Startups gaining investors’ attention and money over stocks

For Marc Djandji, head of Institutional Sales at Rong Viet Securities, who has just joined accelerator programme and seed stage fund VIISA as entrepreneur-in-residence of its FinTech Lab and Accelerator Program, the local startup space is gaining not only his attention but also many other investors.

“I definitely interested in what’s going on in the private sector in Vietnam, and particularly in the startups space or early-stage companies because I feel that the opportunities that the country has to offer aren’t necessarily reflected in the stock market which is what I do on my day jobs and for the last close to 15 years now,” said Djandji on the sidelines of the Vietnam Venture Summit 2019 held on Monday in Hanoi.

“So when I look at listed companies, there’s a handful of really attractive companies and unfortunately for my clients, out of those that are interesting they have already reached the foreign ownership limit and so foreigners would have to pay very high premium for those companies so it’s not very attractive,” he added.

The opportunities on the stock exchanges, as Djandji noted, are limited, not limited in term of size and growth opportunity but limited in term of number of companies that are of interest to investors.

Out of around 1,400 companies listed, some 80 per cent of them are state-owned and many still have a large government ownership with rather poor transparency, no improvement in terms of management and innovation. Merely 10 companies out of the total make up for nearly 60 per cent of the total market cap and the rest are small to very small companies.

Nevertheless, Vietnam, according to Djandji, has a lot to offer with key drivers supporting the economy and business including the demographic, the growing middle class, and the rising urbanisation, manufacturing and export as seen over the years.

“So right now I see lots of opportunities in the startups space, in the private space, in the early-stage companies and companies that are using technologies to enhance their business model,” Djandji told TheLEADER.

The country, meanwhile, has a whooping number of smartphone users, which believe to amount up to over 70 per cent of the total 143 million mobile connections. 35 per cent of the population, in addition, are millennial or those who are tech-savvy.

As technologies are all available and the number of users is steady, it is an ideal environment for local startups to leverage and cultivate their products to cater to the young population as well as the need of the whole nation that is craving for a tech-driven economy and society.

In the entrepreneur-in-residence’s eye, the local startup ecosystem is possible getting the government supports and human resources it needs to grow bolder and bigger in the near future. Yet the supports are not exactly well-connected, in terms of the collaboration between relevant ministries to all promote the development of startups themselves and the entire ecosystem.

Certain limitations must be addressed, including making it easier for startups and investors to set up a business in general, as red tape still exist and procedures are complicated enough to bar potential businesses from having their establishment.

How startups get funded is also another issue here and there is a massive gap on who is able to raise money and who is capable of getting access to the capital and who is not, as Djandji noted.

Banks would not give startups or entrepreneurs a loan unless they have land or a house to mortgage off and calling for investments is never be easy. With the current securities law that does not allow innovative companies, which are not making money, to list or IPO, startups are not able to raise money through the stock market.

“Amazon, the largest company in the world, would not have been able to list if it were the Vietnam story. So that’s the problem,” said Djandji, adding that it depends on how the country would find a way to help companies or startups to IPO even if they are not profitable in the initial stage.

Supporting startups should thus be done on multiple fronts, which involved not only the Ministries of Information and Technology, and Planning and Investment but also Ministry of Finance and the Securities Commission to sit down and start thinking about solutions, he suggested.

According to Singapore-based management consulting firm Bain & Company, government initiatives have played an important role supporting venture capital and vibrant start-up centres.

Following other regional countries, in 2016, the government of Vietnam announced its legal and financial support to 2,600 start-ups over the next 10 years through its accelerator, Vietnam Silicon Valley.

Indonesia and Vietnam, meanwhile, generated 20 per cent of the region’s private equity deal value over the past five years, and that percentage is likely to grow.

A recent Bain & Company survey showed nearly 90 per cent of investors said the hottest Southeast Asian market outside of Singapore in 2018–19 will be Indonesia and Vietnam.