The Road to Consistent Value Creation

For the first five years, Mekong Capital made an ongoing series of mistakes. Mekong Capital’s initial fund, Mekong Enterprise Fund, invested mainly in family businesses which were export-oriented manufacturing businesses. As family businesses, they typically had a traditional style, more interested in loyalty, stability, and short-term cash flow, rather than maximizing growth, performance, and achieving a long-term vision. In addition, as export-focused businesses, they are subject to the competition and cycles of the global economy and often don't own valuable brands. In contrast, domestic-focused companies were having an easier time growing and developing valuable brands and distribution networks.

We were trying hard to add value by sharing best practices with our investee companies, but either they weren’t taking actions based on our ideas, or, sometimes when they did implement our ideas, it didn’t significantly impact their long-term performance. At the time, we just knew it wasn’t working, but we didn’t know why. What were we missing?

In 2006, with our investment in ICP (the personal care products company with the X-Men brand), we started to dip our toes into consumer investments. Still, we were also experimenting with other sectors such as real estate, software, etc. Over the next three years, we would make some successful investments such as Mobile World, Golden Gate, Masan Consumer, Traphaco, PNJ and Vietnam Australia International School (VAS).

In mid-2007, the founder of Mekong Capital, Chris Freund, was close to giving up on himself as the CEO. He thought he wasn't a natural leader. Struggling with a lot, he went to Singapore to participate in a 3 ½ day transformation workshop called the Landmark Forum. At that workshop, Chris started to discover how he was the source of the dysfunctionality in Mekong Capital and that it was within his capability to transform himself and provide the leadership that Mekong Capital required.

After personally participating in a series of follow-on workshops, Chris decided to partner with Landmark Education to make similar programs available internally to Mekong's team, the first such time these transformation programs were available within Vietnam. In this way, Mekong's transformation was kicked off in December 2007, personally led by Landmark Education's Head of Asia, Jerome Downes.

In the early days of the transformation, there was much resistance within our team. Chris assumed the need for transformation was obvious and didn't make the necessary effort to inspire the senior team members why this was necessary. As a result, many employees didn't understand and didn't want to be part of it. But as we started to identify what core values were important to us and build our culture around those core values, more and more team members began to take ownership, see the value, and support this transformation.

In 2008, the main focus of our transformation was causing breakthroughs in performance among our team members. This was making steady progress, but at one point, we realized that the future is missing. So, in mid-2009 we commenced a project to co-create a new future, a process which took around 5 months and 14-full days, but by December 2009, it was complete, and a new future was declared. Like a portal to a new world, this became the future into which we stepped, and set the course of Mekong’s subsequent development.

Learning from our own transformation, we launched an transformational framework, through trial-and-error and continuous refinement, called Vision Driven Investing. It is NOT a set of best practices or solutions. It is not something that we can give or force onto other companies, but instead, a space in which our investee companies discover and create for themselves, always towards fulfilling their Vision.

By 2010, our transformation process was complete. Anyone who wasn’t excited about the new culture had left the company. And new joiners at that time were those who were attracted to the new future and culture that we were building. This success became the subject of Harvard Business School and London Business School case studies published in 2010.

Around the time that our initial transformation was completed, our track record was not yet sufficiently strong for us to raise new funds. Little by little, our management fees from managing our earlier funds were declining, and we had no new source of income. We were losing money every year and in a constant cash flow crisis. There was some pressure to downsize our team.

But rather than giving in to the pressure, we took a stand for maintaining and developing a team that would lead to the achievement of our vision, regardless of whatever obstacles were to present themselves. This required a lot of perseverance and creative solutions to our cash flow constraints.

By 2014, our track record was sufficiently robust that we knew it would be possible to launch a new fund. So in 2015, we achieved the first closing of Mekong Enterprise Fund III, our first increase in revenues since 2007.

Based on Mekong’s experience and lessons learned investing in consumer businesses in our earlier funds, we launched Mekong Enterprise Fund III as the first fund to focus exclusively on Vietnamese consumer-driven sectors.

After fully deploying Mekong Enterprise Fund III in 9 investee companies, in 2019 Mekong Capital launched its 5th fund, Mekong Enterprise Fund IV (MEF IV). MEF IV had a final closing of $246 million in 2019. MEF IV continues the strategy of MEF III and is currently deploying its capital into Vietnamese companies which are a strong fit with its investment criteria.