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Nguyen outlines Vietnam opportunity for IDG Ventures

Following AVCJ’s coverage of the appointment of Henry Nguyen (Hoang B. Nguyen) as Managing Partner of the IDG Ventures Vietnam Fund (see AVCJ August 23), Nguyen responded with more comments on what he sees as the venture opportunities in this little-explored market. With a population of over 82 million, nearly 30% of them under the age of 14, and a fast-growing and increasingly open economy, Vietnam holds great promise for the future, but has hitherto been almost entirely under the VC industry’s radar. Nguyen shares his thoughts on being first mover in such a market, and on IDG Ventures’plans and expectations there.

Market potential and market maturity

“IDG is looking for opportunities here that fit into its investment thesis”, Nguyen explains.”As with our other funds worldwide, our focus will be in technology-namely IT, software development, hardware, telecommunications, and biotech. This experience will be critical for a market such as Vietnam” “The market here holds significant potential, particularly in its human resources and rapidly growing technology needs,”he adds.”The people here are extremely energetic and hard-working, with tremendous intellectual capacity. Furthermore, the government’s interest and support in developing the knowledge economy is strong.” However, Vietnam’s relative economic immaturity requires a different approach to investing, with a far wider focus than usual.”IDG will be a significantly more active investor than usual in managing all of our portfolio companies in Vietnam. We will have to play a major role in developing the technology market, as well as the general investment environment. Venture and private equity investments are still relatively novel in Vietnam, so IDG will devote a significant amount of resources to educating the market”

Government, regulations, and virgin territory

Nguyen makes a forthright assessment of the governmental and policy environment his new fund is entering. “The legal and regulatory framework for venture capital investment in Vietnam is still a work in progress, “he explains. “ As a trailblazer in the field, IDG will have to help shape the laws and regulations in order to create a favorable environment that attracts other future investors…which will be critical for the growth of the technology sector and overall economic development in Vietnam.” “One specific regulation that presents a significant obstacle currently is the 30%limit on foreign ownership in Vietnamese enterprises, “he adds. “ While there are certain exemptions to this rule – many in technology related sectors – this is a significant impediment for follow-on investments, and impedes the future flow of capital for enterprises that need it. Furthermore, certain regulations also impede the easy movement of capital in and out of the market, which also makes many investors hesitant to deploy capital here.” Nguyen highlights specific sectoral issues that affect IDG’s preferred areas of investment.

Vietnam’s telecommunications sector is similar to other developing market: “It is still highly regulated area where there are limited opportunities for foreigner investor to participate. Thanks to agreements such as the BAT between the US and Vietnam, and the milestones set out in Vietnam’s WTO accession, the market is beginning to open up. Although the progress here has been slower than we would like to see, with many of the milestones still ambiguous, we remain optimistic. “In IT, however, “the environment is far more encouraging. The government and many of its regulatory bodies have identified such, the authorities have done much in the way of laws and regulations, as well as creating other incentives to fuel local and foreign investment.”

Challenges and winning

Nguyen is positive in the face of the obstacles. ”IDG Ventures is excited at the opportunity we have to play a significant role in shaping the development of the technology sector in Vietnam as we have in other markets such as China. This is by no means a small challenges.” He gives the government credit for, working diligently towards creating an environment that is the beneficial for business and investors. In addition to changes to laws and regulations, this includes the development of the public equities market, and greater visibility in the accounting and finance of local operating companies.” Even allowing for a level playing field, Nguyen does not anticipate easy successes in Vietnam venturing. “Not all companies will be winners. This market is naturally competitive.” But his evaluation is still favorable. “We remain very positive in our outlook in making venture and private equity investments here, since the demographics and size of the potential market are so attractive.”