Mekong Capital: What This Private Equity Firm Looks For In Vietnam Rise

Launched in 2001, Vietnam-based private equity firm Mekong Capital has led investments in industries that have transformed some of Vietnam’s most iconic companies such as MobileWorld, which owns the Thegioididong and DienmayXANH brands, and Golden Gate, one of the leading restaurant chain operators in Vietnam. MobileWorld debuted on the public markets with a successful IPO in 2014. The company now has more than 20,000 employees and a valuation approaching $1 billion.

In our search for the influencers of the new Vietnam, we met Chris Freund, the founding Partner of Mekong Capital. We sat down with him to learn about his vision for the new Vietnam and to understand what Mekong Capital looks for in future investments.

After a backpacking trip through Vietnam, Chris fell in love with the country and decided to hang his hat here. A rare sight even for that time in Vietnam. Over 20 years later, a feat of strength for any foreigner living in Vietnam, he’s managed to help build some of the most iconic companies in the new Vietnam.

In your ideal vision, what will Vietnam look like in ten years?

Based on my experience over the last twenty years in Vietnam, there will be more entrepreneurial activity and it’ll start at increasingly younger ages. Most future companies will be founded by entrepreneurs. State owned enterprises will become smaller and will be bypassed by entrepreneurs. There’s a special spirit and energy here. And it will continue for the years and decades to come. And because of the internet, global integration and modernization will be much faster in the next few years. Business practices are rapidly catching up with global standards. It’s still far behind, but catching up. The only thing holding back Vietnam is the lack of existing resources. Vietnam is coming from far behind. Fast forward ten years, the gap will narrow considerably. Mekong Capital focuses on food and beverage, fast moving consumer goods, and retail, among other industries. While most of the companies we meet are behind on global best practices, it’s getting better with every passing year.

The one big missing piece in Vietnam is that there are not that many serial entrepreneurs who have set up multiple, legitimate businesses. The ones that really know what they’re doing. Most entrepreneurs that we meet are still on their first business.

What is your bread and butter investment philosophy?

As a private equity firm, we invest in proven business models. We specialize in organizing management teams to grow the business to new levels. The number one issue is always the management team. After thirty investments, we know that there’s a strong correlation between the management team and success. Two of our most successful portfolio companies, Golden Gate and MobileWorld, have grown sustainability because of the team. Other less successful companies didn’t have a strong team.

In your experience, what factors make up a strong team?

Are the founders truly invested in the continual development of the team? Recruiting, investing in new capabilities and resources, human capital. Training and career development in team members. If there’s a pattern of these sorts of factors before we invest, it makes us much more confident in the company. Has the team set clear long-term goals? Are they organized around those goals? Is there a culture of accountability and do they tolerate people who don’t deliver results? There should be zero tolerance for team members who make excuses for why they can’t fulfill their commitments.

Moreover, is the core team 100% committed to the business? Is there more than one engaged founder? For example, MobileWorld has five co-founders and each contributed significantly. They are successful because of each founder’s contribution. In the early years of MobileWorld, there were lots of disagreements but they were healthy disagreements. It pushed them to new levels of business performance. You don’t get that in single founder companies. Single founder companies won’t see blind spots. Communication and clarity is key.

Are there any up-and-coming Vietnamese brands that are capable of reaching the international stage?

I’m probably too biased to answer this question genuinely. But Marou Chocolate is a great example. It’s the world’s best chocolate. I have no stake in it, other than the fact that I live in Vietnam. Marou is a validation of Vietnam’s ability to produce high quality global products. Pasteur Street Brewery is also another brand, though full disclosure I have a personal share in that business. The brand has won gold medals in regional and international beer competitions.

The challenge for most Vietnamese businesses is establishing and maintaining global business best practices. Bread and butter practices like inventory forecasting, management, supply chain, and pricing. These are global best practices that many of Vietnam’s businesses have yet to implement to a global standard. That’s good news in many ways. It means that there’s improvement and room to grow.

What is Mekong’s largest investment to date? What is Mekong most exciting?

MobileWorld is our largest return to date. In regards to what is our most exciting, I can’t pick a specific company. Recently however, one of our portfolio companies, the Vietnamese Australian International School (Viet Uc), has broken through to a new level that is worth highlighting. Since we’ve made our investment, the product quality and offering has dramatically improved. Classes are in both English and Vietnamese. They’ve implemented overseas standard levels of curriculum too. It’s evolved into a dual-curriculum school. The quality of campuses and services have increased. Their newest campus is on the same level of the best international schools here. But they are much more affordable. It’s been fun witnessing the transformation of that business. That’s the fun part of private equity. If it goes well, we know that we contribute to their success. There’s a nice sense of fulfillment.

What investment verticals are you most excited about in the next ten years?

We want to stick with our bread and butter. There are many kinds of retail, food and beverage, among other industries that haven’t reached their potential in Vietnam. We’re also impressed with verticals that have taken time to step up their integration efforts with online channels. MobileWorld for instance sees about 7% of their sales come from online. They have strong integration and offer features like 30-minute delivery nationwide. Though ultimately it’s still a traditional business model. And those models in Vietnam won’t change very much. At least in the sectors we focus on.

Is it important for a private equity investor to have operational or founder experience?

