Vietnam is fast emerging as a hotbed for entrepreneurial activity if recent deals and interest shown by venture capital firms and overseas investors are an indicator.
Apart from the firms that have been in the country for a long time -like IDG Ventures Vietnam – several new venture capital (VC) players have entered the Vietnamese startup ecosystem and are bullish on the opportunities foreseen in the country.
What seems to be driving investor interest are favourable demographics and scalable business models. The number of Vietnamese startups now touch 1,400, according to data available on Techlist.asia, and that makes the country the third largest ecosystem in the South East Asia, behind Singapore and Indonesia. Giving a further fillip to the ecosystem is the success achieved by Vietnam’s first generation of technology majors such as FPT Corporation, VNG Corp and VC Corp, who have now turned investors in some of these start-ups.
“For a nation with 90 million population that is in the midst of economic boom, young demographics, rising middle income group, and growing internet adoption rate, especially mobile, coupled with investor-friendly policies, the country (Vietnam) is at the beginning of a very exciting cycle,” commented Saikit Ng, executive director of Captii Group’s VC arm Captii Ventures, which has just made a six-digit US dollar investment in topping up service startup OnOnPay.
The increased attractiveness of Vietnamese startup companies, according to Binh Tran, co-founder of Klout, is partly due to external factors and partly due to local market shifts.
Klout is a startup that gives scores to rate social media influence of users, and Tran is one of the two newly appointed Vietnamese partners of the US venture capital company 500 Startups.
“Externally, we think there’s a growing recognition among investors that there is too much of a focus on certain markets, especially Silicon Valley, China, and India, which are driving irrational valuations,” he said.
“Simultaneously, investors are starting to recognize that many great startups are being launched outside of these “hot” markets, i.e. that innovation can come from anyone, anywhere.”
Traditional target markets are relatively overvalued vs non-traditional markets, allowing for potentially more favorable returns in those other markets.
But while there are many non-traditional markets to choose from, why Vietnam?
“Because it’s (still) a large, young, and fast-growing economy, because digital numbers like internet penetration and smartphone penetration have grown to massive scales, and because some pioneering founders have achieved success and proven the potential of the Vietnam market and Vietnamese talent,” noted Eddie Thai, the other Vietnamese partner of 500 Startups.
In comparison with other countries in the ASEAN (Indonesia, Thailand, Malaysia, Singapore, Philippines and Vietnam), Vietnam seems to have a strong advantage of ready technical talent, energy, resourcefulness, and market growth potential.
According to Binh, another key advantage is the Vietnamese diaspora community, which Anh Minh Do, editor at TechinAsia, has called the Vietnamese tech scene’s “secret weapon”.
Vietnamese residents were skeptical about how the country can attract talent from its own population, as they feared a brain drain when a lot of proficient people studied and worked overseas. However, the trend has now changed, with many of them now returning home to create their own ventures.
“According to a recent Topica Founder Institute study, out of 27 of the most successful tech startups from Vietnam, nearly half of them have founders who worked or studied abroad,” said Binh.
While Vietnam is seen to lag in terms of product design, sharing and trust, regulatory flexibility and efficiency, and access to capital, 500 Startups has seen progress on all points.
New VC investment
Captii Ventures’ seed round for OnOnPay took place just last month, being its first ever investment in Vietnam. Also, in August 2015, 500 Startups announced to have on board Eddie Thai and Binh Tran as Vietnamese ventures partners.
Ng said that his fund has been looking for investment opportunities in startups in Southeast Asia in various stages since the second half of this year. “My first visit to Vietnam as investor was in October 2014 for a really short trip, one day to be exact, to attend a Founder Institute’s graduation event. Since then we knew that Vietnam is going to be a market that we will pay more attention.”
Ng met OnOnPay during the TechFest in May, and it did not take the fund long to get the deal done. “When we met Sy Phong and talked about OnOnPay, we have already understood the market well enough to make investment decision,” he said.
The investment was also well timed with the new foreign investments policy regime that took effect from July 1, 2015. More openness in regulation has been introduced since July, with more freedom for foreigners to own properties in Vietnam and less complicated procedures for an investment project or portfolio.
“We are pretty happy with the tractions that OnOnPay has delivered so far. With a first good investment experience, there is no reason to stop. Second investment? May be if all things go as planned,” Ng told DEALSTREETASIA.
But Captii Ventures will not fall short of startups that fit its investment plan. Besides startups in earlier stages, the fund realises that there are a number of late stage companies that it will participate as co-investor.
Within the three segments that Captii Ventures is focusing, marketplaces, digital media and enterprise applications, it will get more actively involved in at least the marketplaces and enterprise applications segments.
Meanwhile, 500 Startups as a fund is generally sector-agnostic. “It’s straightforward: we look for great teams with differentiated products that we can help scale up massively,” shared Binh. “But personally, we’re particularly interested in products and services that can fundamentally improve lives, for example, technology for the finance, education, healthcare, and media sectors, especially when optimized for mobile phones.”
When asked about the Vietnam Accelerator Fund, which Eddie formed in 2014, he explained that the various assets from his prior efforts have been transferred to 500 Startups. While there was no on-the-record discussion of a separate Vietnam-dedicated 500 Startups entity, Eddie said that Vietnamese startups will not be an exception for investment from 500 Startups’ global funds.
What’s next for Vietnam?
While we have not seen investments from VCs that were really active in the past, such as IDG Ventures Vietnam , new VC players in the Vietnamese startup ecosystem are bullish on the opportunities foreseen in the country.
“So long as there is liquidity around the world, and Southeast Asia remains a region with growth promises, there is no reason why Vietnam is going to be left out from the radar screens of VCs,” Ng commented. He is assertive that Vietnam will be one of the countries that stay ahead of the race in the SEA region, as most things are aligned. “I don’t have any number with me because it is so hard to predict now for many new comers, not just VCs, have entered to space, but there will be exponential growth for sure.”
Eddie is also optimistic that a lot more money will come to Vietnam, as he believes capital tends to flow to where it can make the best risk-adjusted return. Specifically he expects that, in the long-run, more seed-stage capital will come from country-focused angel investors (along with 500 Startups’ own funds). “We already see many local investors approaching the space, albeit some with cautious interest,” Eddie said.
Meanwhile, more capital for Series A investments onwards is hoped to come from regional and global funds and corporate investors, especially those from Japan, Korea, Singapore, and the US.
They are right, because not just to VCs, Vietnamese startups have become compelling to other foreign corporate entities, including South Korea’s Yello Mobile, which invested in marketing agency CleverAds and price comparison site Websosanh; Singapore’s internet company Garena, in July leading a series B round for Foody Corporation – which later in the month grabbed a series C funding from US-based VC firm Tiger Global Management; and Tokyo-based outsourcing company transcosmos, which acquired 30 per cent of e-commerce platform Hotdeal in a deal inked last month.