Mekong Capital shuns AI-native bets as portfolio firms near IPOs

Private equity firm Mekong Capital is sticking to a strategy that looks increasingly unusual in an investment world consumed by AI. It’s backing proven business models and looking for healthy unit economics.

Founded in 2001, the firm has made 46 investments across five funds, financing companies such as restaurant operator Golden Gate, Pizza 4P’s, and pharmacy chain Pharmacity. Most notably, Mekong sold its stake in electronics retailer Mobile World in 2018, after the latter had expanded to more than 2,000 locations. The investor generated a 57x return for that exit.

Mekong’s latest established fund, Mekong Enterprise Fund IV, has US$246 million in committed capital and typically invests US$10 million to US$35 million per company.

Tech in Asia recently caught up with Chad Ovel, a partner at Mekong Capital, three years after his first interview with us.

Chad Ovel, partner at Mekong Capital / Photo credit: Mekong Capital

In this conversation, he explains why the firm, which only invests in Vietnam, isn’t hunting for AI-native companies. He also discusses the IPO plans of its portfolio companies – fintech firm F88 and biotech company Gene Solutions – as well as Mekong’s new climate-focused investment strategy.

This interview has been edited for length and clarity.

When we last spoke three years ago, you said that Mekong Capital preferred investing in proven business models rather than taking risks on unproven ones. Has that thesis changed?

Our approach is still the same. We have a strong preference for investing in companies that have already achieved profitability at the unit-economics level.

We are hesitant to take risks on unproven disruptive business models. We’re also hesitant to take risks on companies that have not yet demonstrated the ability to produce profit.

I will say, though, that we’re very enthusiastic about a new generation of entrepreneurs in Vietnam, particularly those who have gone overseas and done Ph.D. work and developed deep competencies in fields such as biotechnology. They have come back to Vietnam, made Vietnam their low-cost R&D sandbox, and they are developing globally significant products.

In our portfolio, Gene Solutions and LiveSpo are two examples. When we invested in both, they already had substantial revenues and very profitable business models, at least at the unit level.

Gene Solutions is a standard genetic-testing diagnostics laboratory business, but they are self-innovating their products. They’re not just reselling some product from a European or Chinese company.