the application to investment process at venture capital and approach to start up valuation method at z area uniform private enterprise

FOREIGN TRADE UNIVERSITY HO CHI MINH CITY CAMPUS ---***--- MID-COURSE INTERNSHIP REPORT Major: International Finance THE APPLICATION TO INVESTMENT PROCESS AT VENTURE CAPITAL AND APPRO

FOREIGN TRADE UNIVERSITY

HO CHI MINH CITY CAMPUS

-*** -

MID-COURSE INTERNSHIP REPORT

Major: International Finance

THE APPLICATION TO INVESTMENT PROCESS AT

VENTURE CAPITAL AND APPROACH TO START-UP VALUATION METHOD

AT Z AREA UNIFORM PRIVATE ENTERPRISE

Student: VU HOANG PHUONG Student ID: 1801035710

Class: K57CLC2 Supervisor: Mr LE TRUNG THANH

FOREIGN TRADE UNIVERSITY

HO CHI MINH CITY CAMPUS

SOCIALIST REPUBLIC OF VIETNAM Independence - Freedom - Happiness

MIDTERM PROFESSIONAL REPORT REMARKS

Student’s full name: VU HOANG PHUONG Student code: 1801035710 Name of the report: The application to investment process at venture capital and approach to start-up valuation method at Z Area Uniform Private Enterprise

Assessment of compliance with regulations, progress and work ethics (Maximum of

1.0 point, with one decimal number): ………

Remarks (circle the appropriate one):

1 The student has completed the report properly under the guidance of the supervisor The supervisor is responsible for the title, purpose, subjects, scope and

research method(s), and chapters’ titles, and main headings of the report (3 digits):

0.8-1.0 point(s)

2 The student has failed to carefully follow the supervisor’s instructions The supervisor is responsible for chapters’ titles, purpose, subject, scope and research

method(s), and titles and main headings of the report (2 digits): 0.5-0.7 point(s)

3 The student has failed to carefully follow the supervisor’s instructions The

supervisor is not responsible for the report: 0.1-0.4 point(s)

4 The student has totally failed to follow the supervisor’s instructions The

supervisor rejects the submission of the report: 0 point

Ho Chi Minh City, August 20 th 2021

Supervisor

Mr LE TRUNG THANH

INTERNSHIP ORGANIZATION’S REMARKS

Organization’s legal name: Z Area Uniform Private Enterprise

Address: 01 A4 Street, Ward 12, Tan Binh District, Ho Chi Minh City, Vietnam Tax code: 0316661214

Main business sectors: Garment, E-Commerce, Digital Transformation

We hereby confirm that Mr Vu Hoang Phuong has completed an internship at our organization from July 10th 2021 to August 10th 2021

- For his/her attitude:

Phuong has a proactive mindset about work He is energetic, diligent, and constantly goes above and beyond to complete given duties He may also quickly learn from early errors in order to prevent repetition Throughout the internship, He shown a strong desire to learn and a strong sense of responsibility

- For his/her perception of the organization’s activities:

He adapts quickly to her new business surroundings Phuong was introduced to the accounting & finance department in our company as well as working in pitch desk with VC project In general, he has gained a strong understanding of the department's operations

- For the data illustrated in the report (Please confirm the accuracy of the data):

This paper details a business model that is crystal clear and accurate The report's data

is accurate and was provided by the business

- Other remarks:

Although our start-up environment was quite new and full of challenges, he excelled

in overcoming and adapting to his assigned tasks We recognized his ability and considered offering him a long-term position at the company after his graduation

This mid-course internship report has not been submitted for consideration for any other institution's degree or certificate award

Ho Chi Minh City, August 20 th , 2021

Student Author

VŨ HOÀNG PHƯƠNG

ACKNOWLEDGMENT

For the accomplishment of this mid-course internship report, I would like to convey

my sincere appreciation to Mr Le Trung Thanh for his conscientious and meticulous directions In the absence of his ongoing and invaluable mentorship, this report would simply not have been completed

