Ecosystem Deep Dives #17: Vietnam - A new era
Ecosystem Deep Dives #17: Vietnam - A new era
While initially lagging behind local giants Indonesia and Singapore, Vietnam's start-up ecosystem is making its own mark on the region.
Ecosystem Deep Dives is a weekly series in which I analyze and compare different start-up ecosystems from around the world. If you enjoy and gain value from my work, feel free to share and subscribe!
A ripe market
With a population of almost 100 million, 70 million internet users, and 60% of the population below 35, Vietnam’s market is ripe for digital disruption. In the past decade, the exponential growth of mobile usage in the country has been a boon for local start-ups. Today, with over 60 million mobile users, Vietnam’s population is prepared to receive the innovations its start-ups are creating. While historically trailing behind regional giants Indonesia and Singapore, the Vietnamese start-up ecosystem has been making great strides, powered by its population’s desire for digital services. Stable and growing macro-economic indicators make the country’s tech ecosystem attractive to foreign investors, such as Japan’s hyper-active SoftBank or Singapore’s sovereign wealth fund, GIC.
“Vietnam is an emerging startup market with the best growth potential in the region. The country’s GDP is forecast to grow at a rate of 4 per cent in 2021, the highest in Southeast Asia. Foreign inflows into the country are estimated to reach about $20 billion despite the negative impact of the COVID-19 pandemic.” - Vietnam Investment Review
Traditionally viewed as a tech outsourcing hub, Vietnamese tech talent are putting their skills to work by creating disrupting companies in areas such as fintech, e-commerce and proptech to name a few. Recently, some Vietnamese start-ups such as Sky Mavis have been globally competing at the intersection between the blockchain and gaming sector, attracting top-tier Silicon Valley investors such as a16z, Accel and Altos to the country for the first time.
While Vietnam hasn’t seen massive start-up M&A activity comparable to Indonesia’s GoTo group (a massive merger of two of the biggest Indonesian start-ups, which now contribute around 2% of Indonesia’s GDP), Vietnam boasts four unicorns:
VNPAY: A financial services company that provides electronic payment solutions in Vietnam.
MoMo: An e-wallet and payments app that allows users to make payments and transfer money digitally.
VNG: A technology company, founded in 2004, specializing in digital content and online entertainment, social networking, and e-commerce.
Sky Mavis: Blockchain-based game development company.
According to research by Google, Bain and Temasek, Vietnam is forecasted to be the fastest-growing Internet economy in the region, and is on track to become the second largest digital economy in SE Asia by 2030. This represents reaching ⅔ the size of Indonesia’s economy with only ⅓ of the population.
Disrupt-able sectors
Just with a lot of other emerging markets, the beginnings of the Vietnamese start-up, which can be traced to roughly a decade ago, focused on the obvious “disrupt-able sectors”. Basic e-commerce, online payment gateways and online media/entertainment were the first companies to truly make their mark in the Vietnamese digital economy. Now that the foundations have been laid, the new generation of Vietnamese start-ups are taking advantage of Vietnam’s increasingly “digital-native” population, which bring with them a meteoric rise in the market size of a variety of sectors.
“Social commerce gross merchandise value will cross $5 billion in 2025 and $25 billion in 2030 due to a continuous rise in e-commerce adoption rates”. - Vietcetera
As highlighted by Adrian Ho, VP of Investments as Singapore-based Altara Ventures, recent years have displayed the increasing maturity of the Vietnamese ecosystem, as judged by the diversification of the sectors they operate in. Today, while 40% of Vietnamese start-ups operate in the fintech space, other sectors are growing in prominence such as:
Proptech: Exemplified by Hoozing, an online marketplace for searching and renting long-term accommodations. The Vietnamese proptech market is estimated to be worth around $500 million, a number which will surely increase with the expansion of the middle class.
E-commerce logistics: The digitalization of SME’s, especially so-called “mom-and-pop” shops is a huge opportunity in almost all emerging markets. Digitalization of SME’s also has a trickle-down effect within the entire supply chain, often leading to the digitalization of the logistics sector as well. In Vietnam, start-ups such as Loship and Telio are a testament to this.
Healthtech: While capturing only a small amount of total investments, the Vietnamese healthtech sector is full of opportunity, with Med247’s recent raise acting as a potential catalyst for the sector to takeoff.
Blockchain: Vietnam is also placing itself as a leader in one of the hottest sectors today: blockchain. Sky Mavis is the epitome of the Vietnamese blockchain start-ups. Organizations such as the Vietnam Blockchain Corporation are also making great strides to make Vietnam into a global blockchain leader.
