Kosmo, the latest highrise residential and commercial development in Bac Tu Liem District, a new, upmarket, suburb west of Hanoi, is in the final stages of completion. On the ground floor are a host of bustling food and beverage outlets, and on one Friday afternoon, Thanh Thuy, a 38-year-old resident, steps out of a cafe to take delivery of something she had bought online from a green-uniformed Giaohangnhanh deliveryman.
Gesturing to the parcel, and her patronage at the cafe, Thuy says she does not have her wallet with her. “I only bring my smartphone when I’m out these days.”
Thuy is amongst millions of middle-class consumers in Vietnam for whom e-commerce – from online shopping to e-payments – is an indispensable part of their daily life. “The transformation from cash-on-delivery to a cashless economy is one of the biggest opportunities in Vietnam,” commented Eddy Hong, CEO of Korean investor Nextrans, which has invested in cross-border remittance company Payway.
Vietnam has a population of nearly 100 million people, roughly 70 per cent of them under the age of 35, and boasts an annual GDP growth rate of nearly 7 per cent, outpacing its neighbours. The Southeast Asian country has been arguably the hottest market in the region in 2019, enjoying a surge in interest and capital from investors keen to ride on its growth story.
“We believe Vietnam is at the right timing for investment as one of the most attractive markets in SEA,” commented Yotaro Tokuo, a principal at Japanese private equity firm Advantage Partners. “The economic stage has hit an inflexion point to attract international investors, [while] still possessing ample room for further rapid growth, and regulations and the culture are well opened to foreign direct investments.”
Internet infrastructure has been developing very fast in Vietnam, with a 148 per cent mobile penetration and higher use of services on mobile phone than the entire region in 2018, according to GSMA Intelligence.
What has also been noteworthy during the year was a surge in private equity activity in the tech sector. In 2018, there was only the $50-million investment by Northstar Group in Topica Edtech Group. In 2019, other investments piled in, amounting to around half a billion USD, as per DealStreetAsia’s data.
“At the regional level, we already see top PE names having increasing levels of exposure to this space,” said Khanh Tran, a partner at VinaCapital Ventures, the tech investment arm of asset management firm VinaCapital.
“Tech is very much a borderless space where regional players can get exposure in the Vietnam market much easier than via traditional brick and mortar industries, so local PE houses will soon feel the competition right on their own turf.”
Indeed, 2019 also marked first-ever deals for a spate of international private equity firms. Advantage Partners started the string with its investment in fashion retailer Elise, followed by TA Associates’s financing for SaaS firm MISA JSC and Kaizen Private Equity’s funding in YOLA. We also reported that Baring Private Equity Asia has scored its first deal in the country with the acquisition of Vietnam USA Society English Centres.
On the venture capital front, many firms have also become first-time investors in Vietnam in 2019, including Mirae-Naver Growth Fund, InnoVen Capital, Golden Equator Capital, GGV Capital and RTP Global.
2019 was also a busy year for fund managers. The largest Vietnam-focused vehicle in the market is Mekong Capital’s Mekong Enterprise Fund IV, which has a $250 million hard cap. Other funds in the country raising capital are those managed by Excelsior Capital Asia, ACA Investments, DT&Investments and FEBE Ventures. The latter two focus on tech investments.
|Fund||Manager||Fund size||Limited Partners||Fund type|
|Mekong Enterprise Fund IV||Mekong Capital||$200M||International Finance Corporation||PE|
|Multiple vehicles||ACA Investments||$70M||Samty Corporation||PE|
|Excelsior Capital Vietnam||Excelsior Capital Asia||NA||FMO||PE|
|FEBE Ventures Fund I||FEBE Ventures||$25M||Family offices, HNWIs||VC|
Now, even PE firms that have been more traditional in their investments could be eyeing exposure to Vietnam’s tech scene. “We do look at selective tech investments, which we believe are growing aggressively in Vietnam,” said Advantage Partners’s Tokuo.
|VNPAY||Digital payment||SoftBank, GIC||300 (DealStreetAsia report)|
|VCM (Vingroup's subsidiary)||Retail||GIC||500|
|MoMo||Digital payment||Warburg Pincus||100 (DealStreetAsia report)|
|Scommerce||Logistics||Temasek||up to 100 (DealStreetAsia report)|
|Tiki||E-commerce||Northstar Group, others||75 (DealStreetAsia report)|
|Son Kim Land||Real estate||EXS Capital, ACA Investments, Credit Suisse||121|
|Sendo||E-commerce||EV Growth, Kasikornbank, others||61|
|N Kid||Entertainment||Crescent Point||36.2|
|Thanh Thanh Cong Education||Education||Navis Capital||NA|
The rise of homegrown e-commerce firms
Most of the investment capital in 2019 was funnelled into e-commerce, fintech and logistics.
The size of Vietnam’s e-commerce market in 2019 was $4.6 billion and is expected to reach $23 billion by 2025, according to the e-Conomy SEA 2019 report by Google, Temasek and Bain. Still, Vietnam is still in the very early days of the e-commerce industry penetration, reckons JJ Ang, CFO of Ho Chi Minh City-based marketplace Sendo.
“There’s still a lot of cultivation of online shopping for Vietnamese people [to be done], for which Sendo together with other fellow players and smaller vertical companies are creating an ecosystem which keeps on growing,” he said.
