Vietnam’s tech growth will make it easier for startups to become unicorns

Photo by Annie Spratt on Unsplash

As the Vietnamese tech ecosystem matures, the industry is expected to see more unicorns produced at a faster pace, with some local champions already close to hitting the coveted billion-dollar valuation mark.

Back in 2014, VNG Corporation became the first Vietnamese company to earn the unicorn moniker. Six years later, the country saw VNLIFE, the parent firm of payment major VNPAY, emerge as the second unicorn.

Interestingly, most of the maturing tech companies were founded in the 2000s when Vietnam was at a very early stage of tech development and it took them a decade or more to generate a valuation of $1 billion.

“A lot of what they had to do was the groundbreaking work on the hard yard of educating consumers, and putting basic infrastructure of logistics and payments in place,” noted Florian Hoppe, digital practice and tech leader at Bain & Co.

While VNG Corporation was established in 2004, VNLIFE was set up in 2007. But the race for the new generation of unicorns in Vietnam is seen to be getting shorter.

In 2021, play-to-earn game studio Sky Mavis, which was incepted only three years ago, became the country’s third unicorn. The developer of the much-popular NFT game Axie Infinity, with a reported $3 billion valuation, took the market by surprise.

“It’s a really innovative model developed by people who are able to think outside the box and keep abreast with the latest trends in that space. It’s a great example of what is to come out of Vietnam,” said Hoppe, noting how the contours of the burgeoning tech startup ecosystem are increasingly changing.

There could be more unicorns in the making soon. DealStreetAsia recently reported that MoMo, the country’s largest e-wallet, is in the market again to raise another funding round that could potentially make it a $1.5 billion company. We were also the first to report that Tiki neared the unicorn status with the completion of its $258 million Series E funding round earlier this month. There is more to the list. (See table below)

Unicorns in the making

Expand Table

CompanyVerticalsTotal funding InvestorsLatest funding stage
MoMoDigital payments$234MWarburg Pincus, Affirma Capital, Goodwater Capital, Macquarie Capital, Tybourne Capital Management, othersSeries D
TikiE-commerce$450.5MNorthstar, AIA, UBS, Mirae Asset-Naver Asia Growth Fund, STIC Investments, othersSeries E
SeedcomNew retail$112.5MReDefine Capital, KVision, Aurora Global, Mizuho ASEAN Investment, others
ScommerceLogistics$100MTemasek, Ficus Asia Investment, Olympus Capital Asia, ReDefine Capital
SendoE-commerce$112MKVision, Softbank Ventures Asia, Daiwa PI Partners, EV Growth, othersSeries C
KiotVietSaaS$53MKKR, Jungle Ventures, Traveloka, Seedcom, KVisionSeries B
Loship*E-commerce, food delivery$20.4MGolden Gate Ventures, BAce Capital, Smilegate Investment, Hana Financial Investment, othersSeries C

*While Loship’s total funding amount is modest compared to others, its Series C round is still on. The company is in talks with Daiwa Securities to raise another $50 million. It told DealStreetAsia earlier that its valuation has crossed $100 million.

Serving fundamental needs

Vietnam’s next batch of unicorns could emerge from the burgeoning digital economy with e-commerce, logistics, financial services, transport and food witnessing significant traction.

E-commerce, which is reliant on logistics and digital payments, is seen as the biggest growth driver for the region’s Internet space until 2025, according to Google, Temasek and Bain’s SEA e-Conomy 2021 report.

To delve deep into the numbers, e-commerce gross merchandise value in Vietnam grew 53% year-on-year to $13 billion this year. Going forward, it is anticipated to touch $39 billion by 2025.

The country is seen replicating successful models prevalent in more advanced Southeast Asian markets like Indonesia, Singapore and Thailand where unicorns are present across a slew of new-economy sectors.

While the online marketplace space has players such as Tokopedia, Bukalapak, Blibli and Carro, prominent fintech companies in the region include Nium, Xendit, Ascend Money. Meanwhile, in the logistics space, names such as J&T Express, Flash Express and Ninja Van, among others, are doing the rounds.

According to the SEA e-Conomy 2021 report, Vietnam’s Internet economy is poised to grow 11x from now to 2030 – that could be the highest growth momentum among ASEAN countries. The number itself could prompt more startups to come up and scale if they can address consumer pain points seamlessly.

Even as local soonicorn businesses have cemented their top positions in the market, there’s still tremendous headroom for them to expand, said experts.

After a failed merger between Tiki and Sendo to form the country’s largest e-commerce platform, the two companies are now the last ones standing strong in the face of competition from regional players, Shopee and Lazada, as consistently seen in iPrice’s Vietnam e-commerce map since 2019.

In digital payments, MoMo is the most used e-wallet, chosen by 82% of survey respondents to the Fintech in ASEAN 2021 report released last week.

VNPAY, which provides digital payment infrastructure for banks, has seen accelerated online commerce adoption through the banking channel.

The company, which also provides QR-based services, had the best performing month in October, according to its managing director Niraan De Silva.

Vietnam’s e-wallet payments have increased ten times since 2017, according to the SEA e-Conomy report. However, government data showed that there were 16.39 million e-wallet users in H1/2021, capturing only 17% of the country’s population.