Over our sixteen year history, we’ve tried a lot of things to build our investment team. The best way to grow talent is by developing people from within. The skillset for private equity is very specific. When we recruit from the outside, candidates usually share similar skillsets or come from a comparable private equity firm. If we recruit from other industries or from a pool of entrepreneurs, we find that there are too many pieces missing.

You studied Buddhism and Religious Studies as a university student. How has it influenced your personal and professional lifestyle?

From the time I set up Mekong Capital from 2001 to 2007, it had no influence on me. Starting in 2008, when we began our corporate culture transformation efforts, we took a serious look at what wasn’t working. We started to actively explore outside ideas. Some of these efforts we were trying were similar to Buddhist teachings. In fact, we even invited various monks to speak about Buddhist ideas. It has set the tone in our company culture in many ways.

Why did you pick to live and work in Vietnam?

In 1992, I lived in India for a period of time to study Buddhism. Afterward this experience, I took off some time to travel. At the start of this six-month extended trek was a visit to Vietnam. I spent one month traveling across the country. Before visiting, all I knew about Vietnam was war movies and history books. To see Vietnam in my own eyes was genuinely surprising. It was so different from my limited perspective. It was forward-looking and inspiring. And it still is today.This experience encouraged me to come back when I graduated from college.

In 1992, there was no internet. In the mid-90s there was one internet cafe and it was shut down in 1996. In 2001, the national internet gateway was the only way to get online and it alone provided forty megabytes for the whole country. Compared to today, the technology jump in just fifteen years is amazing.

Twenty-one years living anywhere is a long time. What keeps you here?

Mekong Capital and my family, my wife and I have two daughters here. Professionally, Mekong Capital only operates in Vietnam, so we focus on this market to support our portfolio companies and source new deals. Personally, when I was younger, Vietnam offered adventure and excitement. Vietnam was mysterious in many ways. While it still has that element of excitement and mystery, twenty years later it’s not a priority factor for why I’m still here.

What sort of new lifestyle places would you like to see in Ho Chi Minh City?

I’m looking forward to when Ho Chi Minh City has developed more integration with nature and outdoor activities. You can go to truly urban cities like Singapore and go surfing or riding horses with just a thirty minute subway ride. There are limited options here. Urban living in Vietnam would be more complete if there was more of those activities. I’d also like to see more cultural type of activities like arts and dance. The variety is lacking.

What are five interesting things about Mekong Capital?

• We go on a lot of company trips. Our next company trip is a trekking trip to New Zealand. We take the whole company, all 26 of us, on this trip.
• We have a charity fund dedicated to educational reform in Vietnam. We sponsor a two for one matching scheme. If an employee wants to give to an organization, Mekong Capital will match and double it.
• For the last three years in a row, Mekong Capital has received awards from Private Equity International (PEI), one of the private equity industry’s most popular global publications for areas such as operational improvement.
• I haven’t looked at the latest numbers, but approximately two-thirds of the company is female. We value diversity in the workplace, but not just because of diversity’s sake. We’ve done research on business trends in Vietnam and we’ve discovered that female business leaders are more likely to set and achieve realistic targets. Male business leaders set stretch targets.
• There’s a Harvard Business School case study written about Mekong Capital’s Culture Transformation efforts, published on 2010. We’ve continued to improve even after the publishing of this article. And to this day, the case study is still being taught in classes around the world.

Do returnee Vietnamese who studied abroad and came back have an advantage over local entrepreneurs?

When we meet entrepreneurs, we don’t pay attention to whether or not they are expat, overseas Vietnamese, returnees, or anything else. With that said, there have been many returnees that have delivered amazing success. The same can be said about local entrepreneurs.

I’ve always been intrigued by this pattern and I still have no answer for it. But there’s a trend of Vietnamese returnees who went to Eastern Europe for work or study and have came back to start some very successful companies. Masan, Vingroup, Golden Gate. A lot of the largest companies in Vietnam were started by Vietnamese returnees that lived and worked in Eastern Europe.

Without looking at the hard numbers, I would estimate that the value of this particular group’s businesses are worth much more than returnees who studied or lived in the West. While observing this trend, I do notice one pattern: these companies are better at targeting the mass market segment in Vietnam. I’ve noticed that many entrepreneurs who have studied or lived in the West often create products or solutions that are too expensive or premium for mass market tastes. While the market will head in that more premium direction soon, I would say that most brands that are doing it today are still too early for the market. So in sum, returnees from Eastern Europe understand the mass market audience. While I don’t know which countries specifically, many returnees seem to come from Russia.

Who should we speak with next?

I’d love to share more examples of companies that represent strong professional work cultures where employees are empowered to drive decisions and teams work together to deliver on common goals. There’s a few that come to mind:

• The CEO of MobileWorld, Nguyen Duc Tai. MobileWorld has human capital of 24,000 employees. It’s a strong company built on managing teams effectively. It’s how they’ve been able to expand so fast. The senior leadership delegates effectively and works together without micromanaging each other. The leadership team also has command and control, while empowering teams to independently make decisions. No other company has replicated that trust and business empowerment in Vietnam yet. MobileWorld is on their own level.
• Another person I can introduce, is someone that I just met for the first time a few days ago. A team of two, Viet and Phuong have set up a business Mindset-Based Transformation. They lead professional skills workshops in Vietnamese and customize each workshop by company and client needs. It’s great to see Vietnamese entrepreneurs recognize these needs. It’s still slow but receptivity is improving. It’s encouraging to see the growth of these practices.