DealStreetAsia: TNB Aura in Talks to Raise Third Fund, Sees Vietnam as a Core Market

Written by: Quynh Nguyen

Edited by: Padma Priya

29 July 2023

Singapore-based venture capital firm TNB Aura (TNBA) is in talks to raise capital for its third fund, with a corpus expected to be bigger than the predecessors, a top executive said.

TNB Aura is looking to double down on investments in Vietnam in the next few years.

“Through applying some of the research and learnings from our investments in Indonesia and other more mature markets, we foresee TNBA making a lot more investments in Vietnam. TNBA expects to make another 5-7investments into Vietnam over the next 18 months,” said Vicknesh R Pillay, founding partner, TNB Aura, told DealStreetAsia in an interaction.

The firm has made 8 investments in total in Vietnam over the past 3 years. Typically, TNBA allocates 20-40% of its fund corpus towards Vietnam.

“With many horizontal opportunities in Indonesia disappearing, Vietnam has yet to produce candidates in verticals which have created unicorns as seen in more mature markets such as Indonesia, India and China. For example, we have seen multiple social commerce companies targeting tier 2 and 3 cities in Indonesia, though Vietnam has yet to see many companies at scale in this sector,”
Pillay said.
“In our view, many tech trends are yet to emerge from Vietnam which we foresee to be an exciting country for investments over the next few years,” he added.

Vicknesh R Pillay (left) and Charles Wong (right), Co-Founders & Managing Partners, TNB Aura

Most recently, TNB Aura joined the $17.1-million Series A funding round in Vietnamese earned wage access (EWA)
startup GIMO. Earlier, the firm led a $6-million funding round for edtech startup VUIHOC.

TNB Aura has established a Scout initiative to tap into early-stage opportunities in Vietnam. Last year, TNB Aura
Vietnam Scout partnered with ThinkZone Ventures to launch the Global Minds Accelerator programme to co-invest,
mentor, and support Vietnamese tech startups.

TNB Aura was among the most active investors in the Vietnam market during the first half of the year. How many investments has it made so far?

TNB Aura (TNBA) predominantly focuses on Series A opportunities across Southeast Asia and has made 8 investments in total in Vietnam over the past 3 years with 4 Series A and 4 Scout investments. In its early days, the fund placed a core focus on Indonesia due to the maturity and timing of the market. The Vietnamese tech ecosystem has evolved significantly with core fundamentals maturing.

What kind of capital allocations has TNB Aura’s funds made in Vietnam so far?

Typically TNBA allocates 20-40% of each fund size towards Vietnam.

This year, how many investments do you hope to make?

Through applying some of the research and learnings from our investments in Indonesia and other more mature markets, we foresee TNBA making a lot more investments in Vietnam. TNBA expects to make another 5-7 investments in Vietnam over the next 18 months in Vietnam.

Most recently, TNB Aura has led an investment in Vietnam’s edtech VUIHOC. How do you assess the edtech sector in the post-pandemic years? What about the retention and churn rates?

TNBA has built conviction in the edtech industry from our belief that quality education should be made both accessible and affordable to all students – presenting a huge opportunity for a player in the various Southeast Asia markets to emerge. We made our first edtech investment into CoLearn, one of the fastest-growing Indonesian edtech companies. Our second and most recent edtech investment was in the Vietnam market via VUIHOC. With more than 21 million K-12 students across the country and approximately 80% living outside tier 1 cities, VUIHOC is uniquely positioned to bridge this gap and help uplift educational standards across the board.

What opportunities are you seeing in Vietnam’s edtech market as the space is quite crowded with many players?

With the current edtech landscape concentrated around English Language and Training (ELT) players, we believe that the K-12 segment targeting subjects covered under the national curriculum presents a huge opportunity for growth. Offline centres, though widespread, are fragmented and do not provide affordable access to students in tier 2 and 3 cities, therefore signalling a gap in the market of over 17 million students. In addition, we have also seen a growing willingness to pay from Vietnamese parents given that they spend an average of over 35% of their disposable income on education.

What is TNB Aura’s exit strategy?

Naturally, an exit strategy is specific to the type of portfolio company any venture fund invests in. From day 1, we predict what could be the possible exit scenarios for a portfolio company. TNBA has 3 basic principles when investing exits. (1) A fixed holding period: 3-6 years per portfolio company, so the fund stays disciplined and produces DPIs for the fund. This is possible in Series A where the company has already found its product-market fit and is in the scaling stage (2) Removing IRR laggards: We assist in creating trade sales for companies that are underperforming. An internal target IRR of net 25% is set for all investments: We look at IRR laggards, especially companies not achieving IRR targets and look at ways we can exit in the form of a trade sale, etc. with the help of our panel of advisors. (3) Fund-level exits:

The exit market is mature enough, now that many funds are looking at buying out VC funds at a fund level. The exit market is mature enough, now that many funds are looking at buying out VC funds at a fund level.

When do you target to launch Fund III? Do you expect a bigger corpus for the fund?

We are in talks for Fund 3 and yes, we expect a bigger corpus for the fund.

Are you exploring investment opportunities in the climate sector? What specific models are you looking for?

TNBA is a sector-agnostic but business model-specific fund. In most sectors, we believe there are business models that could create large outcomes based on the addressable market. As for the climate sector, TNBA has already made an investment in the electric vehicle vertical by backing ION Mobility, one of the most funded EV companies in the region. With regard to other verticals in energy, the team has been canvassing the region around business models that target the verticals of energy storage and access. We have also been looking into other areas of climate such as waste management, as well as agritech. As the region matures, we find that more opportunities in frontier verticals such as the energy and environment sectors will emerge.

Could you take us through the TNBA Scout Initiative and the partnership with ThinkZone Ventures?

Since the Vietnamese market has seen limited quality Series A opportunities in recent years, TNBA is optimistic about Vietnam’s future growth. We have been running our Scout initiatives to identify high-quality founders and invest in business models that we are familiar with at earlier stages, allowing TNBA to get a ‘foot in the door’ and lead the funding rounds of these opportunities at the right stage. Our partnership with ThinkZone Ventures is one of our regional initiatives with local accelerators who could assist us with uncovering strong founders.

There are many early-stage VC firms looking for opportunities in Vietnam. Do you see a fierce competition for deals?

Naturally, there will be competition for the best investment opportunities in this industry. But, TNBA collaborates closely with local seed funds and industry experts for deal flow and focuses on where we can value add more significantly, which is in the Series A stage. We assist portfolio companies with governance and practices such as the right due diligence, business plan formulation and milestone setting. In addition, through our research-based and outbound approach, TNBA connects with founders long before they raise funds, thereby facilitating the opportunity to lead subsequent rounds upon identifying these leading founders and companies early.

How do you view Vietnam’s evolution within Southeast Asia’s startup ecosystems?

In the earlier stages of growth in the Vietnamese tech ecosystem, we saw relatively inexperienced founders who were not ‘VC-backable’ as well as many corporate venture-built companies in which we avoided investing in. Having said that, we have seen the ecosystem mature in a similar manner to its Southeast Asian counterparts such as Indonesia. With many horizontal opportunities in Indonesia disappearing, Vietnam has yet to produce candidates in verticals which have created unicorns as seen in more mature markets such as Indonesia, India and China. For example, we have seen multiple social commerce companies targeting tier 2 and 3 cities in Indonesia, though Vietnam has yet to see many companies at scale in this sector. In our view, many tech trends are yet to emerge from Vietnam which we foresee to be an exciting country for investments over the next few years.