“E-commerce penetration is only 4%,” said Nguyen Hoanh Tien, CEO of Seedcom. “In a market with such a low penetration now, there’s still a lot for us to do.”

Seedcom has a slew of investments in areas of technology, F&B, fashion retail, and grocery – its portfolio companies being The Coffee House, Juno, HNoss, KingfoodMart, Haravan, iPOS, Temasek-backed SCommerce, and KKR-backed KiotViet. Tien said a successful retail business model still needs a strong offline capacity, coupled with online offerings to help scale faster.

“New retail is not new to us. The trend has just validated what we have built, and our goal is to assist merchants and SMEs to have the same capacity,” Tien said.

One of its portfolio businesses, KiotViet, is addressing that challenge for MSMEs. In September, the company received a $45-million funding led by KKR.

After having garnered 150,000 merchants across Vietnam to help them with point-of-sale, inventory management, customer relationship management and employee management services, KiotViet plans to soon provide financial services solutions such as digital payments and merchant lending, according to Louis Casey, KKR’s Next Generation Technology team member.

VNPay’s De Silva added: “As SMEs and big corporates alike need to digitise, more are partnering with us. At the group level, we have seen the positive impact to our business from the pandemic.” Apart from VNPAY, VNLIFE also runs several omnichannel units.

Moving beyond COVID-19, online consumption is expected to become the new norm, laying the foundation for the next phase of exponential growth in Vietnam’s tech sector. While user stickiness has been pointed out as a major challenge for tech startups, 99% of new Vietnamese online consumers now intend to continue using services going forward, per the SEA e-Conomy report.

Funding gains steam

Even as Vietnam has seen a spate of investments this year with value touching a record $1.4 billion between January and September per DealStreetAsia’s SE Asia Deal Review Q3/2021, there is room for growth, say experts.

“Valuations have grown in Vietnam, but not nearly as much as in Indonesia,” said Dmitry Levit, founder and general partner of Cento Ventures.

Meanwhile, Bain & Co’s Hoppe asserted that the next success stories will “increasingly depend on how well businesses are differentiated, and on their path to profitability, which keeps getting forgotten in Southeast Asia”.

Vietnam’s VNG has been profitable for many years. Starting out as a game publisher, the company is now present in online media, business management, financial services, and cloud and data centres.

Kelly Wong, vice president of operation at VNG, had told DealStreetAsia in an earlier interaction that one or two businesses under VNG will have the potential to become the next unicorn.

Meanwhile, De Silva claimed that VNLIFE is already “well capitalised and profitable”. “There is no question in where we’re operated in. The headroom for growth is massive,” he exclaimed.

The soonicorns are understood to be still in the loss-making stage.

Seedcom’s Tien said: “We’re in the growth phase, with handsome unit economics. We expect by 2025, some of the businesses will become our cash cows, while some will approach profitability.”

Enhancing regional play

Most of the unicorns and soonicorns in Vietnam are increasingly looking to ramp up their presence in the global market. VNG, for instance, manages to export its products to overseas markets. Sky Mavis’ Axie Infinity game, meanwhile, is also adopted by global players.

Cento Ventures’ Levit is optimistic of a scenario where Vietnam becomes the heart of regional and even global expansion activities.

“I’m looking at Vietnam as a hotbed of global entertainment and gaming stories,” he said. “The domestic market is small [compared to places like India or Indonesia], therefore the incentives [for Vietnamese firms] to go global are stronger.”

Hoppe echoed Levit’s take, saying that Vietnam has huge growth potential driven by its tech talents. “You’re seeing both local companies relying on local talent and also regional companies opening Vietnam office as their engineering or analytics hubs for the region.”

Need big exits

These Vietnamese unicorns and soonicorns are also expected to be the source of meaningful exit stories for the country in the near future, including IPOs that have been rare for tech businesses.

Seedcom’s Tien told DealStreetAsia that the company has planned an IPO by 2025. While the plan is subject to market condition, Tien asserted that it will be a milestone to “reaffirm Seedcom’s business model, generate more opportunities to attract talents, and deepen business partnerships.”

VNG was the first company to announce a memorandum of understanding (MoU) to list on Nasdaq in 2017. The MoU has not yet become a reality, but Bloomberg reported in August that the Internet firm was considering a $3 billion SPAC merger.

DealStreetAsia also said in August that Tiki was exploring the SPAC route. Tiki’s group CFO spoke at the Asia PE-VC Summit 2021 in October that the company was mulling to tap the international capital markets, indicating the US market as an obvious choice.

“There is a lot of interest [from SPACs] in Southeast Asia’s tech space. At the end of the day, it’s a massive economic region that has shown a lot of potential in the digital economy,” Hoppe noted.

But SPAC isn’t the sole option in this region where exits have been predominantly through M&A and trade sale.

“We’ve just had an example in Thailand: Siam Commercial Bank spent half a billion dollars to buy a crypto exchange. Why wouldn’t that happen with the conglomerates in Vietnam?” Levit asked.

The lack of big exits is not unique to Vietnam, De Silva opined. While regional biggies like GoTo, Grab or Propertyguru have expressed plans to go public, only Indonesia’s Bukalapak has seen its shares float.

“Vietnam does not have that many large companies, but I think we will see more significant activities,” De Silva said.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.