FB Pixel no scriptVCs remain bullish about Vietnam as the region's next growth market | KrASIA

VCs remain bullish about Vietnam as the region’s next growth market

Written by Thu Huong Le Published on   4 mins read

With a growing pool of talent, well-trained labor for production, and keen interest from investors, Vietnam is presenting itself as one of the hottest destinations for tech startups in Southeast Asia.

In 2018, Google and Temasek described Vietnam’s internet economy as akin to “a dragon being unleashed,” predicting the sector to reach a value of USD 33 billion in 2025.

Recently, the country has also been the subject of headlines suggesting that major tech companies are moving their production out of China and into Vietnam, including Google (the Pixel smartphone), Apple (AirPods), and Nintendo (Switch).

Many investors see Vietnam as the next hot destination in Southeast Asia. It’s now the third most active ecosystem in the six largest ASEAN countries, behind only Singapore and Indonesia, in terms of investment activity, according to a recent report by Singapore-based Cento Ventures and ESP Capital.

Data tracked by the two VC firms tells us that the Vietnamese ecosystem snatched a total of USD 246 million in 58 deals in the first half of this year, an increase from USD 166 million raised in the first half of 2018. The country’s aggregate funding amount is predicted to top USD 800 million by the end of 2019.

To nail down why Vietnam is a hot spot for technological innovation and venture capital, KrASIA spoke with several investors in the region about the emergence of Vietnam’s tech ecosystem.

Why Vietnam now? 

Vy Le, general partner at ESP Capital, an early stage venture fund investing in Vietnamese and Southeast Asian tech startups, cites the obvious macro factors that contribute to the rise of Vietnam’s tech ecosystem.

These include high GDP growth in the 7% range, falling interest and inflation rates, as well as robust infrastructure spending. Moreover, a favorable demographic arrangement, where 60% of people living the country are under 35, allows for an unprecedented level of mobile penetration. About two-thirds of the population are online, and in 2018, 72% of the population already owned smartphones.

Binh Tran, general partner at 500 Startups Vietnam, which is also an investor in Vietnam-connected seed stage startups, gives the country credit for its technical personnel. “If you want to start your company in a safe and dynamic country that loves foreigners and has a large concentration of affordable engineering talent, Vietnam is hard to beat,” he said.

Chris Tran, technology investor and head of Asia for North Ridge Partners, is particularly keen on Vietnam’s potential to become a high-tech manufacturing hub. With the trade war forcing everyone to look outside China, Tran said Vietnam is coming to the forefront because “if you’re not going to manufacture in China, there are not many places regionally that you can go for manufacturing for the region.”

In a recent post written on Medium, Liu Genping, a partner at Vertex Ventures, describes the factors that empower Vietnam’s “F1 startup engine,” referring to upcoming global event F1 to be hosted in Hanoi next April. These include: strong growth, adaptive consumer behaviour, lower economic polarization and strong investor spirit.

“Our interest in the market is very strong and we are closely following a few opportunities and might be making investment soon,” he told KrASIA.

Together, these factors make Vietnam a suitable destination for entrepreneurs, investors, as well as established corporations. And with new developments happening in the country at breakneck pace, Vietnam is set to see explosive growth in all corners of the tech industry.

Signs of an evolving ecosystem

2018 and 2019 produced a new wave of Vietnam startups that raised USD 50–100 million rounds. Earlier this year, Vietnam’s top e-wallet Momo bagged USD 100 million in Series C funding from Warburg Pincus, and Topica Edtech Group received USD 50 million in a Series D investment from Northstar Group. Most recently, Vietnamese payment company VNPAY reportedly raised a record amount of USD 300 million in funding from SoftBank and Singapore sovereign wealth fund GIC.

Retail and payment startups were among the most popular verticals that investors focused on in Vietnam, according to data tracked by Cento Ventures and ESP Capital, snatching a total of USD 191 million and USD 150 million, respectively, in 2018 and first half of 2019.

Exit opportunities have started to appear though the majority of them are still within the USD 20 million range, according to assessment by ESP Capital. However, the firm stresses that the initial public offering of entertainment group Yeah1!, as well as Singaporean real estate tech company PropertyGuru’s acquisition of Vietnamese real estate site Batdongsan in 2018, will inspire “both the local entrepreneurs to build their companies for bigger exits, and potential acquirers to begin looking for large opportunities in Vietnam.”

ESP Capital’s Le, who was one of the authors for the report, also notes that Vietnam’s third generation founders, meaning those who established their companies from 2015 onward, have started to think regionally very early on in the business’ trajectory. It’s a quality that sets them apart from their counterparts who entered the startup scene in earlier days.

For example, social commerce platform Ecomobi, which recently raised funding from VinaCapital Ventures and three South Korean investors chose Indonesia as the company’s first market in 2016 instead of its home country Vietnam. It partnered with three of Indonesia’s largest e-commerce platforms—Tokopedia, Shopee, and Bukalapak. Later on, it expanded to Vietnam and Thailand in 2018.

Moving forward 

For Vietnam’s tech startup ecosystem to carry this momentum in a sustainable manner, Michael Lints, a partner at Golden Gate Ventures, suggests the government should be proactive in initiating small-scale projects to work with startups, even emulating the Monetary Authority of Singapore’s sandbox mechanism to spur fintech innovation.

Education for entrepreneurs is key to forming a greater pool of talent for Vietnam’s ecosystem. “A lot of young entrepreneurs might do it for the first time, they need the help and support from experienced entrepreneurs, corporates that work with startups to help these entrepreneurs through the first phase,” Lints added.

According to ESP Capital’s Le, while the Vietnamese government has been open about supporting innovation and entrepreneurship, hosting many events to connect stakeholders in the ecosystem, clear guidelines and transparency are sorely needed in many sectors, such as peer-to-peer lending, to empower both founders and investors.


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