Vietnamese startup accelerators are increasingly spinning out different strategies for growth to cater to the founders’ changing demands in the burgeoning startup ecosystem in a post-pandemic world.
In May, VIISA, one of the most significant startup accelerators in the country, shut down its operations to pivot to a venture capital model.
VIISA is backed by tech giant FPT Group and Dragon Capital and has a corpus of $6 million. As a start accelerator, it has conducted as many 8 batches and 3 Investment Day programmes in the country since its inception in 2017 and has funded startups such as ELSA, Base.vn, TheBank, iSpeaking, Goong, and Urbox.
The shift to a different business model comes in even as VIISA looks to dole out pre-seed and seed capital to startups in the country. “The problem of pre-Series A startups is not capital, but how to use capital effectively,” said Duc Tran, founder and CEO at VIISA. Going forward, the firm wants to spend more time analyzing the need for capital in startups.
“Since there is a gap in early-stage funding in the country, VIISA aims to fill the gap, identify talent and support startups from an early-stage, and help them to raise Series A,” Tran emphasized, adding that the VC firm plans to invest in 20 startups this year.
VIISA is not the only one looking to do something different.
Expara Accelerator, which is run by Southeast Asia-focused early-stage investor Expara Ventures, has rolled out an online model for all of its accelerator programmes. Last year, the VC firm launched Expara Academy, wherein all its accelerator programmes, entrepreneurship and venture capital courses have been made available online.
The accelerator is currently scouting for startups that have the ability to counter challenges arising out of the COVID-19 pandemic.
“I feel the online courses, in combination with the live Zoom sessions that we do, have actually improved the learning experience for participants in our accelerator programmes. We are continuing to launch new courses on Expara Academy and are very excited to reach out to more people,” said Douglas Abrams, CEO at Expara Ventures.
Expara is present across a spectrum of investments – from incubation, early-stage venture capital, to innovation training.
“Vietnam’s ecosystem is also ripe to see some changes on how programmes are run,” said Bobby Liu, co-director at Tech Founder Institute. This year, the accelerator will launch a new programme named TFI-Hub Blockchain-Power Accelerator 2021 to focus on blockchain startups.
The firm was renamed after changes in the leadership team of its parent company Topica Founder Institute, run by PE firm Northstar-backed Topica Edtech Group.
The COVID crisis has had an adverse impact not only on startups but on also competition events as well – the number of startups applying for business acceleration programmes has come down significantly over the last one year.
“During the pandemic, founders found themselves facing new and unexpected challenges, both in terms of their business as well as from a macro-economic aspect,” stated Quynh Vo, business development director at Zone Startups Vietnam in our recent report on State of SE Asia Startup Accelerators. The current situation is prompting them to acquire “more knowledge and insights, as well as hands-on coaching. And that [has] made the mentorship network we offer valuable.”
She said that Zone Startups, backed by global incubator DMZ, offered the first 1:1 mentorship programmes in Vietnam. The firm recently made headlines for launching EMpower programme for mentoring women in the technology space.
The pandemic is also accelerating partnership propositions between accelerator programmes with each other or with venture capital funds as they look to leverage the strengths of each other.
In March, Vietnamese early-stage accelerator ThinkZone tied up with BK Fund, a venture investment fund of the Hanoi University of Science and Technology (HUST), to manage and raise $10 million for its first investment vehicle. Called BK Fund 1, the investment vehicle aims to support potential startups in Vietnam with a ticket size of up to $1 million.
Expara Accelerator, meanwhile, continues to boost its partnership with government-backed Saigon Innovation Hub (SiHub) to launch Sihub Expara Accelerator Batch 3 2021.
In comparison with other countries in the region, startup accelerators are still a relatively new phenomenon in Vietnam, even as a lot of progress has been made over the recent years.
According to our report, there are at least 23 organisations that have admitted to providing business acceleration programmes in the country.
