MID-TERM ASSIGNMENT

INTRODUCTION TO VENTURE CAPITAL

Course: Principles of Finance

Class: TCH302E(1.1/2021).58CTTTTC.1

Hanoi – Oct 2020

2
 TABLE OF CONTENTS
PART I: INTRODUCTION ABOUT VENTURE CAPITAL.........................................4
I. Introduction...................................................................................................................4
1. Definition................................................................................................................4
2. History.....................................................................................................................4
II. Features......................................................................................................................5
1. Features..................................................................................................................5
2. Advantages vs Disadvantages................................................................................5
III. Stages of venture investment....................................................................................6
IV. Process........................................................................................................................7
PART II: VENTURE CAPITAL IN VIETNAM..............................................................8
I. Introduction...................................................................................................................8
1. Egroup....................................................................................................................8
2. Soya Garden...........................................................................................................8
II. Process........................................................................................................................9
1. Deal organization...................................................................................................9
2. Screening................................................................................................................9
3. Evaluation.............................................................................................................10
4. Deal negotiation...................................................................................................11
5. Investment activities.............................................................................................11
III. Target.......................................................................................................................11
IV. Current situation.....................................................................................................12
1. Current situation..................................................................................................12
2. Plausible explanation for the closure..................................................................12
V. Recommendations...................................................................................................13
PART III: CONCLUSION................................................................................................13
REFERENCES...................................................................................................................14

3
 PART I: INTRODUCTION ABOUT VENTURE CAPITAL

I. Introduction

1. Definition
- A financial Intermediary: an entity that facilitates a financial transaction between two
parties. Such an intermediary or a middleman could be a firm or an institution. Some
examples of financial intermediaries are banks, insurance companies, pension funds,
investment banks and more.One can also say that the primary objective of the financial
intermediaries is to channel savings into investments. These intermediaries charge a fee
for their services.
- Venture: A project or business activity that involves risk
- Capital: The money or fund needed in business

=> Venture capital is a form of private equity and a type of financing that investors
provide to startup companies and small businesses that are believed to have long-term
growth potential.Young firms with inexperienced managers often need considerable advice
in running their business in addition to financing. Venture capitalists help the management
team get the firm to the point at which it is ready to “go public”.

2. History
- Venture capital is a subset of private equity (PE). While the roots of PE can be traced
back to the 19th century, venture capital only developed as an industry after the Second
World War. 
- Harvard Business School professor Georges Doriot is generally considered the “Father of
Venture Capital”. He started the American Research and Development Corporation (ARD)
in 1946 and raised a $3.5 million fund to invest in companies that commercialized
technologies developed during WWII. ARDC's first investment was in a company that had
ambitions to use x-ray technology for cancer treatment. The $200,000 that Doriot invested
turned into $1.8 million when the company went public in 1955.
- ROLES WITHIN A VENTURE CAPITAL FIRM:
 Venture capital general partners: Also known in this case as "venture capitalists" or
"VCs" are the executives in the firm. 
 Limited partners: Investors in venture capital funds are known as limited partners. 
 Venture partners: Venture partners "bring in deals" and receive income only on
deals they work on. 

4
  Entrepreneur in residence: EIRs are experts in a particular domain and perform due
diligence on potential deals. EIRs are engaged by VC firms Some EIRs move on to
roles such as Chief Technology Officer (CTO) at a portfolio company.

II. Features

1. Features
- High Risk: Venture capital represents a financial investment in a high risk project with
the objective of earning a high rate of return.
Four types of risks
 Management risk - Inability of management teams to work together. 
 Market risk - Product may fail in the market. 
 Product risk - Product may not be commercially viable. 
 Operation risk - Operations may not be cost-effective resulting in increased cost
decreased gross margins.
- Equity Participation & Capital Gains: VC is an actual or potential equity participation
wherein the objective of venture capitalist is to make a capital gain by selling the shares
once the firm becomes profitable. 
- Participation In Management: Unlike the traditional financier or banker, the venture
capitalist can provide managerial expertise to entrepreneurs besides money to protect his
investment. 
- Long-term Investment: It generally takes a long period to encash the investment in
securities made by the venture capitalists.
- Lack of liquidity: 
- High-tech: However, a venture capitalist looks not only for high-technology but the
innovativeness through which the project can succeed.

3. Advantages vs Disadvantages
Advantages Disadvantages
- Opportunity for expansion of the - Dilution of ownership and control.
company. - Early Redemption by VC’s.
- Valuable Guidance and Expertise. - VC’s take a long time to decide.
- Helpful in building networks and - May require high Return on Original
connections. Investment.

5
 - No obligation for repayment. - May release the funds from time to time.

