With the likes of VNG, Tiki, and VNPay leading the startup ecosystem, Vietnam is fast becoming a startup hub, closely competing with Indonesia and Singapore. In 2019, Vietnamese-owned startups were able to raise $246 million, capturing deal after deal with investors who believe in what they can achieve.
Foreign investors have played a major role in funding Vietnamese startups. In February 2020, Affirma Capital invested US$34 million in Sieu Viet Group, which focuses on online recruitment. Japan’s SoftBank and Singapore’s GIC invested US$300 million in VNPay, according to Vietnam Briefing. Recently, HCMC-based Kilo bagged an undisclosed seed funding from US-based Goodwater Capital and 500 Fintech, Singapore’s January Capital, 500 Startups Vietnam, and other prominent angel investors in the region.
But as Vietnam closed its borders, and implemented travel restrictions and social distancing, startup founders are now having a hard time meeting with prospective investors to present their ideas. At least tens of thousands of dollars are at stake in every investment, so it’s important for angel investors to discuss and close deals face to face.
Dung Hoang, Head of Genesia Ventures Representative Office in Vietnam, told Vietcetera in April 2020, at the height of the pandemic, that approaching investors for fundraising has become more difficult both for startups and for VCs.
“VC funds are being more cautious and ‘thrifty’ with their capital flows. In general, startups will have a harder time raising capital during this period,” she added.
So, what do you do when you have a billion-dollar idea but zero money?
“If you want to get into a startup journey, you should be the first one to write the check. It doesn’t matter how much it is. What matters is that you’re ready to put yourself into making this idea a reality. If you are not ready, you will never be able to convince others,” experts say.
In the same interview and period, Justin Nguyen, Partner at Monk’s Hill Ventures, agreed that it’s a tough funding environment out there.
For Justine and his firm, they will always take a long-term view and will continue to back founders and companies that are solving big problems on sound economics.
In his interview with Yale Insights, Eddie Thai, a partner in 500 Startups Vietnam fund, talked about navigating the tech scene in an emerging economy.
“Vietnam has some great entrepreneurs, and its tech talent is increasingly being recognized,” he said. “I think of Vietnam as essentially a 30-year-old economy. Prior to 1990, it had gone through a century of French colonial occupation, two decades of internal fighting, and another 15 years of economic devastation. But since 1990, when the government began opening the economy, Vietnam has been the second-fastest-growing economy in the world behind China, after you exclude very small economies.”
According to StartupBlink, a global comprehensive startup ecosystem map and research center, Vietnam continues to move up the rankings, slowly inching towards status as a Southeast Asian leading hub.
In fact, in 2020, Vietnam has moved up an impressive 13 spaces to 59th. The capital Hanoi has made it into the top 200 cities globally by jumping 33 places to 196, while Ho Chi Minh City has made its debut at the impressive position of 225.
“Having two cities of such scale is a massive bonus to the Vietnamese ecosystem,” reads a StartupBlink report.
What’s the government doing?
According to the Ministry of Planning and Investment, Vietnam plans to have at least 10 unicorns by 2030. In the venture capital industry, the term unicorn refers to any startup that reaches the valuation of $1 billion.
Vietnam has two unicorns: VNG Corporation and VNPay. In 2014, gaming and entertainment giant VNG Corporation became Vietnam's first unicorn. Just last year, VNPay, an e-payment enabler, hit the billion-dollar valuation.
The ecosystem is mostly thriving due to the large market size of the Vietnamese economy, making the creation of successful local startups profitable even if they do not expand out of Vietnam.
However, to become a true regional and global hub, Vietnam will have to generate innovations with global impact, which is something the government is addressing.
Just recently, Ho Chi Minh City has approved a plan to foster 1,000 startup projects by 2025 as part of efforts to become a Southeast Asian innovation hub, VN Express reported. It plans to enable 3,000 businesses to improve their innovation capacity and help 100 access venture capital.
To materialize their plans, the city is initiating a development on infrastructure and ecosystem that will help startups enhance their productivity, develop higher-quality products and eventually go international.
In a report from Do Ventures, during the first half of 2020, Vietnam accounted for 16% of the total investment in tech startups in Southeast Asia to rank third behind only Singapore (37%) and Indonesia (30%).
“Vietnam has the potential to become a startup hub thanks to a large number of good entrepreneurship ideas that could be expanded globally,” Robert Tran, CEO of consulting firm RBNC for North America and the Asia Pacific said in the VN Express article.
Adding, “the country has a population large enough for startups to experiment locally first before branching out internationally.”
In January 2018, the Law on Supporting Small and Medium-Sized Enterprises came into effect, with detailed provisions for support to startups in areas such as technology transfer, training, trade promotion, investments, preferential loans, and incentives for venture capital funds.
A startup is defined as a ‘small- or medium-sized enterprise that is established to realize an idea by exploiting intellectual property, technology and/or new business model and capable of growing fast’, according to Vietnam’s Law on Support for Small and Medium-sized Enterprises.
This definition, therefore, builds on two key economic features of a startup: innovation and capacity to scale.
Following this, Decree 38/ND-CP, which came into effect in March 2018, focuses on innovative start-up investments. The decree identifies and recognizes start-up investment activities as a business and provides legal status to innovative start-up companies and funds. Also, one of the regulations stipulates that the State can also invest in a startup, with a maximum of 30% of the total investments.
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Raising funds amidst the pandemic
While the pandemic’s impact on the global economy worsens every day, business leaders turn to technological advancements as irreversible trends — giving more opportunities for startups.
Turns out, Vietnam investors are starting to embrace local startups.
By cooperating with startups, major enterprises could accelerate their development process by having access to new technologies and solutions, which otherwise would take a long time to develop by themselves.
Matter of fact, in the past three months, a growing number of local startups in various fields has successfully raised funds of up to millions of dollars from local investors, who in the past were less active compared to their foreign peers in the search for a hidden gem in the market.
The move came as a surprise given the fact that domestic venture investment funds only make up one-fifth of the total 100 currently operating in Vietnam, in turn raising the question of whether such movement could become a trend in the coming time.
Among major deals, local B2B logistics startup EcoTruck received VND100 billion (US$4.3 million) in its Series A funding in late 2020 from major IT firm VNG. A few months later, VNG continued to invest US$6 million in Got It, a digital gifting platform.
In January, VinaCapital Ventures poured US$1 million into GoStream, a startup providing platform for livestream in Series A funding, while Phu Nhuan Jewelry Company (PNJ) acquired a 30% stake at Nguoi Ban Vang, a startup operating in the field of financial services, in a deal worth around VND3 billion (US$130,000).
With the support from the government and local investors, there’s no other way for startups in Vietnam but up.