The wait for the country’s next batch of unicorns, though, may not be as prolonged, given that the presence of two such startups in the ecosystem is a major confidence booster for investors.
“Such a case [VNPAY] proves that there is a track record of larger tech companies in Vietnam, which will make investors more comfortable with backing later-stage fundings,” an executive close to VNLIFE, the parent company of VNPAY, told DealStreetAsia.
VNPAY — recognised as a unicorn by Google, Temasek, and Bain & Co’s ‘SEA e-Conomy 2020’ report last week — is the mainstay of VNLIFE, which supports payments, online travel, B2B e-commerce, and new retail. VNLIFE also helps local banks build and manage their mobile banking infrastructure while operating a QR code-based payments system through its VNPAY unit.
“In 2020, we have VNPAY join this group of 12 unicorns [in Southeast Asia],” the Google-Temasek report said. The valuation for VNPAY was based on estimates from public information and triangulations from expert interviews in Vietnam, a spokesperson for Temasek told DealStreetAsia in an email interaction.
The Vietnamese firm did not comment on the valuation.
Vietnam has lagged Southeast Asian peers in creating unicorns.
While VNG Corporation and Singapore’s Sea Group were the first unicorns in the region, other nations have raced past Vietnam in investments since then. Indonesia, for instance, is home to five unicorns (Bukalapak, Gojek, OVO, Traveloka, and Tokopedia), and so is Singapore (Bigo, Grab, Lazada, Razer, and Sea Group).
The presence of high-valued startups is a draw for investments. In the past four years, Indonesia has accounted for 54-74 per cent of the capital invested in Southeast Asia, according to a recent report by Vietnam-based Do Ventures.
“The tech stories in Indonesia are what keep investors keen on what else is going on, and why the market is growing so fast,” commented Jianggan Li, founder of tech venture consultancy Momentum Works.
The tech ecosystem in Vietnam is also moving in the same direction, observed FEBE Ventures’ co-founder and managing partner Olivier Raussin. “The country houses 17 per cent of the Southeast Asian region’s unicorns even though total VC money flowing into Vietnam over recent years has been less than 10 per cent of the entire region’s,” he said.
While acknowledging that the presence of more unicorns will drive investor interest in the market, Li said investors would also keenly look at certain other metrics, such as profitability. And this is where Vietnam’s unicorns stand out.
Built on profitability
Profitability has become all the more important for fund managers amid the COVID-19 pandemic. The Google-Temasek report pointed out that Series C and D deals across Southeast Asia plateaued this year because late-stage investors started to look more closely at the profitability of target companies.
Both of Vietnam’s unicorns fulfil this criterion.
VNLIFE has been posting net profits for several years, Niraan De Silva, the company’s managing director told DealStreetAsia. “Given the way we have built the company as a B2B enabler and infrastructure technology platform, we have very strong unit economics,” he said.
DealStreetAsia has learned that VNLIFE has garnered around 30 per cent organic profit growth from its core business in the past few years.
“The COVID-19 pandemic has positively impacted VNPAY as consumers have increased their appreciation of digital banking and the benefits that come along. We saw some decline in our offline QR business during the lockdown period, but now volumes are recovering quickly to pre-COVID levels,” De Silva said.
Because VNLIFE’s travel business is focused more on domestic, rather than international, activities, its volume has surpassed pre-COVID level and has been growing 20 per cent month-on-month since Vietnam successfully contained the spread of the coronavirus and removed domestic travel restrictions, according to De Silva.
VNG Corporation, founded in 2004, has also demonstrated profits through the past decade. For the first three quarters of this year, it earned a combined 414 billion dong ($17.9 million) in net profit compared to 539.6 billion dong in the same period last year. 2019’s full year profit was 454.9 billion dong, a 36.5 per cent increase over the previous year.
The ability to showcase profits will retain investors’ continued interest in Vietnam, said Li of Momentum Works.
He also cited the example of Sea Group and China’s delivery platform Meituan. “For a long time, people doubted if Meituan could survive because of its huge, costly logistics infrastructure. The company turned to making profits and its share price has skyrocketed.”
With the infrastructure that Meituan has built over the years, different businesses can be built on top of that. I believe that some companies in Southeast Asia are moving towards that path, Li added.
Vietnam is at an inflection point, as far as the emergence of new unicorns is concerned, Do Ventures said in its report.
Indonesia’s unicorns emerged during 2009-12, when the number of internet users in the country were 63 million, the report said. Coincidentally, there were 64 million Internet users in Vietnam in 2019.
Fourty million new internet users were added in Southeast Asia this year, and Vietnam, home to 96 million people, saw the largest number of new digital users across the region, at 41 per cent of the total internet consumers in the country, according to the Google-Temasek report.
Vietnam’s online demographics has made it one of the two fastest-growing digital economies in the region, along with Indonesia, Aadarsh Baijal, partner and head of digital practice in Southeast Asia at Bain & Company, said during the report launching webinar on November 10.
Indonesia and Vietnam will continue to see most of the investor interest, he added.
The majority of VC deals into Vietnam’s tech industry have been at the early stage, and the number of early-stage deals continued to increase, almost doubling in 2019 compared to a year earlier, according to Do Ventures. “This rise could help create a good deal pipeline for later-stage funds in the VC cycle,” the firm said.
Vietnam had not scored any $50 million-plus deals prior to 2018, but since then the market has seen seven such deals with $692 million in total value.
Going forward, the e-commerce, logistics, and fintech sectors in Vietnam are expected to be the capital magnets. “Companies like Tiki, MoMo and VNPAY have already proved that they can raise large rounds. So the demand for growth stage rounds is there,” said Raussin.
He said education and healthcare are the new frontiers for Vietnam as the two sectors will also see robust growth due to the young, savvy population as well as the need to generate a better healthcare system.