Global business: Vietnam emerges as a venture capital haven, seeks to catch larger Asian neighbors
Updated: Aug 16, 2021
By JAMILLE TRAN
Global Business Journalism reporter
HANOI, Vietnam – Vietnam has been a big winner in the global competition for venture capital funding in recent years as investors retreat from stagnant markets to focus on the potential of emerging nations. But the surge in capital has led to new challenges as Vietnam tries to build startups that can compete at a regional level in Asia.
Tran Huu Duc, CEO of Vietnam Innovative Startup Accelerator (VIISA), an accelerator fund founded in 2017 by FPT, Dragon Capital and Hanwha, wrote in aFacebook post in April that many venture capitalists come to Vietnam but leave empty-handed and head to Indonesia and the Philippines instead. He said the main reason is the nascent ecosystem in the country that lacks inputs of early-stage innovative projects and networks of angel investors.
On the plus side, Vietnam surpassed Singapore for the first time in 2019 to become the second most promising hub for startup investment in Southeast Asia, trailing only its regional rival Indonesia. In 2019, according to Do Ventures, Vietnam registered $861 million into startups, nearly triple since 2017.
The boom was halted – at least temporarily by the coronavirus pandemic. Despite the ongoing excitement, the amount of outside capital pouring into Vietnam plunged to only $317 million in 2020, according to data provided by the Ministry of Science and Technology of Vietnam. There were only 63 deals reported, half the record high of 123 successful ventures in the previous year. Vietnam’s drop, like its recent surge, is steeper than neighboring nations, which reported a 2% decline in the total capital raised by Southeast Asia-based startups in 2020.
Analysts expect that Vietnam will bounce back in 2021 as global markets continue to reopen. In the context of the U.S.-China trade war, the pandemic, and the military coup in Myanmar, analysts say Vietnam’s stability and economic growth are major assets.
Over the past three years, there is no authoritative record of the number of startups in Vietnam, although 2016 statistics from Echelon Magazine cited a total of 3,000 companies. Vietnam's Ministry of Science and Technology announced a similar number of startups for the fourth consecutive year, but local authorities are still struggling to define startups.
Vietnam's startup investment deals in 2020, by sector
Taking a closer look into the current status of Vietnamese startup investment last year, E-commerce and Financial Technology (Fintech) companies have occupied the first two spots in the ranking of deal value and number of deals in 2020. Having received the $300 million investment led by Softbank Vision Fund in 2019, e-payment solution provider VNPay has also officially become Vietnam’s second unicorn startup (valuation above $1 billion) and Southeast Asia’s twelfth unicorn, according to Google’s SEA E-conomy 2020 report.
“A number of these players only become more relevant in the emerging market context — access to cash and financing, the ability to move things around, and the ability to transact online versus in-store,” Julie Ruvolo, managing director of venture capital for EMPEA, pointed out in a talk with Crunchbase News.
The pandemic has also accelerated the digital transformation and fostering the nascent technology ecosystems of the region. Vietnam’s young online demographic, its 64 million Internet users and emerging middle class have powered the nation to become one of the two fastest-growing digital economies in the region, DealStreetAsia reported. More sectors of the country thus become hot spots for new capital.
Property technology (proptech), a budding sector in the country, surged to a new height at the third-largest total deal size recorded, in contrast to a 25% decrease of capital invested in proptech startups worldwide in 2020 as reported by the Center for Real Estate Technology & Innovation (CRETI). Significant public attention has also been focused on the human resources technology sector (known as HR tech), which is responsible for the second-largest number of deals.
Even though there are concerns over the quantity and quality of local startups, a survey in 2020 of 50 active funds in the region showed that Vietnam still tops the list in terms of maintaining investor confidence in the next year, with an expected 117 to 200 deals committed.
There are two reasons that funds still excite investors in Vietnam: the larger benefits over costs of investments compared to other countries in the region, and the government’s effective control of the coronavirus, noted in an announcement from the newly established Vietnam-based fund Touchstone Partners led by the veteran ecosystem builder Bobby Liu, co-director of the regional startup launch program TFI Founder Institute.
“We are not trying to fight with Indonesia and say we have better startups, but we have good startups that you want to invest in because of the future of Vietnam,” said Liu. “Vietnam has shown all the positive economic indicators. That’s why big investors are flocking into this country.”