Silicon Valley's 500 Startups starts fund in growing Vietnam

Bloomberg

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Flappy Bird. Photo: AFP Flappy Bird. Photo: AFP

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500 Startups is starting a $10 million fund dedicated to Vietnam as the Silicon Valley venture capital firm founded by Dave McClure backs more of the country’s technology startups.
Growing Internet use by its young population, where the number of mobile phones exceeds the number of residents, provides an attractive bet in the nation that gave rise to the Flappy Bird gaming phenomenon in 2014, said Binh Tran, a partner at 500 Startups. The firm has already backed e-commerce and messaging apps in the country through another fund focused on Southeast Asia.
Vietnam, home to 90 million people, is drawing interest from venture capitalists targeting companies that seek to capture consumers in the emerging middle class, aided by an economy growing at more than 6 percent annually. With more than half the population online, the country’s technology talent make it a particular draw.
“There are a lot of the main ingredients here that make it attractive,” said Tran, a co-founder of Klout Inc. “You have low-cost, high-tech talent, engineers and coders who are able to build and develop products as well as their counterparts in Silicon Valley who work at Google and Facebook, for a fraction of the cost.”
E-commerce, learning
E-commerce, language-learning and price comparison startups will be among the first companies to get seed funding and the firm plans to invest in as many as 150 companies, providing checks of as much as $250,000, he said.
500 Startups is entering a market where DFJ VinaCapital has been the highest-profile Silicon Valley venture capitalist. The $30 million fund, established in 2007, is managed jointly by Draper Fisher Jurvetson, a Menlo Park, California-based firm, and VinaCapital Investment Management Ltd.
Few, if any, venture firms are looking to make seed-level investments in Vietnam’s tech sector, which is the model for 500 Startups, McClure said.
“People think we are crazy, but we look at the numbers and feel it is a great opportunity,” McClure said by phone. “The cost of failure is fairly low. If we are investing in 100, 200 companies we are going to find wins 20 percent of the time, big wins. It’s sort of like fishing in a barrel full of Koi.”
Vietnamese immigrants, many from Silicon Valley, are returning to invest in companies that can take advantage of the country’s large population of young people and its ability to produce software for markets such as the U.S., he added.
Increased funding
500 Startups has $240 million of assets under management, said Eddie Thai, another partner who is based in Ho Chi Minh City. The Mountain View, California-based company is looking to raise $200 million for its fourth global fund after closing its third one in September with $85 million.
The firm has invested in 1,500 companies across more than 50 countries since 2010.
The new focus on Vietnam comes as 500 Startups doubles the size of its fund targeting Southeast Asia technology startups to $20 million. That fund backed eight Vietnamese startups, including e-commerce, messaging and online ticketing businesses, it said in November.
“They have great tech talent here,” Thai said. “We want to raise their awareness on how to start a business, raise money, improve their products and really blow out their customers.

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