LEARNING THE MARKET AND INVESTMENT FUND MODELS
Participation of investment funds is one of 3 factors always associated with start-ups’ finance strategy. Consequently, understanding models and investors’ tastes is an essential towards start-ups. It will aid them in getting access to investment funds and acquiring an investment more effortlessly. With a view to providing the most comprehensive information on investment fund models, DNES introduces you to a lesson “Learning the market and investment fund models”. The lesson is produced based on a case study of ThinkZone Venture – a Venture Capital Fund for early-stage technology start-ups.
I. Vietnam market and opportunities for investment funds into early-stage start-ups.
Vietnam in comparison with other Asian countries such as China and Indonesia in 10 years ago can be seen to have many similarities. Investment stories in those countries are the same as Vietnam now.
- Vietnam's advantage is a densely populated market, which creates a condition for start-ups to scale up and grow.
- Locality: In Israel where start-ups thrive there are elaborate political and religious factors. Moreover, Israel market is not populous, therefore start-ups concentrate on resolving issues in other areas. In the meantime, the story in Vietnam is wholly distinct as Vietnam always centralizes to address local problems.
- Furthermore, Vietnam is currently leading over Southeast Asia in terms of internet economic growth. According to the statistics, Vietnam’s internet economy has grown 3% each year, and will advance 11 times as compared to the current time by 2030 as a result of the tremendous rate of internet and smartphone usage and more and more flourishing payment channels.
Thanks to above favors, there is a high possibility for Vietnamese start-ups earn capital from venture capital funds
II. Some investment fund models and their tastes:
- In the early-stage investment funds segment, there are small venture capital funds, angel investors or foreign investment funds whose small investments. However, those funds need an office in Singapore which costs a lot of money and management efforts.
- Regarding the late-stage investment funds, if they only invest in Vietnam’s businesses, it will not be enough to disburse. Therefore they often will invest in both Singapore start-ups and Vietnamese ones.
- For investment funds at a later stage, investing in Vietnam alone will not be enough to disburse. So they will often invest in both Singaporean businesses and Vietnamese startups.
Other aspects investment funds pay attention to:
- Case studies of identical start-up models are successful or potential in Vietnam.
- Products and product development methods
- The amount founders take ownership of a start-up.
Start-ups ought to find a domestic investment fund to approach and call for investment because of following reasons:
- Foreign investment funds that come to Vietnam experience a lengthy process which demands them to complete legal procedures in Singapore. It takes 3 months if being fast. Additionally, applying for investment licenses is extremely costly, the expense is about $2000.
- In case that we do not find domestic investors and must look for foreign ones, transition takes from 3-6 months. Moreover, although foreign investment funds involve KPIs, they do not perceive Vietnam market. Meanwhile, we need to change our business model within the stage. Hence, cooperation with foreign investment funds becomes further challenging.
- In terms of the law, collaboration with foreign investment funds must hire a Singaporean Law company, leading to many legal risks.
We will take a closer look to business model of investment funds through a case study of ThinkZone Venture
- ThinkZone can support by perk packages with other aids amounted to $300.000. In addition, ThinkZone can connect with other partners to assist businesses, construct training programs and cooperate with corporates (including valuation, data preparation to facilitate the cooperation. Furthermore, ThinkZone links start-ups with investment funds that match the amount businesses are calling for.
- In the event of start-ups’ divestment, ThinkZone will propose cases of voting rates or finance dealing with investors.
- Investors often accompany start-ups followed by many investors. It gives them a sense of security when investing in the business.
III. Notices for start-ups to approach investment funds
You ought to introduce human, personnel in advance:
- When it comes to foreign investment funds, founders only have a 25 -30-minute pitch. Therefore, they had better begin with a message – next solutions and lastly personnel. Introducing about human is pivotal, especially early-stage start-ups.
- Since the majority of domestic investment funds is of human. In fact, many start-ups have no slide or product, yet they successfully raise capital if they own good people. Personnel is a thing creating their belief, if other issues are not satisfactory structure can be changed.
Founding team must be knowledgeable about products:
- Investors’ requirements for founding personnel depends on their tastes. Some may love people studying overseas or solution-oriented ones. Occasionally they also adore those who failed in starting up.
- Particularly, investors will prefer start-up projects in which a founding team comprehends the product to companies that have only a founder. For instance: an educational start-up needs a person excelling in the field. Founder’s mindset should follow the product's philosophy.
You should get a clear vision and commitment to it
- Start-ups constantly change, if it were not for COVID there would be something causing the change. Changing business models does not make a bad impression as investors invest in human. It asks the company to get a clear mission and vision, as well as be committed to them.
- Once mission and vision is constant, despite changeable methods, the company's core which attracts investors will not be modified.
You need to discuss before collaboration with investors:
- It is intricate for foriegn investors to comprehend the problems. Consequently, founders ought to avoid being heavily dependent on them. There are different policies in Vietnam which trouble founders to explain foriegn investors who have not worked here yet or domestic traditional corporates which have never invested into start-ups. Misunderstanding is common, hence, probable relevant cases such as taking back shares or replacing investors require discussing explicitly before signing the cooperation agreement.
- Founders must get involved in the Administrative Council. If investors are in the Administrative Council, they must truly understand the start-up and products.
You need to identify the amount of investment company is in need of:
- Venture capital funds always want start-ups to grow disruptively. Founders ought to figure the needed amount of investment, and prepare for statistics, evaluate and set KPI, thereby determining an expected investment package, then calling for fitting investors.
- Start-ups had better find a reputable investment fund as the first investors so that it drives many others.
- In order to receive investment and divest, the start-ups need to be able to grow (usually 3 times growth/year).
To better understand investment funds and some notices in approaching, watch the video below:
Author: Bui Thanh Đo