Given the large room for growth, the sector is forecast to attract even more capital. Yet, future funding is expected to continue to concentrate on the already deep-pocketed players.
Sendo recently snapped up $61 million in its Series C round, following an earlier $51-million funding in 2018. Within the past year, Sendo and Northstar Group-backed Tiki took turns to become the second most visited e-commerce site in the country, behind Sea Limited’s Shopee.
On the prospects of subsequent fundraises, Ang said having a set of strong financial investors has helped Sendo gain exposure to the region, as well as opened the door for new investors.
In tandem with the e-commerce boom, funding has also been strong in logistics, although significant investment is still needed in infrastructure development such as to connect the ports with warehouses and logistics centre.
This is also an opportunity. According to Linh Pham, founder and CEO of trucking platform Logivan, the fragmentation and inefficiencies of traditional sectors have been paving the way for startups to disrupt and emerge, either in Vietnam or globally.
In 2018, Logivan and peer EcoTruck had secured $3.5 million in total investments, according to public data. In 2019, the number of investments rose to 10 deals in startups across the last-mile delivery, on-demand service and logistics management system sectors.
Among the deals that made waves in 2019 was Singapore investor Temasek’s funding for Scommerce’s units Giaohangnhanh and AhaMove. Although the funding amount was not disclosed, DealStreetAsia understands it was in the region of $100 million.
In anticipation of the expected growth in e-commerce transactions, Scommerce has started to build its second automation storage facility that can handle what the company claims to be “record capacity” of 40,000 orders per hour.
“The increased investment in logistics, especially e-logistics or last-mile logistics, has gone in tandem with the growth and investments in e-commerce. E-logistics is very important for e-commerce because it interacts directly with end customers,” said Jack Nguyen, head of GrabExpress Vietnam.
The on-demand courier service of ride-hailer Grab has recently integrated the services of last mile delivery provider Ninja Van into its platform for Vietnam, following the Indonesian and the Philippine markets. Meanwhile, Hong Kong-based GoGoVan also said it has set up an office in Vietnam and is preparing for its debut in 2020.
Second largest fintech market in SEA
At the same time, Vietnam’s fintech market has also boomed. In 2019, it became the second-largest fintech market in terms of investment value, accounting for 36 per cent of the total investments in Southeast Asia, after Singapore (51 per cent), according to a recent report by United Overseas Bank.
The Vietnam mobile payments market is projected to reach $70.9 billion by 2025, a huge increase from $16 billion in 2016, according to UOB. The country’s largely unbanked population and high mobile penetration are big investor lures.
“Fintech is increasing productivity, while the traditional banking system is not efficient, and big corporates have not been able to develop fintech fast enough,” said Quest Ventures partner Jeffrey Seah.
While payment deals dominated the funding landscape in terms of transaction value, the number of deals done were spread out amongst the payment, alternative lending, personal finance, investment tech, blockchain and finance, and accounting tech sub-sectors. In fact, some investors are eyeing the potential that comes from developing the fintech ecosystem as a whole.
From a seeding perspective, Martin Kim, deputy director of Shinhan Future’s Lab Vietnam, said: “We have seen various business models in Korea that could be more meaningful in Vietnam. The ecosystem we’re trying to build is not only for startups, but corporations and SMEs can also join as they want to develop their fintech platform.”
“The e-commerce, fintech and logistics industries would continue to grow dramatically, since they are the backbone of the Internet economy,” said ESP Capital’s general partner Vy Le, suggesting that in addition to the key marketplace players, there are still many opportunities for enabler products in these industries. “This is a promising ground where new startups can look for new opportunities, instead of competing head-to-head with big companies.”
However, recent big funding rounds have put some investors on guard, particularly after previously well-funded businesses such as WeWork and Uber exposed investors to substantial losses after their valuations plummeted.
“After the WeWork shock, we have also noticed some Vietnamese companies running out of cash,” said Nguyen Hoa Binh, chairman of NextTech Group and Next100 fund. “I think investment appetite will ease and prioritize models using the cashflow effectively, or already profitable startups.”
Le was more positive, arguing that Vietnamese startups have been undervalued compared to other startups in the region. “We cannot deny the fact that many startups are receiving larger funding rounds than before, which I believe is the adjustment of startups’ valuation to their real value,” she said.
Rising valuations could limit the options available to smaller, regional investors. Still, industry players are optimistic that as Vietnam’s tech ecosystem has only started to evolve, the market offers many other opportunities for consideration.
“Everything is transforming in Vietnam, so there’s a big chance here and that’s we try to invest in any sector,” said Hong of Nextrans. The firm has invested in a series of verticals, from B2B, e-commerce, marketing to rental and recruitment.
Looking ahead, healthcare, education, data analytics and integrating technology to traditional business chains are seen as emerging tech-related investment trends. For instance, Kaizenvest, an education-focused private investment firm has made one of its first forays outside of India, into Vietnam. In July, it invested $10 million into YOLA, a Vietnamese English language training provider.
“The growth rate of the education sector in Vietnam is probably one of the highest in the region and it’s driven by the local population’s desire to obtain better quality education. We have realized that there is need to introduce technology-enabled learning in the existing delivery models of education institutes and hence we are also looking for an education technology players,” said Raj Shastri, partner at PE firm Kaizenvest.
Quynh Nguyen contributed to this story.