation of entrepreneurs in Vietnam and they are in turn angel investing and creating a new cohort of younger companies.

Q: Which larger companies benefit from this dynamic?

A: It’s mainly the likes of Google and Facebook. There is a perception of Vietnam as being heavily controlled and censored, but it’s much more open and liberal than China. This does make it hard for younger companies to compete with foreign groups with similar products. VNG is a shining example – and one of very few examples overall – of a local company taking on a global player. It’s OTT [over-the-top] communication platform, Zalo, competes with the likes of Facebook Messenger, WhatsApp, and Viber, and it has now taken the lead after a pretty bloody five-year battle. At the same time, if foreign companies successful it creates more usership and a greater potential market for different start-ups, whether they are in e-commerce, fintech [financial technology], or online digital content. These companies are also recruiting a lot of local technical talent.

Q: And is this talent spinning out to launch start-ups?

A: It’s a virtuous circle. Young engineers and entrepreneurs work for these companies and a subset of them say, ‘I’ve seen these best business practices and now I see an opportunity.’ Being in and of Vietnam, a lot of these younger start-ups think they can do it, and then there is more capital available.

Q: Where is the capital coming from?

A: There is a lot of activity around co-working spaces and incubators, but I still think more formal venture funding is needed. We are one of the few graybeards in this market. There is a lot of interest from Singapore, mainly funds that are focused on Southeast Asia but Vietnam is one of the two or three countries they emphasize. They do the Series A and B rounds. For seed and Series A, there are global funds like 500 Startups, but I also see a lot of different organizations teaming up with incubators, accelerators and co-working spaces. 

Q: What kind of strategic interest do you see coming out of Japan and Korea?

A: We sold one of our portfolio companies to Line [from Japan] and I see them trying to make direct venture investments in Vietnam as well commitments to other funds. Japan and Korea traditionally have been significant investors in the Vietnamese economy, but there’s now a lot of Chinese interest as well. Alibaba and Tencent have been extremely active in Southeast Asia and particularly in Vietnam in recent years.

Q: If VNG and VCCorp represent the first-generation success stories in Vietnam’s internet industry, what will the next generation look like?

A: What naturally happens with all technology products is you create a younger generation of users who behave differently and have different expectations. There is so much fintech activity going on in Vietnam because you have this cohort of millennials who have been brought up with technology. The generation before them was massively unbanked but the generation coming up now – people in their 20s and 30s who represent well over one third of the population – aren’t using banks like their parents did. They want to be able to transact with the push of a button on a mobile phone. Some big corporates such as the telecom companies and the private banks have been very aggressive in developing digital strategies. They know that the old way of building an asset base and building more branches is not going to work.

Q: What are the main exit routes for early-stage investors?

A: It’s been buyouts involving bigger players who have deep pockets and want a local presence. I think for at least the next 12 months that is the most likely pathway to exit. However, from about 2020, some companies will have the size and growth to warrant interest in terms of an IPO – not just in the local market but in regional markets. I think Hong Kong would be preferable for most companies in Southeast Asia.

Q: IDG made a partial exit when Tencent invested in VNG. Was this seen as a landmark transaction?

A: It generated excitement because Tencent is a reputable company and it was a big transaction in terms of dollar value. VNG is our proverbial unicorn, and they don’t show up that often. Everybody is hoping this will change over time but look if you look at Vietnam at the macroeconomic level and in terms of consumer spending power, we are still a young, low income developing country.  

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• Topics
• Southeast Asia
• Technology
• GPs
• Vietnam
• IDG Ventures
• Venture