Patience needed for startup success

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Under pandemic-induced restrictions, capital for startups has been tightened as investment funds struggle with adversity.
1257 p13 patience needed for startup success
Patience needed for startup success

Local e-wallet startup MoMo last week completed its Series D fundraising round worth $100 million, including global leading investors Goodwater Capital, Kora Management, and Macquarie Capital. However, not every business has been so fortunate.

“Since the pandemic broke out, it has been harder to mobilise capital,” said Tran Nguyen Le Van, CEO of Vexere – a local startup offering online bus tickets. Because of the health crisis, fewer people have been travelling by bus, bringing about a pitiful performance for the company.

Van said that startups generally have no assets such as mortgages and so are unable to access bank loans. In the case of Vexere, the startup can only count on investment capital. “Travelling restrictions have hampered us from a direct meeting with investors to settle the investment deal. So, we have yet to access the potential capital.”

Along with startups, venture capital funds have been on the edge due to the naturally cutthroat selection process. Le Han Tue Lam, director of investment fund Nextrans Vietnam, noted as much at a webinar on COVID-19’s warning to startups last year. “Many do not have enough money to keep investing in some sectors, leading to the inevitable death of some portfolios,” said Lam.

Nextrans itself is also restructuring its portfolio to adapt to the hardships.

Investment funds are looking for startups and sustainable growth potential, as investment flow draining towards startups has faltered. According to Vietnam-based ThinkZone Ventures, the number of successful deals involving startups and investment funds in 2020 in Vietnam was 40, equalling one-quarter of the value seen in 2019 with 123 deals worth $900 million.

The first half of last year saw $129 billion in total global venture US dollars, down from the peak in 2018 of $168 billion, according to global startup database Crunchbase.

In NFX Capital’s venture capital and founder sentiment survey last year, 60 per cent of venture capital funds reported that early-stage valuations have fallen by 20-30 per cent. For the founders surveyed, 30 per cent experienced a reduction in revenue.

Meanwhile, 50 per cent of startups in Vietnam admitted that performances have been at a bare minimum. Over 20 per cent of them lost the opportunities for mobilising capital and extending their scale, and another 20 per cent halted their operation, according to data published by the National Business Registration Portal under the Ministry of Planning and Investment.

Even for MoMo, its executive vice-chairman cum CEO Nguyen Manh Tuong told VIR, “The negotiation with the investment funds was not easy at all. It took us at least one year to build trust with them.”

Tuong said that the funds would not believe the company in the beginning. “After an online meeting, they constantly rechecked our information. Moreover, as COVID-19 restricted travel, their market research on our performance also took more time, resulting in a longer decision-making process.”

Carrying out a large-scale deal through online platforms is proving to be a near-impossible task. For major investments, a deal commonly requires at least a face-to-face meeting before completion.

Denis Le, director at Openspace Ventures, said that the cash disbursement has been slower than in previous years due to travelling restrictions. Many deals were planned to be finalised last year but are still delayed because of the unique obstacles.

“Some extremely complicated problems are, however, finally being solved by surprisingly simple actions,” said Tuong from MoMo. “The first was to build trust with investors.”

To materialise this, Tuong said, startups should prove their ability to rise from the ashes. Doing well during the pandemic will contribute significantly to startups’ image in the eyes of investors.

A second factor is creating a wide vision – solving the big issues can make big social impacts, which in turn is a fundamental factor in making profit. And finally, Tuong added, startups should be patient, especially during the current circumstances.

Olivier Raussin, co-founder and managing partner at FEBE Ventures, told VIR that one of the fund’s focuses in 2021 is to extend its portfolio in e-commerce, AI, blockchain, fintech, and healthtech among others.

“The local digital economy will potentially soar by 25 per cent in 2021 overall, and we hope to see a new wave of startups from some C-level companies in Vietnam,” said Raussin.

“My main expectation is that most of the new generation of talents will start their tech companies in the nation because the early stages always demand a lot of talents,” he added.

Grab Financial Group last week successfully received $300 million investment from a Series A fundraising round, marking impressive growth for the company. In addition to Hanwha Asset Management, the new round also saw the attendance of K3 Ventures, GGV Capital, Arbor Ventures, and Flourish Ventures.

This latest investment underscores Grab Financial Group’s fintech leadership and its ability to continue building a sustainable, diversified business to tap into the vast financial services of Southeast Asia, which is expected to have a full revenue potential of $60 billion by 2025.

Last year, Grab Financial Group saw a spike of 40 per cent in earnings. Last December its retail wealth management product, AutoInvest, also doubled its recorded number of users. Its insurance segment also saw the number of users enlarge by up to 4.5 million within three months.

In Southeast Asia where over 70 per cent of the adult population is still unbanked and millions of smaller-sized enterprises need crucial funding, Grab Financial Group aims to help connect these unmet needs and close the financial inclusion gap. With the COVID-19 pandemic bringing even more people and businesses online, the group said it is well-positioned to further support millions of Southeast Asians with its suite of digital financial services.

By Van Anh

Nguồn: Vietnam Investment Review

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