III. Stages of venture investment

Period Risk
Stages Name Activity
(years) Perception
For supporting a concept or idea
The Seed Stage
1 7-10 Extreme or R&D for product
(Seeding Capital)
development
The Startup Stage Initialising operations or
2 5-9 Very High
(Startup Capital) developing prototypes
The Early Stage Start commercials production
3 3-7 High
(First Stage Capital) and marketing
The Expansion Stage Sufficientl Expand market and growing
4 3-5
(Second Stage Capital) y High working capital need
The Bridge Stage
Market expansion, acquisition
(Mezzanine/ Pre-
5 1-3 Medium and product development for
public/ Late Stage
profit making company
Capital)

1. The Seed Stage

- Entrepreneurs convince investors that their ideas are viable investment opportunity.
- Funding amounts are small and used for things like marketing research, product
development, and business expansion attract additional investors in later funding rounds.
2. The Startup Stage
- Companies are ready to begin advertising and marketing their product or service.
- Companies need a larger infusion of cash to adjust their products or services, expand
human resources and conduct any remaining research necessary to support an official
business launch.
- The company has a prototype to show investors, but has not yet sold any products.
3. The Early Stage
- This stage coincides with the company’s market launch, when the company is finally
about to start seeing a profit.
- Funds go to actual product manufacturing, sales and increasing marketing.
- Funding amounts tend to be much higher to achieve an official launch.

6
 4. The Expansion Stage
- The company sees exponential growth and needs additional funding to keep up with the
demands.
- Funds are largely used to grow the business even further through market expansion and
product diversification.
5. The Bridge Stage
- Companies have reached maturity, so funds are used to support activities like mergers,
acquisitions, or IPOs.
- Investors choose to sell their shares and end their relationship with the company, often
receiving a significant return on their investments.

IV. Process
There are six steps involved in the process of venture capital financing
Step 1: Deal Origination
- For venture capital business, a stream of deals is necessary.
- There may be various sources of origination of deals: referral system, the active search
through networks, trade fairs, conferences, seminars, foreign resist, etc.
- Certain intermediaries who act as a link between venture capitalists and the potential
entrepreneurs, also become a source of deal origination.
Step 2: Screening
- Venture capitalists undertake preliminary scrutiny of all projects on the basis of certain
broad criteria (technology, product, market scope, size of investment, geographical
location, stage of financing,…)
Step 3: Evaluation
- Capitalists start a detailed evaluation of the proposal, they still undertake thorough risk
analysis of the proposal.
- After considering in detail various aspects of the proposal, venture capitalists take a final
decision in terms of risk return spectrum.
Step 4: Deal Negotiation
- If the venture is found viable, capitalists negotiate the terms of the deal with the
entrepreneur, which include amount, form and price of the investment.

7
 - Terms of the deal should be mutually beneficial to both venture capitalist and the
entrepreneur. It should be flexible and its structure should safeguard interests of both the
parties.
Step 5: Post Investment Activity
- When the deal is financed and the venture begins working, capitalists associate
themselves with the enterprise as a partner and collaborator.
- Capitalists do not meddle in the daily working of the enterprise, it intervenes when a
financial or managerial crisis takes place.
Step 6: Exit Plan
- The last stage of venture capital financing is the exit to realise the investment so as to
make a profit or minimise losses.
- Capitalists make exit plan, determining precise timing of exit that would depend on
various factors.

PART II: VENTURE CAPITAL IN VIETNAM

The Venture Capital industry in Vietnam has been developing since 2004, with the
establishment of IDG Ventures Vietnam (IDGVV), founded by Patrick McGovern,
Founder and Chairman of International Data Group (IDG). Between 2004 and 2013,
IDGVV invested in 42 portfolio companies, spread across a wide variety of industries. The
Venture Capital industry in Vietnam has gone through 15 years of development. In this
period, as the market grew, so have the VC funds. From only a handful of funds, there are
now more newcomers than ever, actively investing and nurturing startups all over the
country. 
For example, we are familiar with Shark Tank. In Shark Tank, Soya is regarded as the
most successful case for Venture Capital financing with up to 20 billion.   

I. Introduction

1. Egroup
 Egroup Education Group Joint Stock Company, an Education Technology company in
Vietnam , with its head office located in Hanoi. the founder and Chairman of the Board of
Directors is Mr. Nguyen Ngoc Thuy. After 10 years of operation, Egroup, under the
leadership of Shark Thuy, has emerged to become a large corporation specializing in

8
 financial investment, education and technology with a charter capital of 962.5 billion
VND.

