Vietnam is receiving significant support to build a startup ecosystem and has drawn sizeable attention from investors. US early stage venture capital firm 500 Startups, that is among the most active in Southeast Asia this year, had announced its $10 million Vietnam-dedicated fund in March. The firm said that it had already helped its portfolio companies in Vietnam raise new follow-on funding. Four of the portfolio companies will have raised new rounds by the end of December, while three more are on track to do the same in the first half of 2017, the fund said in its December newsletter. In an interaction with this portal, 500 Startups’ local partners Eddie Thai and Binh Tran, shared their views on the startup scene in Vietnam and their expectation for 2017.
There is a lot of interest from venture capital firms for Vietnam, but we have not seen so many investments. What’s the rationale behind? And are there enough investable startups for VC investors?
Eddie: Many investors are coming to access the market because they’ve heard about the good tech talent and other advantages of Vietnamese startup teams. However, what they find depends on what stage the investors are interested in. In the angel and seed stage, we think there are a lot of investable startups. That’s why we’re here. For series A onwards, there are some exciting startups. You don’t always read about them in the news or see them at ecosystem events, but they are making progress quietly and raising new funds. But of course the number of investable startups at this stage is not as high as in the earlier stages. Hopefully we can help change that.
Just like any other ecosystem in the world, it will take Vietnam time to mature. But we’re already seeing progress here in Vietnam. Just last year, according to data compiled by Topica Founder Institute, there were almost 70 VC investments, which more than doubled last year’s number of deals. That’s still not enough, but it’s very fast growth.
What does it take to find good deals in Vietnam when compared to the region?
Binh: It depends on the investor, but for us in terms of ‘Why Vietnam?’, the number one reason is the strong and plentiful tech talent. Next is the entrepreneurial hustle. Vietnamese entrepreneurs are resourceful and relentless in moving forward, even if it means taking deliberate shortcuts, which is needed in the early stages of most types of software companies. With the right capital, guidance, and target market, these two factors can translate to building a big business.
But that’s not all. Our thesis and strategy is about finding companies that are solving big critical problems. We only invest in capital efficient software services and products that generate revenue north of $20 million a year at their peak. Some of these will be startups that serve just Vietnam or Vietnam and some other markets in the Southeast Asia region. Some could be global. In general, it is easier to find companies which are able to hit that large revenue mark if they are selling to the entire region.
We also like to invest in more ambitious startups – e.g. global over regional, regional over local – for at least one good reason: it is not proportionally more difficult to be successful with a more ambitious startup versus a less ambitious one. It will be very hard to be successful for either and maybe the more ambitious startup is only slightly harder. And you can build more momentum with a more ambitious startup. For example, let’s say you start getting some traction with a less ambitious startup. That’s cool, great job. But start getting some traction for a very ambitious startup then everybody gets excited – the press, investors and potential employees. So why not build something truly ambitious?
Will the increasing availability of angel investors, accelerators and support agencies help build scalable startups that are ready for later stage investment?
Binh: There is a gap in angel investing in Vietnam versus certain parts of the world, and there is a gap as well in founder education. Investors will be learning a hard lesson over the next couple of years of how hard it can be to invest. It’s a joint learning opportunity for all these stakeholders who are coming in. But what they can bring besides the money are the connections with other parts of the Vietnamese economy that can really help the tech startups grow.
Eddie: Yes, while some startups focus on pure tech, most of them are targeting existing industries and need to connect with industry leaders and gatekeepers to successfully distribute their products and transform their markets. To scale these companies, everybody needs to play a role, especially in a very young ecosystem like Vietnam.
Binh: Why have other ecosystems developed faster than Vietnam up until now? I think it has a lot to do with the regulations on company formation, investment, and taxation. However, the good thing is that we’re seeing recent improvement in the regulatory environment. Hopefully officials continue to move in the right direction.
Which industries do you think will have the best startups?
Eddie: There are opportunities everywhere because we’re seeing many sectors that have yet to fully embrace tech. Enterprise solutions are particularly interesting to us. The software solutions that help businesses more efficiently in the US and other developed markets are often unsupported, inappropriate, or priced out of range for customers in Vietnam. This is a local and regional opportunity for the right teams.
Binh: We’d also love to see more deep tech companies come out of Vietnam. If you build something that is technically defensible, you’ll have a better chance on selling your products and services to the region and beyond.
How do you see Vietnamese startups’ progress?
Binh: Over the past few quarters, we have seen everything improve in the ecosystem. Not only are the quality of startups increasing but investments from regional venture capital into are increasing. Plus, we are seeing more angel investors, accelerators, and acquirers. Tech startups in Vietnam grew from a small trickle to a steady stream, and we see that trend continuing.
How will 2017 look like for you?
Eddie: 2017 will probably be exciting for the entire region, but especially in Vietnam as we expect the number of investments, valuations, and number of acquisitions to continue to increase. As for 500 Startups Vietnam specifically, we have been inspired by what our entrepreneurs have done over the past year and we hope to help them keep it up in 2017. We also want to continue doing work with investor education, founder education, and corporate startup engagement.