Vietnam’s digital firms capture big foreign investments

The digital economy is creating opportunities for Vietnamese firms, which apply technology in their operations, to attract big inflows from venture investments funds, experts said.

According to investment fund VinaCapital, the inflows are growing rapidly at a ‘dizzying’ rate and the trend is forecast to continue at least in the next few years.

Sean Maher, a founding member of economic strategy and analysis firm Entext Economist, said that investment funds last year poured about US$290 million into Vietnamese firms that apply digital tech. He forecast the value will reach US$2-3 billion over the next 2-3 years.

VinaCapital was among investment funds pouring significantly in Vietnamese digital firms. It has launched the DFJ VinaCapital to invest in digital media firms Yeah1 Group, Chicilon Media, and Vietnam Online Network.

One of DFJ VinaCapital’s successful investments was that in Yeah1 Group (YEG), which listed more than 27.36 million of its shares on the Ho Chi Minh Stock Exchange on June 26, becoming the first ever entertainment company in the country to go on bourse.

YEG listed at a reference price of VND250,000 (US$10.9) a share, beating the previous records held by Sabeco and Vinamilk. At that time the company’s market cap was worth VND8.82 trillion (US$385.1 million).

Following the success of the DFJ VinaCapital, Vinacapital has recently launched the US$100 million VinaCapital Ventures fund, aspiring to build billion-dollar tech startups that can expand outside Vietnam.

According to VinaCapital, the new fund will invest between US$2 million and US$10 million per startup – starting with Logivan, a truck-hailing network, and FastGo, a ride-hailing application.

VinaCapital Ventures said it will work with local engineers, scientists, and innovators who have developed technologies that solve industry pain points and problems that are substantial enough to compel customers to adopt new technologies. Disruptive technologies that have the potential to create entirely new markets are another focus.

According to Khanh Tran, partner at VinaCapital Ventures, the fund will help startups develop into strong technology companies in Vietnam and assist them in building a regional presence. Specifically, the venture investor will offer capital, network, and mentorship.

“Thanks to our international network, we are also open to co-invest with other global investors,” said Tran. He cited Logivan as an example: VinaCapital Ventures collaborated with Ethos Partners and Insigna, both from Singapore, to pour US$1.75 million into the truck hailing network.

Top investment attraction

A Vietnam Report survey on the 500 most profitable companies in the country also showed that most business insiders expect technology to remain the leader in attracting investment. Accordingly, technology was the most common answer among enterprises (51.4 percent of respondents).

It is also understandable as digital companies often gain high profits. In the Profit500 Ranking of the survey, the companies with the highest average pre-tax profits are in telecommunications, information and technology. The companies also have the potential to show stable growth profit indicators.
The telecommunications, information and technology also have the highest return on asset (ROA) and return on equity (REO).

However, according to experts, local digital companies really need foreign investments. While the world is moving towards the Fourth Industrial Revolution, the application of technology in Vietnamese businesses is still in its early stages due to a lack of capital, infrastructure and a skilled workforce.

According to the report, many Vietnamese businesses have strong demand but not enough strategic orientation in the investment process. Only 57 percent of surveyed businesses reported they are speeding up investment in technology while 37.1 percent are investing gradually and 8.6 percent are still in preparatory stages.

Businesses expect the Fourth Industrial Revolution to help cut their costs, optimize efficiency and increase market share.

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Author: Minh Tam