A recent report by venture capital firm Cento Ventures and ESP Capital titled the Vietnam Tech Investment Report 2019 H1 was recently published providing rarely seen insight into the market’s startup and investment scene. We recently covered their 2018 report on the region’s startup investment ecosystem, which you can read here.

In just two short years, Vietnam jumped from the second last to third, behind only Singapore (1) and Indonesia (2). This is in relation to investment activity among the top 6 ASEAN markets. The amount of invested capital and the number of technology deals done in the first half of the year Vietnam has grown six-fold in the two years when compared to the same time in 2017.

The growth of the market was strong with Vietnam startups raising a total of US$246m primarily focused (63%) on the three largest investments (Tiki, VNPay, VNG). Retail and payment startups were among the most popular verticals that investors focused on in the market.

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Another sign of the evolving market is the increase in exits. Though small in size, with the majority being primarily within the $20M range, the fact that there are exits will spur the market. Liquidation events are highly attractive to the investment and entrepreneur community, so this can be a catalyst for even larger exits in the months to come.

To find out more, we spoke to one of the report’s main authors, Mickey L. Tantiphipop, an analyst at Cento Ventures.

What have been some of the factors holding back the Vietnam market? 

To have a fuller picture of a startup ecosystem development, it is essential to distinguish the growth in investment from the growth of startup activities. 

Until recently, Vietnam has lagged behind some other ASEAN countries in terms of the amount of VC funding it attracted. The majority of VC attention and capital in Southeast Asia has been drawn to more immediately attractive destinations: primarily Indonesia, due to the size of its economy; or Singapore for its’ business-friendly environment and reputation as a hub for the region. 

Despite this, Vietnam’s startup ecosystem has produced a number of local success stories. The first generation (early 2000’s) of Vietnamese digital companies gave rise to large tech groups such as VNG, STI (24h Media), VCcorp, Nexttech, and VNP,  and local leaders who were successfully acquired by global players in their respective categories such as Vietnamworks (En-Japan) and Batdongsan (PropertyGuru).

What are the main factors attracting investors to the Vietnam market?

The growth in Vietnam startup investment is from both foreign and local investors. 

Early stage startups primarily rely on local investors for the source of capital. As founders from earlier generations achieve successful exits or grow their ventures into sizable profitable companies, some of the proceeds get reinvested into the ecosystem as support for a new generation of startups. 

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Simultaneously, the favourable overall conditions of high GDP growth, sizable population, and growing consumer class attract more foreign investment interest, often seeking to invest at the later stages of startup growth. Recent tech exit stories such as the Yeah1 IPO will likely encourage more capital injection into the sector.  

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Which startup or industry in Vietnam, do you see becoming or producing the first unicorn for the market?

Vietnam’s VNG Corporation has already spearheaded this category as one of Southeast Asia early unicorns. We expect Vietnam to follow the dynamic seen elsewhere, where startups in more advanced digital sectors like gaming, retail, payment, and financial services tend to attract more capital injection and produce larger companies. Some Vietnamese companies that recently raised large funding round include Tiki and Sendo in the retail sector, and VNpay and Momo in payment. 

Will the increase in acquisitions lead to increasing valuations due to increasing demand? If so, will this then stifle growth in the market?

A key factor in the calculation that investors make when valuing a company is its potential to exit. As a whole, Southeast Asia still has a fairly limited track record in producing valuable tech startup exits. However, as that track record grows, investors should feel increasingly confident in committing to large investments in the earlier rounds. More successful exits can also act to inspire a new generation of founders, and to recycle capital as investments that support the creation of a new generation of startups – leading to a vibrant startup ecosystem.

What can expect next from the startup industry in Vietnam? Does Cento Ventures see this upward trend continuing for the Vietnamese startup scene?

Vietnam startup scene is progressing in multiple aspects. In the short run, the growth in the number of deals and capital invested will likely continue, with several large deals already announced for the 2nd half of 2019. We also expect to see more investment activities as well-funded tech companies compete to strengthen their footprint in Vietnam. 

In the longer run, how the Vietnamese ecosystem develops relies on many factors. The availability of capital and liquidity is one, but many others exist. These include developing a sufficiently deep technology talent pool, building a suitable regulatory environment, ongoing improvement to infrastructure, and the continuation of positive economic trends

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