Edtech: Carried by the pandemic’s online learning boom, the Vietnamese edtech sector is estimated to be worth $3 billion. Start-ups such as Topica, Point Avenue and CoderSchool are good examples of performing Vietnamese edtech start-ups.
Funding landscape
The recent maturing of the ecosystem has correlated with the maturing of the funding landscape. While the first foreign investors in LATAM and African ecosystems are often big American funds, Vietnam has attracted mostly Asian giants, such as South Korea, Japan, Singapore and obviously, China. It is important to note the very strong presence of American fund 500 Global in Vietnam, whose fund’s general partners have subsequently launched Ascend Vietnam Ventures, one of the country’s top VC.
The Vietnamese ecosystem’s intimate ties to Singapore, a global leader in start-up innovation, was further cemented by the cooperation renewal between Vietnam’s National Agency for Technology Entrepreneurship and Commercialization Development (NATEC) and Enterprise Singapore. Singapore’s sovereign wealth fund, GIC, has carried out numerous investments into Vietnamese start-ups.
Vietnam also boasts a couple local VC’s, with the most prominent ones being IDG Ventures, Ascend Vietnam Ventures, Dragon Capital, Mekong Capital, CyberAgent and DFJ Vina Capital to name a few. However, while local VC’s make the first checks, any “scaleup” financings is usually carried out by big foreign actors.
“Domestic investors’ overall investment value is less than US$10 million, whereas international investors’ entire investment value is around US$100 million” - Hive Life
After a bumpy 2020 year, Vietnamese start-up funding numbers bounced back in 2021 to reach a record high of $2.5B.
Government involvement
Vietnam’s ease of doing business environment pales in comparison to its ultra-effective neighbor, Singapore. This actually leads to many Vietnamese founders incorporating in Singapore rather than Vietnam, in order to avoid legislative hurdles back home. However, a couple of key measures have recently solidified the ecosystem while making it more attractive:
National Program 844: This government program provides support for organizations within the ecosystem such as incubators, accelerators, universities and so on. It is also also involved in the development and revision of policies to create a favorable environment for startups such as tax benefits, financial support for startups, investors and policy mechanisms to implement pilot support programs in municipal and provincial governments.
Foreign ownership: “Unlike some Asian countries, where foreign companies can only have a maximum of 50% ownership, with the remaining half going to a local partner or company, Vietnam allows foreign companies to have 100% ownership, making investing in the country a very appealing proposition for those looking to start in or expand, to a new market.”
Corporate tax: “IT-based companies are eligible for corporate income tax (CIT) incentives that include a 15-year CIT rate of 10%, four years of CIT exemption, and a 50% tax reduction for the next nine years, all of which are very appealing propositions for international companies looking to establish operations in the country.”
Today, most of Vietnam’s start-up activity happens in the country’s two main cities: Hanoi and HoChi Minh City. Da Nang, another city in the south, is starting to see some activity as well.
A couple active acceleration/incubating programs include VIISA, Vietnam Silicon Valley, and ThinkZone. Some universities have also implemented entrepreneurship support programs, such as Hanoi National University’s Center for Enabling Start-ups or Foreign Trade University’s Center for Incubation and Innovation.
Conclusion
Vietnam is still at the beginning of its start-up boom. Although the country is already home to four unicorns, the country’s large and connected population leaves room for an ocean of opportunity. The country also benefits from a large pool of diaspora talent, notably Vietnamese-Americans who have studied and worked in the US. The new generation’s desire to combine their work with their life purpose is leading some of them to come back and contribute their skills and networks to the ecosystem.
Legislative barriers and lack of funding are still real problem for ambitious founders in Vietnam, who have the option of relocating to Singapore where the start-up climate is more advanced. Nevertheless, Vietnam still provides an incredible test market of almost 100 million people, with innovations coming out of Vietnam potentially being applicable to other countries in SEA. The country’s very active blockchain sector is extremely promising, as it highlights Vietnamese deeptech start-ups competing on the world scene, attracting funds from the most renown VC’s and effectively boosting the entire ecosystem. All in all, SEA has already proven itself to be a lucrative market for start-ups, and Vietnam isn’t straying from that path.
Question of the week: Do you have examples of other emerging markets developing local, deeptech moats such as Vietnam and blockchain? Let me know in the comments!
Ecosystem Deep Dives is a weekly series in which I analyze and compare different start-up ecosystems from around the world. If you enjoy and gain value from my work, feel free to share and subscribe!