Deal focus: Mekong unconfined to consumer thesis

When Mekong Capital launched in 2001, it had a broad sector strategy, with investment activity spanning areas such as energy and real estate, where the cyclical risks of Vietnam’s frontier economy tended to wreak havoc. Around the country’s 2011-2012 downturn, a preference for consumer-facing models began to take hold. Since then, the firm’s strategy has been described as consumer-only.

Mekong’s latest deal, a USD 25m commitment to insect-based animal feed maker Entobel, is therefore a distinct outlier. Mekong invested via its fourth flagship fund, a USD 246m vehicle that typically takes stakes of 40-45%. This was part of a USD 30m round featuring fellow Vietnamese GP Dragon Capital.

“It’s quite unusual. In the beginning, the deal team thought it wouldn’t fit with our current mandate. But upon a closer look, we were excited about the potential impact to the world as well as the food supply chain globally,” said Thanh Ha Nguyen, a principal at Mekong who led the deal.

“There’s nowhere in the mandate that says we have to invest in consumer-facing businesses. What we do is invest in companies that have a significant base in Vietnam, and from this base, we see the impact, not just on the Vietnamese economy but out there in the world. So, it really fits.”

Impact is an expanding concept at Mekong. In addition to a broader mission statement around economic uplift, the firm has developed an ontological investment framework that emphasises sustainable growth through socially conscious strategies in fostering corporate culture. The most recent plans include a fund dedicated to reforestation in Vietnam and around the region.

Entobel’s impact potential is significant. The company aims to reduce the environmental footprint of global food supply chains by using insects to create sustainable protein for agricultural purposes. The idea is to be a true circular economy, with waste products from other agricultural operations fed into the insect farms and fuelling the production insect meal, insect oil, and organic fertiliser.

Entobel established its first production facility, with capacity to produce 1,000 tons of insect meal a year, in 2019. The new funding will be used largely to construct a second factory with a capacity of up to 10,000 tons, operational by next year.

The goal is to have 10 such factories around the region with a combined capacity of 100,000 tons by 2030. This will coincide with a transition away from a current focus on pet food supply to the more impactful and lucrative aquafeed market. Some off-takers in the aquafeed space have already been identified for the output from the second factory.

“The founders [Belgian entrepreneurs Gaetan Crielaard and Alexandre de Caters] booked a one-way ticket to Vietnam. They were in the Mekong delta, didn’t know any Vietnamese, and spent that time trying to figure out how to raise black soldier flies. That took a lot of grit and perseverance,” Nguyen said.

“For any deal, we look at who the founders are, how ambitious they are, and how that translates into what impact we want to make through their company. And this is exactly what we found really inspiring at Entobel.”

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• Topics
• Southeast Asia
• Industrials
• Expansion
• Vietnam
• Mekong Capital
• Dragon Capital Group
• Agriculture
• Impact investment