Compelling business model essential for success

September 21, 2023 | 09:00
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In today’s global landscape, myriad uncertainties cast shadows over economic and political terrains. Louis Nguyen, chairman and CEO of Saigon Asset Management, shared his insights with VIR’s Celine Luu on the changing tides of Vietnam’s investment arena related to startups.

Amid the current financial landscape, how do you see the investment appetites of global investors evolving?

From the escalating interest rates that echo the world’s financial concerns to brewing geopolitical tensions, uncertainty seems to be the new norm.

Compelling business model essential for success
Louis Nguyen, chairman and CEO of Saigon Asset Management

This environment has led many investors to tread with caution. A conservative streak is becoming more apparent, with a pronounced shift towards liquidity. Increasingly, investors, whether individual or institutional, are preferring the relative safety of cash holdings over more volatile investments.

Vietnam, too, reflects this broader sentiment of caution. But for this Southeast Asian nation, the complexities run deeper. Beyond the external geopolitical and economic factors that influence global investment behaviours, Vietnam grapples with its own unique set of challenges.

Recent internal events and policy indecisions have contributed to an atmosphere of hesitation. Decision-making stalemates at various levels, be they governmental or corporate, have further muddied the waters for potential investors and business leaders.

What challenges do you believe startups face, especially during economic downturns?

The heart of the challenge remains unchanged: finding startups with either game-changing technology or those that possess a defensible high barrier to entry with a viable business model. Economic downturns only accentuate these and other challenges.

For tech startups navigating these challenges, they could look at successful models in developed nations and adapt them for the local market. Also, understanding the unique dynamics of local and regional markets is crucial. Startups should have a thorough understanding of the local and regional market and come up with a solution that can be addressed regionally.

Bear in mind that regional investors often align their strategies with trends set by major venture capital (VC) groups in dominant markets like the US and China.

When assessing investment opportunities, what stands out for you in Vietnam’s startup ecosystem is all about the team and their track record.

On the other hand, while the regional landscape is competitive, Vietnam’s robust macroeconomic indicators might give it an edge. As for valuations, the recent correction seems rational. The Vietnamese market did feel somewhat overvalued and still has some cooling to do.

Do you see any untapped potential or underserved areas within the Vietnamese startup market?

Certainly. While local VC funds typically focus on early-stage ventures and private equity (PE) firms target later stages, there is a significant funding void in the Series A++ to exit stage. Yet, it remains markedly underserved in the funding realm.

In addition, the complexities are further compounded for foreign VC and PE firms looking to tap into Vietnam’s promising market. While Vietnam presents a plethora of opportunities, it also offers unique challenges. The local business culture, regulatory environment, and market dynamics of Vietnam can be perplexing to those unfamiliar with its nuances. For many foreign investors, navigating these intricacies can pose unforeseen challenges, often demanding a steeper learning curve and a more flexible approach.

Furthermore, as the world progressively leans towards sustainable investing – motivated by environmental, social, and governance (ESG) considerations – Vietnam exhibits a certain level of reticence. Despite the increasing global momentum to weave sustainability into investment decisions, there seems to be a cautious approach in Vietnam’s investment community.

This hesitancy might be attributed to various factors, including a lack of clarity on ESG criteria or possibly the infancy of sustainable investment practices in the region.

In light of uncertainties plaguing venture capital funds, do you have any advice for Vietnamese entrepreneurs aiming to pull in investments?

Crafting a compelling business model or building a recession-proof business is essential. Fundraising timelines might elongate, so it’s wise to have a robust cash preservation strategy.

Furthermore, there are red flags for startups that might make them less attractive to investors. For instance, overconfidence can be detrimental. Other deterrents include denial of competition, inflated valuations, reluctance to accept standard terms like clawbacks, and presentation inaccuracies.

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By Celine Luu

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