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How ThinkZone Ventures created a ‘pureblood’ US$60M Fund II by tapping into local resources

Vietnam-focused accelerator-cum-VC fund ThinkZone Ventures recently hit the final close of Fund II at US$60 million and joins a small number of local VCs established based on a government Decree of 2018 concerning investments in local startups

The unfavourable prospects due to the COVID-19 crisis forced ThinkZone to tweak its strategy and tap into local conglomerates' funding sources

The story was first published on e27

Vietnam-focused accelerator-cum-VC fund ThinkZone Ventures recently hit the final close of Fund II at US$60 million, dedicated to startups from pre-seed to Series A with cheque sizes up to US$3 million. With this, it joins a small number of local VCs established based on a government Decree of 2018 (concerning investments in local startups).

“This is a typical example for other local VCs to follow suit,” said Dung Tri Tran, Programme Manager in Hanoi & Central Region at Swiss Entrepreneurship Programme (Swiss EP) Vietnam, a partner of ThinkZone since its early days. “The ThinkZone team showed a strong focus and resilience in the lengthy but noteworthy one-year fundraising process of Fund II amid the devastating pandemic.”

Fully backed by Vietnamese investors
Against the pandemic headwinds, ThinkZone Ventures Founding Partner and CEO Do Bui admitted that his team had to tweak strategies several times before officially securing funding from all Vietnamese Limited Partners (LPs). “We first tapped into the abundant funding sources outside of Vietnam,” said Bui. “However, persuading foreign investors, who have limited hands-on experience of the local startup ecosystem, to inject millions of US dollars into a far-away fund wasn’t easy, especially only through Zoom calls and online discussions.”

The unfavorable prospects urged ThinkZone to pivot and tap into the local resources. Vietnam’s conglomerates, especially those who have been its long-term partners, turned out to be the silver lining.

“Every investor, be it foreign or local, has money. They all expect high returns,” Bui said. “But Vietnamese startups, most of them are solving local problems, will benefit from business synergies with local LPs.”

For instance, Phu Thai Holdings Group, whose Chairman Doan Pham has also been serving as Chairman of local VC fund BK Fund (a partner of ThinkZone Ventures) since 2020, joined ThinkZone Fund II as an LP. The group owns more than 30 businesses across distribution, retail, logistics, investment, and education.

In combination with other LPs’ businesses in F&B, medicine, finance, and foreign trade, these diverse ecosystems provide ThinkZone’s portfolio startups with headroom to validate business models and scale across the country. Moreover, with the support of IPA Investments, an experienced player in the Vietnamese public market, ThinkZone Fund II can foster startups from seed through to exits with larger M&As and IPOs.

“What I have always been contemplating is how to leverage my company’s resources. Learning from startups is one prominent pathway,” said IPA Investments CEO and VNDIRECT Chairwoman Huong Pham. “As Vietnam is developing exponentially, our next-gen founders are having the upper hand to startup and enjoy greater opportunities in the market.”

Fund II even hit the jackpot by partnering with corporations in traditional sectors such as plastic and packaging. They include Stavian Group, owner of Vietnam’s top polymers distributor Stavian Chemical.

“Venturing into tech startup investments serves as an extended arm for traditional businesses without hefty in-house R&D while still leveraging lucrative exit opportunities,” Bui explained. “By putting money in a reliable local fund, they can also optimise portfolio management cost and efficiency, enjoy larger cross-industry support for their startups from a group of different LPs, and then exert a larger impact on society.”

With this, ThinkZone Ventures believes it is primed to provide significant added value for local startups, making it an ideal addition to any potential investment deals joined by other foreign VCs. In addition, by utilising Vietnam dong (VND) as the sole investment currency, a local VC firm can deploy its funds with better timings and flexible investment structures.

From an accelerator to a top-notch VC firm
Launched in February 2019 by Do Bui, a serial entrepreneur, ThinkZone has grown from an accelerator to become a prominent VC firm with an impressive portfolio of high-growth startups. Its investments include earned-wage-access (EWA) startup GIMO, fresh food-to-table platform FoodHub, online ride-hailing platform EMDDI, English teaching startup Educa, and social commerce platform OnGroup. ThinkZone also runs Innovation Lab, a training programme for startups and corpoprations.

