Losses in startups must be taken as a given

Initial data from startup accelerator programme Topica Founder Institute (TFI) shows that Vietnam had 92 startup investment deals, worth of over $291 million, in 2017, almost doubling the figures reported a year earlier.

Last year, investment in local startups tripled the value of 2017, reaching $889 million.

Startups that attracted investments are often found in the field of technologies and the number of these is seen to be on the rise in Vietnam.

Nevertheless, these startups have been making constant losses despite being invested by quite a number of angel investors or venture capitalists to upsize their business scale.

But instant return may not be everything in these investors’ eyes as they will consider other prospects, including customer database, percentage of returning customers and reasons behind their loyalty with given products and services.

Taking Uber or Grab for instance, although making constant losses for years, they are seen as the most valuable startups around the world to date. They have been those taking the initiative to change market conduct and customer habit.

Long-term vision and investment belief, in this case, will act as the very key to unlock the potential of an investment for any investors. For startups themselves, these aspects are also something they ought to take into account when plan for their business development.

Dzung Nguyen of Shark Tank Vietnam, who is also head of Vietnam and Thailand Office at CyberAgent Capital (CAC), has foreseen the light at the end of the tunnel at many tech startups in Vietnam over the years.

CAC has so far invested in 30 startups in the country. Some of them include Tiki, Vatgia.com, Vicare, Topica, Batdongsan, Vexere, CleverAds, and NhacCuaTui. 

Luxstay has been the latest startup that received CAC’s second round of investment following the first round in 2018.

Many startup ideas and startup companies have been charming enough to investors, who have accepted to spend a lot on them while forgiving also a huge loss worth up to billions of dong to be made in the first years of these startups’ life.

Losses, meanwhile, are seen mostly in those operating in the e-commerce field and many investors have seemed to be throwing away their money on this.

Tiki making VND1.2 trillion ($52.2 million) losses over the course of three years is one of these examples. Regardless of being one of the top 5 e-commerce platforms in Vietnam, the business could not save itself from the loss making fate. Tiki’s accumulated losses in 2016 and 2017 were respectively VND179 billion ($7.78) million and VND282 billion ($12.26 million).

In 2018, Tiki’s losses mounted up to VND757 billion ($32.91 million). The company, nevertheless, continued to receive funding from Vietnam’s VNG Corporation and Chinese e-commerce company JD.com. Tiki is also believed to be calling for $100-million investment from Korea this year.

Taking losses in startups as a given in a bid to foster their growth and making alarming losses from one year to another could be treated as two different things.

“I have been advised by shark Dzung to dream big. Having a long-term vision and building a business with outstanding products to meet the need of society and to change customer habit are thus considered the biggest targets of any startups,” said CEO of Luxstay Steven Nguyen.

Making losses, in this case, would not be of utmost concern to investors. A real battlefield will often see the contenders showcasing their best skills and strengths, and it is the same for investors who spend a lot on startups to set up the ground and a competent team to conquer the market.

“Venture capitalists understand that the game with startups is a lengthy one to play. Accepting losses is thus an established fact. Controlled losses at a company that is growing, in this case, should not be overseen as failure as investors and the company are looking forward to the same goal of development in the future,” Dzung said.

According to Dzung, his method to invest in a tech startup starts with 3Ps and 1C, which are place, people, product, and competitive advantage. These correspond to market size, project team, products, and competitive advantage edges.

Of these, the human element is highly appreciated by Dzung, as he desires to invest in people, in big dreams, and from there he will create valuable companies and change the market game.

Once decided to go ahead with an investment, it is not the short-term profit that investors will look at, but the long-term value and the big profit in the future that will be of concern.

“It comes down to investing in human capital. We can change the business model or the products but not the people. The founder of a startup is the soul of the company. If we change the founder, the company will become a new identity,” noted Dzung.

“Tech startup startups often have a say of ‘winners take all’. So it all depends on them to either run fast or fall behind.”