Foreign investors flirt with IT start-ups

Foreign investors flirt with IT start-ups

Increasing numbers of exciting business start-ups in Vietnam are grabbing the attention of adventurous investors who are looking to further ignite the local and regional merger and acquisition (M&A) market, writes VIR’s Anh Hoa.

Le Hong Minh was once a top gamer in Vietnam, leading Vietnamese students at the World Cyber Games in South Korea in 2002. Two years later, he founded VinaGame to tap the rich potential of his nation’s online gaming market. It made an instant impact and today his company dominates the market, having posted exceptional growth.

In the wake of this stunning success, VinaGame launched the hugely successful web portal Zing.vn in 2007 and social networking site Zing Me in 2009. In 2010, VinaGame transformed into VNG Corporation, reflecting its ambition to explore other businesses outside the gaming market.

Minh’s firm is not the only local start-up that is proving increasingly attractive to M&A players. Do Tuan Anh is another eminent figure as founder and CEO of Appota, listed among the top nine business start-ups most worthy of investment in Southeast Asia after two years of operations.

Appota is the first and dominant mobile content distribution platform in Vietnam and is valued at several dozen million US dollars. It’s no surprise that the firm is now a hot investment venture, with two foreign investment funds from Japan and Singapore planning to inject capital within this year.

Leading human resources recruitment portal Anphabe.com is also hot property. After being founded by Nguyen Thi Viet Thanh, Japanese investment fund RGIP in 2013 decided to buy a nearly 20 per cent stake in Anphabe to become the company’s strategic partner.

RGIP operates under Recruit Group, the largest human resources services company in Japan that has an expansive network of 109 subsidiaries across the globe.

Pham Dinh Nguyen is another daring Vietnamese businessman to grab the headlines after he bought the tiny town of Buford in the US state of Wyoming for $900,000 in 2012. The town was later changed into PhinDeli town after he founded the Ho Chi Minh City-headquartered coffee firm PhinDeli in April 2013 to promote his coffee brand.

Nguyen’s move paid off as local food giant Kinh Do Corporation recently bought a controlling stake in PhinDeli to help him further expand his start-up.

These cases illustrate that vibrant M&A opportunities have existed in Vietnam’s business environment, despite an economic downturn stretching back to 2009.

Are venture capital funds ready to pounce?

Jeffrey Paine is the founding partner of Golden Gate Ventures, an early stage technology incubator based in Singapore that acts as a seed fund for internet startups in Southeast Asia.

Information technology remains on investors’ radar with many firms posting high growth of 30 percent against 2012.

With expectations some big players could even triple revenue growth in the near future, it is no surprise that Vietnamese IT firms also scored solid success when venturing into foreign markets.

IDG Ventures Vietnam (IDGVV), founded in 2004, is the first American technology venture capital fund in Vietnam. With $100 million under management, IDGVV primarily invests in privately-held IT start-up companies with significant operations in Vietnam. It now has a footprint in more than 40 IT start-up companies in Vietnam.

DFJ VinaCapital (DFJV) is also following IDGVV’s lead and a year after entering Vietnam in 2008, it has pumped capital into eight Vietnamese firms exceeding $15 million.

The company has now invested in nine local firms, several of which are becoming increasingly appealing to other investors.

DFJV’s portfolio consists of only a handful of firms because “we want to be certain with our investments and are not interested in start-up companies with vague business ideas,” said DFJV’s CEO Than Trong Phuc.

Phuc said the Vietnamese market did not have sufficient factors to ensure venture capital funds could successfully operate in the country.

It was essential each investment fund was confident in its strategy as firms faced a number of risks when gambling on an opportunity, he noted. Phuc revealed his company intended to team up with e-commerce firms, but many such businesses in Vietnam were prone to risks because local consumers were not accustomed to fully-fledged e-commerce models like Amazon and eBay.

One thing venture capital funds in Vietnam have in common is concerns about the quality of human resources. Firms also look out for board of directors to display broad management capacity to ensure start-up business investment efficiency and sustainable growth.

M&As prove to be alluring

Vietnam Association for Information Processing chairman Chu Tien Dung expected M&As in the IT sector to be particularly vibrant this year, particularly in e-commerce, internet services, e-payments and mobiles.

Dung expected products and services like e-payments, solutions for inventory management, forwarding, online training and healthcare as well as finance and property services would grab investors’ attention.

“The value of these transactions may not be big, but these transactions are important to local companies as they want to take advantage of foreign partners’ expertise in market development, corporate governance and capital,” Dung said.

A number of firms are already flagging their intentions. IDGVV was reported to be hunting start-up projects in internet services to inject capital. Another Japanese venture investment fund CyberAgent Ventures Vietnam in early 2014 announced its first investment into local technology firm DKT for development of online selling solution Bizweb.vn. It will also pour investments into four other firms in Vietnam before the year’s end.

Venture capital funds are not the only players.

Local technology firms like FPT Corporation also plan ambitions purchases of technology firms, particularly foreign ones. FPT CEO Bui Quang Ngoc said his company this year would set aside $50 million for M&As in technology firms. In early July, FPT Corporation bought e-commerce site 123mua.com.vn from local internet and technology corporation VNG to merge with its existing ecommerce site www.sendo.vn. “FPT wants to team up with partners with technology, services or market segments that we still do not have,” said Ngoc.

vir