With 13 deals in 2021, ThinkZone Ventures is one of the most active investors in Vietnam, as per data compiled by Tech In Asia. The firm has consistently formed partnerships with international partners, including AWS, Hubspot, Deloitte., and especially the Swiss Entrepreneurship Program (EP). Funded by the Swiss government, Swiss EP provides the accelerator with capacity-building support through international entrepreneurs-in-residence (EIRs) and experts.

“Swiss EP’s support left its mark on our accelerator development as it connected us with an experienced head of accelerator, international business lawyers, and startup mentors throughout the years,” Bui stated. “This enables meaningful networks within the local and regional ecosystems, especially in terms of public-private partnerships pilot programmes to boost local innovative businesses and technologies.”

This year, ThinkZone Fund II plans to invest up to US$200,000 each in companies at the idea stage. It also has the resources to join their follow-on rounds,

In a bid to arm its portfolio startups with the necessary networking opportunities, product and business development mindsets and financial management capabilities, Fund II will allocate 20-30 per cent of its total capital to the accelerator programme.

Its investee GIMO, for instance, presents ThinkZone’s typical well-rounded support for a portfolio company. Having joined ThinkZone Accelerator Batch 3 in 2020, GIMO managed to fulfil its co-founding team, receive initial capital and seed funding in 2021, and access important resources, including lending capital.

“GIMO aims to make digital financial services accessible for underserved blue-collar workers in Vietnam through EWA model. Sustainable and low-cost sources of funds will help us to realise our vision better,” said its Co-Founder and CEO Quan Anh Nguyen. “ThinkZone Ventures has made this possible with support from its network of investors and partners.”

To date, GIMO claims to have provided on-demand pay to nearly 100,000 workers, primarily in the manufacturing and retail sectors. The number of beneficiaries has also grown 130 per cent monthly, the company claimed when it raised US$1.9-million seed funding. The startup has also been accepted to Silicon Valley-based Y Combinator Winter 2022 Batch.

To put regulations into practice
Since 2019, ThinkZone has taken the plunge to join various formal and informal platforms to help improve Vietnamese regulations, including the revision of Decree 38 — the legal framework behind establishing local VC funds, such as ThinkZone Ventures’s Fund II and BK Fund.

“This February, ThinkZone and Swiss EP joined a discussion with Enterprise Development Agency and National Innovation Center [both under the Ministry of Planning and Investment of Vietnam] to identify 15 points of adjustments in Decree 38,” said Tran of Swiss EP. “We need more time and effort, but this is a change for the better.”

Despite paperwork hurdles, ThinkZone managed to break the mould and launch Fund II according to local regulations and international standards. Bui added that ThinkZone professionally formulated the fund structure with a limited partnership agreement (LPA), even when it is not required in the registration documents addressed in the Decree.

The agreement has clauses such as management fee, profit margin, promised performance, the commitment of General Partners, and decision-making processes for each investment level. However, Bui expressed his concerns over the true USP of the Decree.

“There are still unanswered questions down the road, and we haven’t seen a clear competitive advantage of forming a VC fund under the new regulation compared to that of our previous Fund I, which was run as an investment company,” said Bui. “However, ThinkZone is confident with what we have learned from international VC models’ best practices to apply it into the Vietnamese market.”

In the past, it was common knowledge that most new-formed VC funds chose an easier path of establishing their entities outside of Vietnam, mainly in Singapore, to enjoy favorable investment incentives and avoid regulatory roadblocks.

“We notice that there are plenty of veteran investors in the local startup ecosystem, but they are hesitant to communicate with policymakers to transform the present-day local investment landscape,” Bui added. “The responsibility doesn’t lie solely on the government. Private sector players also have a role and should be willing to invest money, understand regulations, give feedback, and in the end, contribute to the long-term development of the society.”