Vietnam first spawned a unicorn in 2014 when tech major VNG Corporation was reported by the World Startup Report to secure the coveted $1-billion valuation. It was one year following VNG’s entry into the club that the region saw the birth of its second unicorn in Garena (now Sea Ltd).
It took VNG Corp nearly 11 years to reach the milestone, and, for Vietnam, the wait for a second unicorn continues despite all the right buzz surrounding its startup ecosystem.
“Vietnam has not seen the development of many business models that have the potential to go beyond the country,” said Khanh Tran, head of VinaCapital Ventures, the $100-million venture capital vehicle mandated to nurture both early- and late-stage companies.
He attributes it to lack of regional plays and the timing of domestic go-to-market strategies. “Some innovative solutions went out too early in the domestic market,” he added. “For example, there were some local e-commerce players in the early 2000s that failed to sustain growth due to low adoption and a lack of payment infrastructure at the time. Industries were just not ready for digital transformation, or the traditional players were still able to reach customers cheaply.”
Despite no clear visibility on Vietnam’s next unicorn, the ecosystem is bullish about positive trends such as larger funding rounds, focus on building high-returns and sustainable businesses and the region’s tech talent driving niche and regional plays.
Vietnamese companies, which have struck a valuation of more than $100 million, include e-commerce players Tiki and Sendo, e-wallet MoMo, and Trustingsocial – a credit scoring platform, according to a Cento Ventures report.
DEALSTREETASIA’s data shows that there are two more tech firms that could be reaching a similar valuation threshold: ride-hailing app Be and media firm Yeah1.
* DEALSTREETASIA estimates
One of the main constraints that emerge in the Vietnamese startup ecosystem is the limited access to early-stage funding to support growth ambitions.
“In comparison with other markets such as Singapore and Indonesia, seed capital in Vietnam is quite modest,” Vy Le, a partner at Vietnam-based VC firm ESP Capital, pointed out.
ESP Capital is a $20-million investment fund established in 2016 by Vietnamese general partners. The firm seeks to back early-stage startups catering to millennials, who comprise a majority of Vietnam’s population.
“From my perspective, investing in a startup is not only about funding but also about creating values. Early stage investors should involve in facilitating the startup to grow to the next level,” said Le.
“Things are different today”
The country is also witnessing a stream of serial entrepreneurs who are returning home to build solutions relevant to both domestic and regional markets.
Tran himself returned to Vietnam after a stint at Goldman Sachs and as a venture capital investor in other countries. Another Vietnamese origin professional, Justin Nguyen, came back as the country advisor for Monk’s Hill Ventures.
“I’m returning here to the place of my birth not out of sentimentality or longing for my homeland (though I do love it here), but because I believe Vietnam is poised to become the next technology hub, birthing startups that could become international companies,” Nguyen wrote in one of his blog posts.
Vietnam’s demographics is a good premise to produce more fast-growing tech startups. Around 70 per cent of Vietnamese are in the Y and Z generation, who are tech-savvy and have rising purchasing power.
“In Vietnam, if a company can create values for customers in such sizeable markets as healthcare, education, financial services, its revenue can reach up to hundreds of millions of dollars,” said ESP Capital’s Le.
According to her, Vietnam is a promising market that can achieve similar growth potential as Indonesia, which has spawned four unicorns to date.
“I think new unicorns in Vietnam are in prospect,” Le said.
Technology has enabled businesses to have a wider reach to customers. While a lot of services have not been able to come to people in tier-3 cities and rural areas, traditional businesses are still operating branch-based, which will require more time and resources to scale.
HSBC recently forecast that Vietnam will see $300 billion in value created across key sectors. That will create fertile conditions for more unicorns to emerge, Tran said.
“I would expect Vietnam to have some very significant tech companies in key sectors in the near future.”
High valuation vs. high return
While the billion dollar valuation helps a market get more attention in the investment map, for an early startup market like Vietnam, it is more critical to build sustainable companies which can generate better returns.
“Vietnam is one of the fastest growing economies in the region and there are many opportunities for investment there. However, the exciting growth has led to increased competition between investors for opportunities making it one of the most expensive markets we operate in from a valuation standpoint,” commented Alex Odom, CIO of Mekong-focused fund Belt Road Capital Management.
“We invest in companies that have sustainable business models that we believe will generate outsized returns over time. In the early and mid-stages of a company, it is much more important to focus on execution and growth rather than seeking a specified valuation,” he added.
High valuation comes from the ability of the business to create real value and scale.
VinaCapital exited Yeah1 through the company’s private placement and IPO in 2018 for $127 million on the original $3 million investment.
VNG, whose investors include Goldman Sachs, also reached a memorandum of understanding to list on Nasdaq, potentially becoming the first business in Vietnam that will score an overseas IPO.
Meanwhile, MoMo and e-commerce startups Tiki and Sendo have been posting losses over the last few years since their inception, according to Vietnamese media.
MoMo recently secured significant funding from private equity firm Warburg Pincus; DEALSTREETASIA has learnt that the investment was around $100 million. Both Tiki and Sendo have bagged around $50 million each in their most recent funding rounds.
Internet software and services, e-commerce and fintech have formed the biggest trend in the $1-billion-plus market, per a CB Insights report.