Additionally, I would like to express my gratitude to the Board of Directors and staff

of Z Area Uniform Private Enterprise, for their comprehensive guidance, knowledge, and practical expertise in finishing this report Especially, I would also want to express my heartfelt gratefulness to Mr Dang Phuong Nam, Mr Duong Bao Long, and Mr Nguyen Quang Huy Not only did they give me useful reference resources, but they also provided me with detailed responses to my topic-related queries, allowing me to complete the report to the best of my knowledge and capability Nevertheless, due to the fact that the five-week internship period does not allow me

to acquire enough in-depth knowledge and skills in terms of professional process as well as practical experiences, shortcomings in this report are unavoidable As such, I would really appreciate any constructive feedback and recommendations in order to enhance my skillsets for my personal career performance into different jobs in the future

TABLE OF CONTENTS

PREFACE 1

CHAPTER 1: GENERAL INTRODUCTION OF Z AREA UNIFORM PRIVATE ENTERPRISE 3

1.1 Foundation and Development of Z Area Unifor m Private Enterprise 3 1.2 Vision & Main business activities 5

Vision 5

Main business activities 5

1.3 Organization Structure & Division Overview 5

Organization Structure 5

Division Overview 6

1.4 Business Performance of Z Area Uniform during 2019 – 2021 7

1.5 Internship Duties at Z Area Uniform 8

CHAPTER 2: THE APPLICATION TO INVESTMENT PROCESS AT VENTURE CAPITAL AND APPROACH TO START-UP VALUATION METHOD 10

2.1 The application to investment process at venture capital 10

Sourcing Stage 11

Deal Screen Stage 12

2.2 Approaches to Discounted cash flow (DCF) valuation methods 13

Step 1: Create financial projections & determine the future free cash flow 13

Step 2: Determine the discount factor 15

Step 3: Aggregating all the calculations’ results 17

2.3 Overall evaluation of the Discounted Cash Flow valuation method 18

Strengths 18

Weaknesses 18

CHAPTER 3: RECOMMENDATIONS FOR THE IMPROVEMENT OF THE PROCEDURE OF START-UP VALUATION AND KEY LEARNING POINTS AFTER A FIVE–WEEK INTERNSHIP AT Z AREA UNIFORM

PRIVATE ENTERPRISE 19

3.1 Opportunities & Challenges of the procedure 19

Opportunities 19

Challenges 19

3.2 Recommendations for the improvement of the valuation process 20

3.3 Key learning points after a five-week internship at Accounting & Finance Department – Z Area Uniform 21

CONCLUSIONS 23

REFERENCES 24

LIST OF APPENDIES 25

LISTS OF ABBREVIATIONS

LISTS OF TABLES, CHARTS AND FIGURES

Table 1.1 General information of Z Area Uniform Private Enterprise 4

Chart 1.1 Organizational Hierarchy of Z Area Uniform 6

Table 1.2 Summary of Income Statement of Z Area Uniform in 2019 & 2020 7

Figure 2.1 The venture selection process at XYZ Venture Capital 10

Table 2.1 The instructions of calculating free cash flow 14

Table 2.2 Valuation of Z Area Uniform under DCF-method 17

PREFACE

In recent years, the Vietnamese start-up industry has seen a significant growth in both quantity and investment capital According to the Vietnam Innovation & Tech Investment Report 2020, conducted by Do Ventures in collaboration with the Vietnam National Innovation Center (NIC), investment inflows into Vietnamese startups have rocketed at approximately 1.77 billion USD in the last three years, representing a nearly 1,000% increase over the period 2015-2017 Despite the difficulties in reaching capital due to the global epidemic COVID-19, this figure is anticipated to reach around 451 million USD in 2020 For every start-up, in addition

to creating products that fulfill market demands and having a solid execution team, being invested by investment funds is a great launch pad for them to develop quickly and reach numerous markets However, one of the biggest gaps between investors and start-up lies in the company's valuation How to offer an enough fair price to attract investors but still remaining the value of the company for the following funding rounds is always a conundrum for business owners