4. Soya Garden
a. General information:
Soya Garden Joint Stock Company, formerly known as Omotenashi Company Limited, is
now a member company of Egroup Group. With the desire to provide customers with
another choice besides Tea and Coffee, Soya Garden is the first store chain specializing in
non-GMO organic Soybean products, certified by USDA Organic. Highest Organic
Certification by the US Department of Agriculture

b. Before participating in Shark Tank:  

- Charter capital (when starting company): 3 billion VND 
- Market scope: Soya Garden had 11 stores in the Northern area. 
- Revenue: 
 Estimated to December, 2017 was 7 billion VND 
 Gained 250-300 million VND/month, 8-10 million VND/day 
- Profits: trivial due to huge operating costs 
- Franchise price: 150 million VND/franchise, gives the company 5% of the revenue 
- Cost of goods sold accounts for 23-25% of expenses, estimated at the end of the month on
balance sheet 
- Target when participating in Shark Tank: to call for 10 billion VND for opening 5 stores in
the Southern area and 5 billion VND for marketing, branding, product research.

V. Process

1. Deal organization
- The source of deal origination: Shark tank 
- Shark tank plays the role as a intermediary: acting as a link between the venture
capitalists and the startup company Soya Garden 

5. Screening
On Shark Tank: 5 venture capitals with 5 representatives consider the general information
provided by founders from Soya (info above) in terms of:

- Long-term vision: expand the branch

9
 - Urge to grow managerial skills
- Business orientation: Provide customers with another choices besides tea&coffee
- Product: the first non-GMO organic soybeans in Vietnam
- Marketing: targeted customers: female office staffs, 22+ aged, interested in healthy diet
- Finance
 Charter capital (when starting company): 3 billion VND
 Market scope: Soya Garden had 11 stores in the Northern area.
 Revenue:
o Estimated to December 2017 was 7 billion VND
o Gained 250-300 million VND/month, 8-10 million VND/day
 Profits: trivial due to huge operating costs
 Franchise price: 150 million VND/franchise, gives the company 5% of the revenue
 Cost of goods sold accounts for 23-25% of expenses, estimated at the end of the
month on balance sheet
 Target when participating in Shark Tank: to call for 10 billion VND for opening 5
stores in the Southern area and 5 billion VND for marketing, branding, product
research

6. Evaluation
- Risk analysis: 
 Product analysis 
 Market analysis 
 Technological and entrepreneur risk 
Risk S Vuong  S Thuy   S Phu  S Linh  S Hung 
Analysis 
Product      Easy Cost of the  
copy  products should
be higher 
Market           
Entreprenuer   Financial Financial     Business
statement is activities are not orientation is not
not clear  under control  appropriate 

10
 Final decision: only 1 venture capitalist invested: S. Thuy 

7. Deal negotiation
- Shark Thuy agreed to invest with several compulsory conditions: 4 billion VND for 45%
of the company stocks and 11 billion will be invested under the form of corporate bonds.
After 2 years, if the company reached the KPI required, 11 billion VND of corporate bonds
would be exchanged to company stocks. If not, the company would have to pay back the
corporate bonds to the investor.   
- After a successful negotiation, Soya Garden entered a stressful valuation. At the due
diligence period, convinced by the potential of the soybean market in Vietnam, the
business plan, the passion and determination of the startup, shark Thuy signed the
agreement with Soya Garden in which he would invest 20 billion VND instead of 15
billion VND as committed on Shark Tank. The increased investment also meant that
Egroup held more Soya’s stocks than the number mentioned on the TV show; however; the
number was not publicized. 

8. Investment activities
- After being invested 20 billion VND in the period 1, Soya Garden opened 50 stores
including 30 stores in the Northern area and 20 stores in the Southern area 
- At the beginning of 2019, Egroup continued to invest 45 billion VND. In April, 2019,
Egroup Group announced an additional investment of 55 billion VND, bringing the total
investment to 100 billion VND. This made Soya Garden one of the biggest investment
deals in Shark Tank Vietnam ever. 
- Besides capital, shark Thuy also connected the startup with competent people in the F&B
field, helped Soya Garden co-operate with Singapore's leading partner - Mr. Bean Group
Limited. 
- Soya Garden had grown over 1500% after 2 years participating in Shark Tank 

VI. Target
With the above capital, Soya Garden had ambition to open 300 stores by 2021 and "export"
to markets in the region of Korea, Thailand, Japan ... Former CEO Hoang Anh Tuan
confidently affirmed that in the near future, Soya Garden would become a leading
technology company in the F&B field in Vietnam.  

