Mekong Enterprise Fund II was a top performing fund in Vietnam due to Vision Driven Investing

Author: Chris Freund, Partner, Mekong Capital

Mar 12, 2018

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Mekong Capital Vision Driven Investing

Mekong Capital’s Mekong Enterprise Fund II, which has recently exited MobileWorld Group — Vietnam’s leading retailer — for a 57x return multiple, has been rated as the top performing fund in Vietnam by the end of September 2017, according to industry intelligence company Preqin.

Mekong Capital started out in 2001 as the first dedicated private equity firm in Vietnam. Mekong’s first fund, Mekong Enterprise Fund I, delivered only mediocre performance, but Mekong Enterprise Fund II had multiple winners in its portfolio, and included a value creation approach by Mekong Capital which hadn’t been applied in the first fund.

The success of Mekong Enterprise Fund II was built on the foundation of Vision Driven Investing (VDI) which empowers investee companies to set and fulfill upon a breakthrough vision for their future.

Vision Driven Investing (VDI) is part of an ontological approach to private equity, in which we focus on who people are being and how situations occur for them rather than what they know. The first bricks in building this framework were implemented by Mekong Capital in 2009 based on a paper titled A New Model of Leadership by Harvard Business School Professor Emeritus, Michael C. Jensen, and Allan L. Scherr. The authors outlined a new definition of leadership, which contains four elements:

Vision:

“A vision that goes beyond what is predictably going to happen and therefore goes beyond what anyone now knows how to accomplish.”

Enrollment:

“Enrolling sufficient numbers of others in making a voluntary and personal commitment to realizing the vision.”

Breakdown:

“Creating systems that quickly identify and widely communicate the existence of breakdowns — any perceived gap between the committed vision and what predictably will be accomplished given current circumstances and knowhow that is seen as a threat to the realization of the vision. Widespread awareness of a breakdown increases the likelihood that a solution — a breakthrough — will be discovered or invented.”

Managing breakdowns:

“Creating an environment that successfully resolves the breakdowns. Such an environment supports people in the organization (on the team if it is a project) so they renew their commitment to the realization of the vision in the face of the breakdowns.”

The Vision Driven Investing approach is reviewed quarterly and continues to evolve.

Almost a decade after having launched Vision Driven Investing, Mekong Capital has transformed ourselves and the way we apply Vision Driven Investing through many iterations. The latest version of Vision Driven Investing consists of 14 elements which are all in existence within our portfolio companies.

Our investee companies are encouraged to supported to create a big vision beyond what predictable, yet achievable, that we call “breakthrough vision”. It will be achievable as they discover and create the 14 elements for themselves, including building a strong team, building a strong culture, organizing around the optimal KPIs, Business Intelligence analytics, digital transformation, debottlenecking, etc.

Please visit here for the full 14 elements of VDI.

The improvements in each version of VDI have been illustrated by the success of Mekong’s investments since 2009. Golden Gate, which we exited in 2014 after a more-than-six-year holding period, had transformed from an operator of only 5 restaurants to a chain of 11 different concepts covering nearly 70 restaurants by the time we divested. The divestment generated a 9.1x return and 45.1% IRR for the Mekong Enterprise Fund II.

Likewise, our divestment of MobileWorld has marked one of the biggest success stories in Asia Private Equity, which brought us a 57x return and 61.1% IRR.

Mekong Capital’s research of our own investee companies showed that the higher degree the companies implemented each of the VDI elements, the higher net profit CAGR they delivered over that period, with less than 10% being outliers.

Our current investee companies under Mekong Enterprise Fund III are actively applying Vision Driven Investing, even pioneering beyond the standards applied in Mekong Enterprise Fund II, and they are almost all on track for reaching their breakthrough vision. They are continuously performing in a way that they see breakdowns not as a ball and chain but as opportunities to hit many homeruns.

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Mekong Capital makes investments in consumer-driven businesses and adds substantial value to those companies based on its proven framework called Vision Driven Investing. Our investee companies are typically among the fastest-growing companies in Vietnam’s consumer sectors.

In January 2022, Mekong Capital founder Chris Freund published Crab Hotpot, a story about a bunch of crabs who found themselves stuck in a boiling pot. The colorful cover of “Crab Hot Pot,” complete with expressive cartoon crustaceans, looks like a children’s tale at first glance. But as one continues reading, it becomes clear that the work has an important message about organizational transformation, leadership and focusing on a clear vision for the future.

The book is available on Tiki (Hard copy): bit.ly/38baF8a (Vietnamese) and Amazon: amzn.to/3yWunzG (English)