Last year was a bumper year for many Vietnam tech startups as venture capital (VC) firms poured in a record $1.35 billion USD in funding. As per the Ministry of Science and Technology’s (MOST) National Agency for Technology Entrepreneurship and Commercialisation Development, sectors such as financial technology (fintech), education, health, gaming, and eCommerce attracted the highest monetary backing in the country.

Other Vietnam VC trends showed the nation generated $8.8 billion USD in mergers and acquisitions (M&A) from January to October last year, a 17.9% increase from 2020, as research from KPMG Vietnam indicated. Over half of the M&A deals were in the finance, real estate, and consumer sectors, with domestic investors accounting for $1.6 billion USD of the deals. Most foreign investment comes from Singapore, Thailand, Taiwan, Japan, and Korea.

Professional services firm PriceWaterhouseCoopers’ (PWC) Global M&A Industry Trends: 2022 Outlook report highlighted the bounce-back of the global economy in 2021 from recessions brought about by the COVID-19 crisis. Deal volumes grew in every region, with the Asia-Pacific (APAC) responsible for 17% of the deals.

Some of the top mega deals in 2021 include VPBank’s sale of its stake in FE Credit to Japan’s Sumitomo Mitsui Financial Group (SMBC Group) and KKR’s investment in educational services provider EQuest Education Group. Another major M&A deal was Vietnamese car automaker Truong Hai Auto Corporation (Thaco), acquiring South Korea’s Emart retail chain in Vietnam. Additionally, Masterise Group announced it obtained property projects from Green City Development, whereas South Korea’s third-largest conglomerate SK Group bought a stake in Vietnam’s retail company Vincommerce.

Impact of the COVID-19 pandemic on Vietnam

According to a study by Facebook and Bain & Company, COVID-19 moved Southeast Asians online faster and hastened the development of digital ecosystems to provide services affected by the pandemic. Consumers altered their spending and internet consumption habits, with new startups forming and traditional businesses evolving to innovate solutions for the region.

However, there are challenges for tech startups forming in Vietnam, which include tech talent shortages, attracting foreign investment, and restrictive COVID-19 policies. Founders must also navigate the government’s regulations and inadequate infrastructure, in some instances, and the need for improvements in incubator and accelerator programs. Novel variants of the coronavirus are causing a rise in health cases, affecting in-person business meetings and events that enable business owners and stakeholders to exchange helpful ideas to boost the startup ecosystem.

The rise of the Buy Now Pay Later (BNPL) model in Vietnam’s and Southeast Asia’s retail sector is partly due to the COVID-19 crisis. The BNPL payment method gives consumers greater purchasing power, which has been hampered by the adverse economic effects of the pandemic. Startups in the BNPL segment, such as Fundiin, are receiving financial support to expand their offerings and acquire new customers.

Vietnam’s startup outlook for 2022 and beyond

Currently, Vietnam has 3,800 startups with prominent names, such as Sky Mavis, Tiki Corporation, MOMO, and VNLife. Digital payment service VNPAY received the highest funding amount at $250 million USD. The Vietnamese market has over 200 VC firms, 40 local, including Mekong Capital, 500 Startups, VinaCapital Ventures, Dragon Capital, and IDG Ventures Vietnam.

Investors are interested in Vietnamese startups because the government has established many policies to support emerging companies. Furthermore, the digital transformation of the region sees millions of people becoming digital consumers and spending an average of $381 USD online per person. Consumer expectations have increased the battle between several brands for customer loyalty and product and service purchases.

Internet and mobile phone adoption are also high at around 75 million mobile internet users, expected to reach 82.15 million in 2025. Their tech-savvy population, currently about 98.7 million people, provides a suitable market for startups to offer digital solutions. Such a large market shows investors that there is a viable investment option in the country. Moreover, the business environment in Vietnam is welcoming due to the stable economy, political stability, and maturing digital ecosystem empowering new companies.

Finally, local and foreign investors seek fresh opportunities as the global economy gathers momentum once more. Vietnam is strategically located in Southeast Asia, bordering China and with access to the international markets through the South China Sea.

The outlook for Vietnam this year and beyond looks profitable for venture capital firms. Tech startups within the nation can take advantage of accelerator and incubator programs and foreign investors’ strong demand for investment options. The Vietnamese government should meet with startup stakeholders to financially support industries affected by the pandemic. It can also consider tax incentives and investments to make startup business operations more efficient.

Vietnam’ VC trends show that the country is a viable option for investors with the potential for lucrative mergers and acquisitions using Special Purpose Acquisition Companies (SPACS) to list their companies on international foreign exchanges.