While the longest-running programmes are mostly those backed by government-linked institutions such as Vietnam Silicon Valley and Saigon Innovation Hub, venture-backed programmes have, of late, started mushrooming with the country’s startup ecosystem maturing. These include Saola Accelerator by 500 Startups, ThinkZone Accelerator and Zone Startups. Notable corporate-backed accelerators include Grab Ventures Ignite, Topica Founder Institute, and VIISA.
Seven batches of programmes were held in 2020 versus six in the previous year, with the total number of graduates standing at 48 and 40 respectively, roughly double the total of 2016.
DealStreetAsia’s State of SE Asia Startup Accelerators Report
“There aren’t many high-quality accelerators or incubators in the startup ecosystem. The local accelerators have not really responded to the expectations of the startup founders. Many accelerators are created organically, and the management teams of these accelerators do not have enough experience in building startups,” said Do Bui, CEO and founding partner at ThinkZone Ventures.
Echoing the same sentiment, Zone Startups Vietnam’s Vo added that the line between the accelerator and the incubator is blurred. “There are incubators that do the work of accelerators too. I think it is necessary to define what’s the scope of accelerator and incubator to build a methodical system of programmes.”
Do accelerator programmes work in Vietnam?
According to experts, in terms of supporting the startup ecosystem, the accelerator programmes have done quite well. However, in terms of bringing profits to operating companies, this model has not yet shown significant results.
Since 2011, 80 startups have graduated from TFI – these include names such as Appota, Logivan, Atadi, Beeketing, Monkey Junior, Kyna, Hoayeuthuong, and Recruitery.
Together, they have raised over $40 million in funding with over $300 million in combined valuation.
Meanwhile, Sihub-Expara Accelerator has held programmes in two batches, with a total of 40 companies graduating. Of these 45% of the companies – or any many as 18 – have raised follow-on funding. These include prominent names include Finhay, Nami Exchange, Edu2Review, Remit Hub, and Credify, among others.
“It may be easy to launch an accelerator, but it is very hard to run a good accelerator,” said Expara’s Abrams. “It takes a tremendous amount of time and effort working with the companies in the programme to truly accelerate them, and there is no guarantee that you will be well-compensated for this time and effort. And if you are compensated, it will usually be many years later,” he added.
DealStreetAsia’s State of SE Asia Startup Accelerators Report
In terms of getting profit for the operating company, Abrams believes that whether an accelerator is profitable in the short term depends on its business model. Most of them are not profitable in the short term as they typically do not charge participating startups.
“In the long term, accelerator programs can be profitable if they make successful investments in start-ups that go through their programs, but given the stage of development of the companies in most accelerator programmes, these investment returns can take many years to be realized, according to Abrams.
“To be profitable as an accelerator, you have to take a really long-term view,” he said.
Operating expenses for accelerators are paid by strategic partners, sponsors or an affiliated venture capital funds. These arrangements basically cover operating expenses but usually do not generate profits.
“Most programs are funded and they come with a time frame. I think accelerator programmes in Vietnam are of high quality, in terms of what the programs bring to founders. However, to be optimally effective, founders have to take full advantage and it shows for some startups that have,” said TFI’s Liu. “I do believe investors who have backed some of the programs will see great returns in the next few years,” he added.
Despite challenges, strong fundamentals of the Vietnamese economy should give way to a much rapid development of the local startup ecosystem. The growth of local corporations will spur innovation and drive demand for local tech talent, while the flow of foreign capital will gradually shift from manufacturing to tech.
In addition, early-stage deals are still the main motivation for risk capital investors. The latest report of Do Ventures showed that the number of early-stage deals of less than $500K increased by 11% in 2020, in which there was a rise in terms of both deal size and deal number in H2.
Investments in the seed round and Series A also dominate with 70% of the deals, higher than the same period of 2020 and 2019, according to the Q1.2021 Vietnam Startup report by venture capital firm Nextrans.
“I think Vietnam startups need more appropriate acceleration programmes that provide effective training activities and valuable support packages,” Bui said.
“To maximize founder’s chances of joining an accelerator that meets their expectations, I would advise founders to choose their accelerator programs carefully…Make sure that you understand what exactly the accelerator is offering and what you will receive in return for their offer,” said Abrams.