Unprofitable technology startups receive millions of dollars in capital

 The startup movement has seen a strong rise in Vietnam in the past few years. Vietnamese technology startups not only call for capital from foreign venture funds, but also from domestic businesses and investors. 



Deals worth tens of millions of dollars have been made recently.



Standard Chartered Private Equity (SCPE) and Goldman Sachs, for example, have agreed to inject $28 million into Momo, a Vietnamese developed e-wallet. 

Meanwhile, VNG Company decided to pour $18 million into Tiki, an e-commerce website.



Analysts noted that unlike other traditional business fields, in which more profitable businesses would find it easier to call for capital, in the technology sector, profit is not the most important factor for investors to consider.



Both Tiki and Momo, for example, are taking a loss. A report of VNG showed that the company spent VND383 billion to buy 3.7 million Tiki shares, or 38 percent of the website’s capital. 



However, the value of the investment deal was later down to VND376 billion when taking into account the first quarter of 2016.



The figures showed that VNG paid a very high price, VND103,000 per Tiki share, which meant it valued Tiki at VND1 trillion. Meanwhile, Tiki reported a loss of VND20 billion in the first quarter of 2016.



As for Momo, according to CafeF, the e-wallet took a loss of VND42 billion in 2014 and gross loss of VND90 billion by the end of the year.



Meanwhile, a well known startup in freight & forwarding sector – Giao hang nhanh – took a loss of VND18 billion in 2014, while its charter capital was VND5 billion.



The high valuation despite losses seems to be a big surprise to Vietnamese financiers. However, an expert commented that in many cases, the bigger losses that startups incur, the higher they are valuated. Some unprofitable businesses have share prices 10 times higher than the face value.



He said that when making investment decisions, investors try to imagine businesses’ prospects in five or 10 years, and understand that it is impossible to make profit in the first years of operation.



VNG in 2015 issued a small volume of shares with the face value of VND3 billion, but got VND200 billion. This means that the shares were issued at the price of VND670,000. With such a price, if investors buy VNG, they would have to pay $800 million, or 50 times higher than the company’s profit in 2015.