From coding farm to VC destination: Vietnam's rapid rise
Benjamin Cher
VIETNAM has long been associated as South-east Asia's coding farm, where talent and wages are in the sweet spot for companies to use it as a base for their technical development.
But there's something in the water that's attracting venture capital investment into the heart of the Mekong Delta.
Vietnam's startup ecosystem has experienced a hockey stick-shaped growth in funding, with funding soaring from US$44 million in 2015 to hit US$127 million in 2018. This growth continued through 2019 with Vietnam gaining US$1.4 billion or 18 per cent of the US$7.7 billion invested in South-east Asia.
The funding boom has minted at least four Vietnamese unicorns, with three of them - tech platform VNG, e-wallet MoMo, and consumer platform VNLife concentrated on the domestic market. Sky Mavis, creator of non-fungible token (NFT) game Axie Infinity has seen customers across the globe.
"I think if you were to look at the capital inflow over the years, Vietnam compared to other South-east Asian countries, Vietnam is more of a hockey stick more than anything else," Kuan Hsu, general partner at VC firm KK Fund, told The Business Times.
Vietnam's glow-up
A confluence of macroeconomic factors have aided Vietnam's glow-up to investors. Favourable demographics, in a young population with a high Internet penetration rate of over 70 per cent, built on rising purchasing power. And in 2018 came a push by the Vietnamese government to attract foreign direct investment, according to Jeffery Paine, managing partner at VC firm Golden Gate Ventures.
"The Koreans went in for seed rounds in 2019 and really exploded funding in Vietnam," said Paine.
The official push comes all the way from the top, with even the prime minister appearing at the monthly government sponsored events for startups pre-Covid-19, according to Vy Le, co-founder and general partner at Vietnam VC, Do Ventures.
The explosion in funding has also helped raise domestic unicorns VNG, VNLife and MoMo. While they only have operations in Vietnam, the market size of 100 million - along with a higher disposable income than Indonesia - brightens prospects for Vietnamese startups.
Growth has also been spread out for Vietnam's startups, even in sectors that haven't attracted as much funding as the hot ones like fintech and e-commerce.
"We're actually witnessed a lot of sectors having rapid growth with strong Covid tailwind. For example, education is one of the sectors that have tremendous growth this year, but not that much funding has gone into it," said Do Venture's Vy.
While Vietnam's startups initially started with just serving the domestic market, the next generation is now looking to go regional or global from the get-go. With successes like Axie Infinity, local role models are now giving Vietnamese founders and entrepreneurs a path to follow.
Crypto hub
Then there's also another fast exploding sector that Vietnam startups are excelling in. Flush with cash, founders in Vietnam had a resource other countries in the region lacked: a large and available pool of tech talent. And this talent pool has given Vietnam a leg up in technically challenging sectors such as in the crypto space.
"Sky Mavis has inspired a new generation of crypto game developers. The world is increasingly looking at Vietnam as the new hub for crypto gaming and NFTs," said Jessica Huang Pouleur, general partner at Openspace Ventures.
The rise of crypto startups could also mean that some of the funding going into Vietnam isn't getting tracked, with such startups often getting a mix of cash and tokens for funds. In addition, startups in the region often incorporate a company in Singapore to receive investor funds, which means that the true scale of Vietnam's funding boom may not be fully apparent.
The exit outlook
While Vietnam has done well to attract investor dollars, there is an unanswered question over exits. Compared with Singapore and Indonesia, Vietnam has yet to see any exits from its unicorns, of which three are purely focused on the domestic market.
"I think this is going to be an overhang in terms of Vietnam becoming the factory of unicorns going forward," said KK Fund's Kuan.
But Vietnamese startups are on the prowl for exits, with a number prepping for initial public offerings in the US rather than domestically, according to Do Venture's Vy. Despite Vietnam being a few years behind Singapore and Indonesia in minting unicorns, she thinks exits for Vietnam startups will come within the next year or so.
"They have a very ambitious goal. They don't want to do an IPO in the local market, they aim for an IPO in the US," said Vy.
All this is leading to the continued funding boom in Vietnam, and the funding gap between Vietnam and established investment locations like Singapore and Indonesia is likely to narrow. Funds are now listing Vietnam as a target market when it was previously omitted, and new funds are being raised specifically to invest in Vietnam. All signs point to an upward trend, according to Vishal Harnal, partner at 500 Global.
"The volume and velocity of capital headed for Vietnamese startups is only going to increase. Investor appetite is still catching up and the ecosystem is capable of absorbing far more capital," said Harnal.
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