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Good Morning Vietnam! IDG Ventures Invests in Vietnam

7/13/05 IDG Ventures Vietnam, is a solid cornerstone in the global building blocks of IDG media titan, Patrick McGovern. It is, after all, a $3 billion IT media company, which includes IDC, the influential research and analysis division. McGovern is banking on Vietnam’s admission to the WTO and the hands-on management of a 31 year-old Vietnamese-American, Henry Nguyen, who heads up IDG’s $100 million investment fund to insure that Vietnam repeats IDG’s earlier achieved China success.

I interviewed the affable and youthful venture capitalist in IDG’s new modern offices with its customized Ikea-like furniture located on the 11th floor of the Sunwah building, just a block from the iconic Rex Hotel and a few minutes by motorbike from the Saigon River.

One of over a million frightened Vietnamese who escaped Saigon at the end of war in 1975, Nguyen, represents the best and brightest of the “Viet Kieu” or returning overseas Vietnamese. Many of them have returned to the New Vietnam thanks largely to the sacrifices of their family and opportunities presented in America. The energetic Harvard graduate also graduated from business and medical school at Northwestern University. “ The young people in Vietnam are smart and tech-savvy,” exclaimed Nguyen as we sat in their conference room.

Many people thought Pat McGovern was indeed crazy to have invested in China. But his instincts and business acumen have never failed him. The sage, if not exulted, McGovern has compared Vietnam to his China investment record. ‘We feel like Vietnam is at the stage at which we went into China in 1992,’ McGovern says. ‘A lot of people laughed at us then, said that there were no exits.’

In fact, IDG’s $150 million China fund invested in 120 portfolio companies and realized 30 exits, resulting in a 55% IRR. Those 30 Chinese investments were either sold or went public yielding a return of almost $600 million. Nguyen, like other enterprising investors is searching for the next big bright idea or venture. Arguably, the IDG Ventures Vietnam (IDGVV) fund is the first American technology venture capital fund in Vietnam. Its charter is to invest primarily in privately-held information-technology start-up companies. The fund is initially targeting young businesses in the areas of e-commerce, software, telecommunications, and IT. IDG announced two Hanoi-based companies: Peace Software Solution Company (Peacesoft) and the iSphere Software Company as its initial investments in the country. According to Nguyen, the fund receives on the average of 40-50 projects from companies weekly.

Out of almost 200 projects that the fund has received, IDG has selected several, including the two above projects. However, Nguyen didn’t reveal the specific volume of capital that IDG will invest in these software companies.
“Peacesoft has an information portal at www.chodientu.com and I believe it will be a leading company in e-commerce in Vietnam,” claims Nguyen. For Peacesoft, IDG’s capital will be used to develop its traditional products, expand the market, and carry out an e-commerce project called chodientu.com. Additionally, IDG Ventures, has made investment pledges in two other companies; VinaGame and VietnamWorks. Asians have responded to online games and VinaGame is Vietnam’s innovative online gaming company. With close to six million Vietnamese online the returns may prove promising. According to managing general partner, Henry Nguyen, “This is the largest investment IDG Ventures has made in Vietnam thus far.” Even Patrick Mc Govern, the Chairman of IDG supports the gaming market. “IDG sees online games as a much-needed stimulus, helping to generate demand for computer purchases and driving broadband adoption, both of which are crucial to the development of Vietnam’s IT and Telecom sectors.” VietnamWorks.com is the first job recruitment website in Vietnam. It assists companies to find qualified employees and also serves as as a placement agency.

Competitive Funds Bid for Select Investment Projects

Never mind that there several international investment funds alreading investing millions of U.S. dollars into businesses in Vietnam, offering bright prospects for domestic companies in need of capital. Investment capital for businesses is expected to further increase from five major international funds, including the Mekong Enterprise Fund (MEF), the Vietnam Opportunity Fund (VOF), IDG Ventures Vietnam, Dragon Capital and even Prudential. Meanwhile, Dominic Scriven’s Dragon Capital, a leading investment bank in Vietnam for over a decade, is currently seeking to identify more eligible companies or projects with its 200 million USD. Other Vietnam investment funds have enjoyed enviable success.

“The average revenue growth rate for our investee companies in 2004 was 28% so we’re happy with that. Our target is that our investee companies grow at around 30% per year and so far in seems we can meet that,” adds Chris Freund, managing director for Mekong Capital. Some industry deal makers in Vietnam, speculate that the all the recent fanfare associated with Prime Minister Phan Van Khai’s visit to America to meet with Bush, might lead to a false sense of blurred optimism about the reality of the marketplace and probably wil have negligible impact on private equity and venture capital opportunities in Vietnam.

After all, China is at least a decade ahead of Vietnam in most respects, and it also serves as an excellent barometer of what investment strategies will and won’t be successful in Vietnam.