From its headquarters in Ho Chi Minh City, quick commerce start-up, Loship, is utilising the country’s main mode of transport to drive its success.
What started out in 2014 as a food review app called Lozi, has since been expanded into a delivery service by co-founder and CEO, Trung Nguyen, tapping into the firm’s high level of engagement among its users.
As the demands of the Vietnamese continue to change, Loship’s business model has also evolved. Today, it joins the ranks of many of its peers in adopting a “quick commerce” (also known as “q-commerce”) approach. Nguyen’s vision to deliver anything and everything to its customers within an hour, leverages the firm’s vast network of motorcycle drivers.
On a daily basis, Loship processes around 100,000 transactions, delivering food and groceries, as well as skincare products and other fast moving consumer goods (FMCG). Food delivery is its mainstay, but Nguyen understands that this is a competitive space and has plans to monetise other sectors.
In March 2020, Loship ventured into the B2B category, leveraging the same driver network to deliver goods from warehouse to retailer. It is profitable when measured on unit economics, but is targeting to triple its revenue to reach positive EBITDA in the next three years.
“We are currently operational in over 11 cities. This year, we are targeting to top 20 cities and to expand our footprint into almost every major city in Vietnam. In addition, we are also looking at expanding regionally, into Cambodia, Thailand, Myanmar, and Bangladesh,” Nguyen told FinanceAsia in an interview from Ho Chi Minh City.
Nguyen believes these South and Southeast Asian countries are similar to his home country’s economy when it comes to population density and income, and he feels that these factors are key to raising Loship’s chance of success.
Financing Loship’s future
Loship has so far raised $25 million from investors, including ANT Financial-backed BAce Capital and Singapore-based Golden Gate Ventures. It is in the process of raising its Series C funding round, which is expected to close in the first quarter of 2022. Nguyen expects Loship’s valuation to double when the round closes.
“We invested in Loship in 2015. Initially, it started out as a bet on the founding team, but we also knew that this social commerce space was something that we were interested in because we were already seeing early signs of growing momentum,” said Angela Toy, partner for portfolio growth at Golden Gate Ventures.
In the next three years, Loship hopes to transition from the private to public markets, with an IPO in the US. While there are many other viable locations for a listing, Nguyen says that an IPO on the NYSE or Nasdaq would be “a symbol of Vietnam’s rising star”.
He added: “We want to be synonymous with Vietnam’s start-up success so that when investors mention Vietnam, they think of Loship, and vice versa.”
There are several reasons why Loship is focussed on the US public markets. Firstly, it is part of the start-up’s vision to scale beyond its home market, targeting to be known regionally and globally as well. Secondly, Nguyen wants to be an inspiration for a new generation of Vietnamese entrepreneurs by becoming one of the first start-ups in the country to list on an internationally renowned public bourse.
Vietnam’s emerging opportunity
Golden Gate Ventures predicted in its SEA Startup Ecosystem 2.0 report published in June 2021, that the country will emerge in 2022 as the third largest start-up ecosystem in the region, behind Singapore and Indonesia.
“The first thing we’ve noticed in the last few years has been the rise in local VCs in Vietnam, so there’s an increased level of mentorship to the start-ups. In addition, we’ve also seen what we call the “founder 2.0” – entrepreneurs with experience working at global tech companies – locally starting new businesses. All these factors have really contributed to the growth of the ecosystem,” said Toy.
Examples of these “founder 2.0” companies include other investments by Golden Gate Ventures, such as social commerce platform, Mio, which delivers fresh produce in second and third tier cities - a concept similar to that of China’s Pinduoduo which counts on communities to make group orders - and on-demand payroll service app, Vui.
The VC firm started investing in Vietnam in 2013, when the start-up scene was still very much nascent. Across Southeast Asia, it now has $250 million in assets under management (AUM) and has funded over 60 start-ups.
The new consumer class
Vietnam’s consumption is on the rise as incomes increase and more of its population enter the middle class. McKinsey estimates that over the next decade, Vietnam could add 36 million to the consumer class, which represents a significant change to the country’s demographics. In 2000, less than 10 per cent of Vietnam’s population constituted consumers– a figure that has risen to 40 per cent at present and is on track to reach 75 per cent by 2030.
These new faces of the Vietnamese economy are contributing to its start-up growth, particularly across three sectors: fintech, retail and logistics. Dennis Le, senior associate with Openspace Ventures expects the next unicorns to come from within these categories, with Tiki and Scommerce as strong contenders to scale to such status.
Vietnam’s current four unicorns include digital payments company, VNPay and e-wallet, MoMo in the fintech space, as well as gaming companies, Sky Mavis and VNG.
“E-commerce has been the main driver for the past five to six years, playing a very critical role in onboarding users into the internet world. However, we think that in the next phase of the economy’s growth, there will be a need to improve on the e-payment and logistics infrastructure fronts, to further drive offline as well as online commerce,” said Le.
Openspace has $600 million in committed capital and 40 active portfolio companies across Southeast Asia.
The China factor
When it comes to looking ahead, Loship, like many of its peers, is turning to China for inspiration. In October last year, it added two games to its app. In their first week of launch, the firm recorded an average of 50,000 daily engagements.
“Gamification is an effective marketing tool to entertain customers and increase engagement, similar to how a lot of Chinese companies have added such a strategy to grow their app,” said Loship’s Nguyen.
Currently Loship customers spend approximately 20 minutes a day on the app, browsing or making purchases. Nguyen’s next goal is to become Vietnam’s preferred platform.
However, while start-ups draw inspiration from China, international investors including those from the country itself are looking elsewhere to diversify their exposure. Beijing’s increased regulation across the technology sector and its geopolitical tensions with the US have prompted investors to set their sights on other promising markets.
In May 2021, Chinese tech giant Alibaba and Baring Private Equity Asia led a $400 million investment in The CrownX, the retail arm of Vietnamese conglomerate, Masan. The transaction marked Alibaba’s first investment in the country, as it seeks to build its presence in Southeast Asia.
“Investors initially turned their attention from China to Southeast Asia, as sort of a cushion given the trade tensions, but later realised that Vietnam and Southeast Asia have huge potential,” said Toy.
This is a trend that Niklas Amundsson, partner at the Hong Kong office of fundraising placement agent, Monument Group, is also witnessing. With deal-making opportunities on pause and no real catalyst for any change in China, the arbitrage strategy that had worked well there is now being applied to other markets, such as Southeast Asia.
While investors continue to pursue their interests in the region as its VC ecosystem matures, there are two concerns weighing on Southeast Asia’s potential to unlock more investments.
“One is the valuations of those companies, especially as you go into Series C and D. Then, it’s the exits. We’re looking at the IPOs that have come out of the region and with a couple of exceptions, there hasn’t been a hockey stick pick-up in returns post-IPO,” Amundsson told FA.
Although perhaps there are lessons to learn and tips to pick up from its Chinese neighbours, the likes of Vietnam’s Loship are driving off in pursuit of the international horizon.
