TOKYO — Startup valuations in Vietnam could fall 50% from their recent peaks as company founders adjust to a decline in venture capital investments, a partner in the country’s oldest private equity firm says.
Chad Ovel of Mekong Capital said during a recent visit to Tokyo that his firm sees a “massive opportunity” to profit from the change and is considering launching a new fund in Vietnam “maybe in next year.”
The value of startup deals in Vietnam was $95 million in the January-March quarter, down 56% from the previous year, according to DealStreet Asia, as higher interest rates and increasing global political turmoil held down activity.
Ovel predicted that over time, startup valuations in Vietnam could fall by 50% in some cases from their 2021 levels. With “less capital coming in from the VC community, the founders are more realistic in their valuation expectations,” he said. “No one’s accepting [the low valuation now], but sooner or later … maybe another six months, another 12 months, [they will].”
Mekong was founded in 2001 as Vietnam’s first fund focusing on investing in private companies. It has sine launched five funds, with the latest raising $246 million in 2019. It invests $10 million to $35 million per company, positioning it between early-stage investors who focus on Vietnam and bigger regional investors who operate across Southeast Asia.
“Regional VC funds, there was so much capital chasing too few opportunities in Vietnam that they were paying crazy valuations,” he said. “I can’t even explain, like eight times revenue or 10 times revenue … There’s too much easy money for too long, and the mentality has not shifted.”
Mekong has responded by maintaining its focus on consumer businesses promising steady cash flows and avoiding higher-priced tech investments. “We’re a very disciplined investor,” Ovel said.
One of Mekong’s investments — in the F88 pawnshop chain — has become the subject of scrutiny in Vietnam. This year, police raided F88 locations in more than a dozen cities and provinces as part of an investigation into allegations that staff extorted or overcharged borrowers, state media reported.
F88 posted a news article reporting that 10 employees were being prosecuted and that it was cooperating with authorities. “Individuals who violate the company’s regulations and the law will be held responsible before the law,” the post said. Mekong, which first invested in F88 in 2017 and said in March it was putting in another $20 million, has declined to comment on the case.
Ovel said Mekong has been working with consumer companies in which it invests to focus on improving existing stores rather than opening new ones.
Many companies are “having to shift from the old days where it’s just easy to grow every year, to a new kind of business model, which is to optimize and really improve all of their metrics like efficiency,” Ovel said.
“We’re using this opportunity to really get [the startups] leaner and stronger. And then when the capital starts flowing again, we go back to growth.”