11
VII. Current situation

1. Current situation
- Although the goal has not been reached, Soya has had to face up with a lot of challenges.
Recently, many branches of Soya Garden in Hanoi and Ho Chi Minh city have been closed
such as branches on Pham Ngoc Thach street, Le Thanh Nghi street, Tran Dang Ninh
street,... On 1st September, it was officially that CEO Hoang Anh Tuan was no longer the
legal representative of the firm and  Ms Nguyen Thi Ngoc is now the manager of Soya
Garden. The head office has also been changed from 19 Hoa Bang, Cau Giay to 219,
Trung Kinh, Cau Giay.  

9. Plausible explanation for the closure

- Many people assumed that the closure was due to COVID-19 and Soya Garden
has beengoing bankrupt. Explaining the reasons why half of the stores were closed, Hoang
Anh Tuan, the CEO at that time said that it was an act of corporate restructuring,
eliminating inefficient stores and retaining stores with good sales and locations to optimize
revenue and cost. Additionally, he also had the plan to transform from prioritizing the
development of large stores to kiosk - small stores, implementing digital transformation to
focus on selling online. “Like all F&B chains, Soya Garden was hit hard by the Covid-19
pandemic. On the positive side, however, the Covid-19 resembles a necessary strong
punch, prompting me to speed up the paradigm transition.” Through extensive analysis, the
perspective of Nguyen Tien Trung and Trinh Minh Giang- former mentors of Soya Garden
on the above issue is quite close and thorough. According to them, there are many reasons
contributing to the closure and the venture capitalist is also a factor.  
 The fact that Shark Thuy holds a too high percentage of shares, while founders only keep a
small part, will make founders no longer enthusiastic and difficult to drive the 'boat' the
business in the direction they want. 
 The pressure of investors to spend money is also huge. When receiving from VND 20
billion to VND 100 billion, founders are forced to continuously open new stores to
disburse money.
 Many stores do not reach the KPI.
- However, these former mentors also think that closing half of the stores is a smart move of
Soya Garden, helping the firm to reduce losses. Soya Garden has acted quite quickly,
because with the high operating costs like the large-area stores of this startup, the sooner
the store closes, the better.  

12
VIII. Recommendations
- Venture capital should not take (more than a half) too many company stocks,
because investors holding too much company stocks (>50%) will affect start-up founders’
motivation.
- Besides investing money, venture capitalists also need to focus on supporting startups in
terms of human resources management, branding, as startups often lack experience in
developing the firm. If venture capitalists just invest money only, there is a possibility that
the startups will not use the capital efficiently.
- Investors should not invest significant investments in a short amount of time, which puts a
lot of pressure regarding market expansion on founders. When a start-up expands too fast,
founders and management teams do not have sufficient time to prepare good procedure,
manageable experience.
- Focus on long-term (core value) instead of short-term (profit). Expansion should go
together with Quality.

PART III: CONCLUSION

Lessons learned for investors and startups:
Despite certain challenges, the future remains bright and prospective for Vietnam’s VC
industry to continue blooming. 
Fortunately, there are already promising signs of more capital being put into funding
startups and educating the local workforce to become more in-par with the regional
standard. 
Nowadays, there are more and more startups in Vietnam, many of which are very potential
to thrive not just in Vietnam’s market but also in the worldwide’s market.

13
 REFERENCES
James Chen (2020). Venture capital. [onlie] Investopedia.com. Available at:
https://www.investopedia.com/terms/v/venturecapital.asp

Duane Morris (2020). Opportunities for Startups and Venture Capital Investors in
Vietnam: An Interview with Hoang Minh Duc, Special Counsel. [online]
vietnamstartuplaw.com. Available at: https://vietnamstartuplaw.com/opportunities-for-
startups-and-venture-capital-investors-in-vietnam-an-interview-with-hoang-minh-duc-
special-counsel-duane-morris/

Long Leo Pham (2018). An Overview of Vietnam’s Venture Capital Industry. [online]
medium.com. Available at: https://medium.com/datadriveninvestor/an-overview-of-the-
venture-capital-industry-in-vietnam-1056a03a650

Suraj B Gupta (2020). Process of Venture Capital Financing: 6 Main Steps. [online]
yourarticlelibrary.com. Available at: https://www.yourarticlelibrary.com/financial-
management/venture-capital/process-of-venture-capital-financing-6-main-steps/72037?
fbclid=IwAR0zqXZyndkuogTN5XVu31Y6-k_ywcaLoOfEATsVmlLWanSej--YaM4YdWY

EduPristine (2017). Venture Capital. [online] edupristine.com. Available at:

https://www.edupristine.com/blog/venture-capital?
fbclid=IwAR3rO5H9IYTdTCtk6Hk_f6zOkWQj6PCX4fvrOk4LeU8SQidQiPTB6jaSHf0

14