Venture capital investors are looking at Vietnam’s HR-tech startup space with increased interest.
Investors are said to be attracted to the resilient nature and high-margin potential of the HR-tech space in Vietnam, which has already recorded at least half a dozen deals in 2020 amidst the COVID-19 backdrop.
And, mirroring the country’s bounceback to business in May after the lockdown restrictions were lifted, the HR-tech platforms too have been buzzing with activity.
In the aftermath of the COVID-19 pandemic, nearly 5 million Vietnamese workers suffered pay cuts or job losses in the first five months of 2020, according to the local government’s data.
Almost half of the locally operated companies laid off their employees, and slashed spending on salary and benefits, according to research by HR service firm Navigos Group.
But, in May, after the nationwide lockdown in Vietnam was lifted, around 80,000 workers were re-employed. And, by the first week of the month, Navigos said, the number of job postings on its recruitment website VietnamWorks.com was up by 20 per cent.
“Even as COVID-19 has severely impacted business and their hiring process, it is a short-term effect and investors are investing in this space as they look at Vietnam in the next three to five years,” said Le Han Tue Lam, Vietnam-based general manager of South Korean VC Nextrans.
In terms of deal traction, so far in 2020, Vietnam has marked six investments in the HR-tech space of which the biggest funding is the $34-million deal in Sieu Viet Group by private equity firm Affirma Capital. In 2019, the country saw two small deals in HR tech, including Sieu Viet Group acquiring recruitment portal MyWork and Nextrans backing TopCV.
|Year of transaction||Company||Investors||Stage||Investment value|
|2020||Sieu Viet||Affirma Capital||Growth stage||$34M|
|2020||JobHopin||SEMA Translink Investment, Edulab Capital Partners, NKC Asia||Series A||$2.45M|
|2020||BravoHR||Zone Startups, 1005 Ventures||Seed||N/A|
|2020||JobsGo||Viet Valley Ventures||Seed||N/A|
The deals announced in 2020 could have been closed in 2019, and the pace of investment is expected to slow in the second half of the year, Ong Xuan Minh, CEO of Sieu Viet Group, acknowledged.
“However, the attractiveness of HR tech is undeniable,” he added.
“Yes, if you look at the numbers, the industry as a whole was impacted. At JobsGo, recruitment activities by its clients and job seekers in the first sixth months of 2020 accounted for only half of the same period last year,” said Nguyen Khanh Trinh, founder of Viet Valley Ventures which recently invested in JobsGo. But Trinh said he invested in HR tech as he was bullish about the prospects of the sector.
In Q1 2020, global funding in HR tech neared $1 billion compared to the $841 million average over the preceding 13 quarters, according to a report by US-based HR advisory firm HRWins.
Post-pandemic recovery will shape the course of the HR-tech sector as well as labour demand in certain sectors such as technology and energy may dominate the hiring landscape.
“Post-pandemic, the process of economic recovery will drive job creation and we expect the recruitment sector to be a key beneficiary of demand recovery,” commented Affirma Capital’s executive director Thuy Dropsey.
“COVID-19 causes everyone to think more digitally – not as in digitisation of the documentation, but as in the digital transformation of all business processes,” she added.
Why investors like this high-margin business
While Sieu Viet or Navigos Group are amongst more established companies in the sector, most of the HR tech startups in Vietnam were founded three to five years ago. DealStreetAsia has learnt that one of those startups, TopCV, has reached the break-even milestone.
“HR tech companies need some time to build a base of users and job listings to reach the break-even point. Once they are there, profits would be high,” said Hung Tran, the local representative of Japan’s MyNavi Corporation, an investor in JobHopin.
Managing the churn rate at below 10 per cent would secure the startup profitability, he asserted.
VC funds DealStreetAsia talked to ascertained that HR-tech is a high-margin industry, where the margin could generally be 20-45 per cent.
Nextrans’ Tue Lam estimated the Vietnam market size at about $800 million and an annual growth rate of 20-30 per cent.
“If you look at the salary base, a Vietnamese candidate with the same qualities as others in more advanced markets would be paid much lower. Because of this gap, there are a lot of opportunities to invest to boost the market,” she said.
“Vietnam has not been able to compete with other markets in terms of infrastructure, but investors are betting on the country’s human factor.”
The highest cost for an HR tech company should be the corporate administration cost, according to Trinh, who reasoned that would take a shorter time for HR tech startups to achieve profits.
“Online recruitment is a nascent industry in Vietnam and is expected to enter explosive growth stage over the next 5-10 years, driven by increasing online penetration, significant growth of the local job market, and high turnover in some segments,” said Dropsey.
The growth prospect for the industry will also be proliferated by the inroads into the Vietnam market by foreign companies who will “naturally extend the market size of HR tech industry in the country,” said Scott Lim, general partner at SEMA Translink Investment.
Vietnamese startups opt for niche play
Most of the Vietnamese startups operating in the HR tech sectors target niche segments. Take TopCV, it helps create, manage and match curriculum vitae. Or TopDev and ITViec, two recruitment portals specialising in the IT sector.
There are still other niche markets for these startups to explore, such as post-recruitment services. The work-from-home requirement during COVID-19 lockdown has urged businesses to transit to digital products serving productivity management.
“As the sector continues to develop, we expect the key players to invest in products and user experience and develop value-added services beyond general talent acquisition,” Dropsey said.
“There are some startups who are doing this. You can also see Navigos ramp up their play by acquiring education products from Dream Viet Education. But such services are very primitive and need funding to grow,” added Tran from MyNavi.
Tran added that staffing would also be a niche to look at, given the rising FDI flow into Vietnam, buoyed by the global supply chain disruption.
Not deterred by competition from traditional HR services companies, Tran said: “These niche startups are very focused. The traditional firms often view niche markets as too small, while they have enjoyed profits from job listing due to their already built traction.”
Sieu Viet, a tech company that started out as a job listing service, is now aiming to offer comprehensive HR services leveraged by its technology and data abilities.
“Within the past five years, we have been focusing on serving the SME sector. Our goal in the next five years is to serve businesses of every size and industry,” Minh told DealStreetAsia.
HR-tech ripe for AI, data science applications
That said, innovation is happening across different types of businesses. MyNavi itself is a traditional HR service firm and deploys technology through the investment in JobHopin and an earlier acquisition of ITViec. Navigos Group is using technology to develop services and products that help with the entire career cycle.
“With the latest applications of technology such as data science and artificial intelligence (AI), the recruitment industry will have a chance to develop the more comprehensive process,” Gaku Echizenya, CEO of Navigos Group, said in an email note.
AI is a tool for investors to keep up with the trend, opined SEMA Translink Investment’s Lim. “HR industry has been related to subjective matters. It was hard to make full use of objective data rather than the subjective realm.”
The firm’s investee company, JobHopin, has developed a technology called Bunny AI, currently capable of filtering out and matching over 50,000 CVs a day based on the job description and assessment criteria of the employers, said founder Kevin Nguyen.
Dropsey expects data-driven solutions and automation to drive quality and efficiency in terms of matches and personalisation for both employers and job seekers.
With a working population of 55 million and about 700,000 businesses, Vietnam’s HR-tech industry has a sizable market to address. Furthermore, the local government has set a goal to have 2 million enterprises within the next five years.
“But put aside the big market, we think, the most compelling factor to investors is the ability to apply AI in the sector,” Sieu Viet CEO Minh concluded.