Being a senior student majored in International Finance at Foreign Trade University

Ho Chi Minh City Campus, I have had the opportunity to learn about the aforementioned topic of business valuation through various specialized courses including Corporate Finance, Stock Analysis & Investment, and Financial Report Analysis Nevertheless, the knowledge I have studied is just theoretical and rarely had chance to apply those in practice As a result, this internship opportunity has provided me with a valuable opportunity to review the knowledge I gained in previous subjects, as well as recognize the differences in real market application, and, last but not least, equipped me with a prospective future career direction

After a five-week internship in Accounting & Finance Department at Z Area Uniform Private Enterprise, a Vietnamese start-up pioneering in the e-commerce and print-on-demand (POD) industry with successful minimum viable product (MVP) that has received favorable feedback from the market I am fortunate to be involved in the process of constructing a pitch deck for some venture capitals (VC), specializing in financial reports analysis, business valuation and future cash flow forecasting From

this pitch deck process, I was given the chance to bridge the gap between what I had learnt in amphitheater and what a professional company actually does In my viewpoint, I believe that working for a start-up will enable me to get more interdisciplinary expertise rather than a major business, and the working atmosphere

of a technological start-up also inspires me tremendously I chose the following topic for my mid-course internship report after putting a lot of attention on:

“THE APPLICATION TO INVESTMENT PROCESS AT VENTURE CAPITAL AND APPROACH TO START-UP VALUATION METHOD AT Z AREA UNIFORM PRIVATE ENTERPRISE”

The internship report includes three chapters discussing three main points:

Chapter 1: Introduction to Z Area Uniform Private Enterprise

Chapter 2: The application to investment process at venture capital and

approaches to start-up valuation method

Chapter 3: Recommendations for the improvement of the procedure and some

key learning points concluding from five-week internship at Z Area Uniform Private Enterprise

CHAPTER 1: GENERAL INTRODUCTION OF Z AREA UNIFORM

PRIVATE ENTERPRISE

1.1 Foundation and Development of Z Area Uniform Private Enterprise

Z Area Uniform Private Enterprise was originally established in 2018 by a group of young individuals with backgrounds in business, finance, and technology who were all inspired by the world of fashion and garment When it first opened its doors for business, the company began operating in the uniform for schools and firms across the country Despite operating in a traditional sector with strong pricing rivalry, the founding team is always conscious of the use of digital transformation to enhance product quality, reduce costs, and provide the greatest customer journey experience Because of the professionalism and creativity which is rarely seen in the old-fashioned garment manufacturing industry before, the business rapidly gains the confidence of customers, allowing them to expand their product range to include a variety of branded merchandise and promotional items At that time, the core team aspires to be one of the leading suppliers of promotional merchandise imprinted with clients’ branding and marketing messages Several of the well-known clients may be listed, including RMIT University, Vin University, Unilever, and other companies with extensive brand presence in the FMCG and F&B industries During the first quarter of 2019, the company received its first export orders from high standard markets such as the Ukrainian Republic, South Korea, and the United States

Despite the fact that the company was still doing well, the founding team quickly realized that, based on Stan Shil’s smiling curve theory, manufacturing process offered the lowest added value in the clothing industry value chain in the world With the present business model, it is challenging for business to itself themselves and have

a competitive advantage over their market rivals in the long term The management made the decision to shift into a print-on-demand and e-commerce business model after analyzing the fashion market's digital transformation trend and taking advantage

of the team's existing technological skills Credence Research estimates that the PoD and e-commerce market size would reach $10 billion by 2025, making it a potential for both local and international growth market The company became officially legal

identity at the end of 2020, formally transformed into a social commerce platform for creating and selling print-on-demand products online

The general information about the company is summarized in Table 1.1 The sections that follow will provide further information on business activities, corporate structure, and business financial performance

Table 1.1 General information of Z Area Uniform Private Enterprise

Source: Board of Management, Z Area Uniform Private Enterprise

1.2 Vision & Main business activities

Vision

During the 2020 – 2025 period, Z Area Uniform aspires to become domestically leading platform in the areas of print-on-demand and e-commerce, along with a global distribution network of over twenty countries Furthermore, the business is always attempting to innovate in order to provide greater value to both sellers and consumers

Main business activities

The company's day-to-day operations are split into two categories:

Working with sellers: Z Area Uniform has teams to recruit sellers, as well as

education and training for those, as well as tech support for sellers with issues related

to website, payment, design, etc

Fulfillment process: the print-on-demand business strategy necessitates a

fulfillment procedure When the orders are submitted on the system, the in-charge department will basically handle the rest of the fulfillment process from printing to packing and delivery to the ending customers

1.3 Organization Structure & Division Overview

Organization Structure

As of July 30th, 2021, Z Area Uniform had a total number of 20 staffs, including 4 members of the Board of Management, 12 official employees and 4 interns The structure of Z Area Uniform is unambiguous and comprehensive with the General Management and Division Management (including 5 divisions: Business Development, Information Technology, Human Resources, Accounting & Finance, Manufacturing & Fulfillment) Thanks to this centralized management structure, almost all key company decisions are taken by the board of management This helps the company develop quicker and concentrate on preventing spread at this early stage, but also requires excellent management to confront tough choices

Chart 1.1 Organizational Hierarchy of Z Area Uniform

(Source: Human Resources Department – Z Area Uniform Private Enterprise)

Division Overview

An overview of the work and responsibilities of each division is presented as follows:

Board of Management is responsible for almost important decisions of the

business, managing other departments, planning and strategic planning for the team

Business Development is responsible for the majority of sellers activity on the

platform More specifically, this department is concerned with acquiring new sellers, supporting and taking care of those to make their business on company’s platform run as smoothly as possible

Information Technology is responsible for activities related to technology such

as platforms, website, cloud-server, etc and works with the Board of Management in promoting the digital transformation of the business

Human Resources is responsible for managing and monitoring employees’ performance, organizing recruitment and talent attraction activities and teambuilding events at the company

Accounting & Finance is entrusted with the branch's financial resources and is responsible for the budgeting process, cost analysis of other functions' activities, transaction recording, invoice settlement for the branch's daily operations, and financial planning for investment activities

Manufacturing & Fulfillment is responsible for handling the remainder of the

fulfillment process from printing to packing and delivery to the end consumers

Board of Management

Business

Development

Information Technology

Human Resources

Accounting &

Finance

Manufacturing

& Fulfillment

1.4 Business Performance of Z Area Uniform during 2019 – 2021

For comparison purposes in terms of business performance, profit & loss statement

of Z Area Uniform Private Enterprise in the 2019, 2020 and first half of 2021 are summarized and illustrated in the table below:

Table 1.2 Summary of Income Statement of Z Area Uniform in 2019 and 2020

(Source: Accounting & Finance Department – Z Area Uniform;

Unit: Million VND, percent (%))

Generally speaking, the company's business performance is positive, with fast sales and profit growth Especially in the context of the COVID-19 pandemic has had a negative impact on running business in Vietnam, the online platform has significantly reversed the situation As follows, the author will go further into the P&L components:

Total Revenue: As can be easily seen from Table 1.1, the company's total

revenue skyrocketed up to 333% from 2019 to 2020 The first reason for this increase may be that since 2019 was the company's debut year, it had a tough time getting to know the industry and approaching consumers More significantly, the transition of the business model from a traditional garment company to an e-commerce business has shown early results However, revenue increased only slightly in the first half of

2021 compared to the same period in 2020, and the company's situation at the end of

2021 is expected to be difficult due to the raging epidemic situation, particularly in

Ho Chi Minh City, the company's headquarters and manufacturing factory