VCs remain bullish on Vietnam as the region’s next growth market

In 2018, Google and Temasek described Vietnam’s internet economy as akin to “a dragon being unleashed,” predicting the sector to reach a value of US$33 billion in 2025.

Recently, the country has also been the subject of headlines suggesting that major tech companies are moving their production out of China and into Vietnam, including Google (the Pixel smartphone), Apple (AirPods), and Nintendo (Switch).

Photo credit: dimaberkut / 123RF

Many investors see Vietnam as the next hot destination in Southeast Asia. It’s now the third most active ecosystem in the six largest ASEAN countries, behind only Singapore and Indonesia, in terms of investment activity, according to a recent report by Singapore-based Cento Ventures and ESP Capital.

Data tracked by the two VC firms tells us that the Vietnamese ecosystem snatched a total of US$246 million in 58 deals in the first half of this year, an increase from US$166 million raised in the first half of 2018. The country’s aggregate funding amount is predicted to top US$800 million by the end of 2019.

To nail down why Vietnam is a hot spot for technological innovation and venture capital, KrAsia spoke with several investors in the region about the emergence of Vietnam’s tech ecosystem.

Why Vietnam now?

Vy Le, general partner at ESP Capital, an early-stage venture fund investing in Vietnamese and Southeast Asian tech startups, cites the obvious macro factors that contribute to the rise of Vietnam’s tech ecosystem.

These include high gross domestic product growth in the 7% range, falling interest and inflation rates, as well as robust infrastructure spending. Moreover, a favorable demographic arrangement, where 60% of people living in the country are under 35, allows for an unprecedented level of mobile penetration. About two-thirds of the population are online, and in 2018, 72% of the population already owned smartphones.

Binh Tran, general partner at 500 Startups Vietnam, which is also an investor in Vietnam-connected seed-stage startups, gives the country credit for its technical personnel. “If you want to start your company in a safe and dynamic country that loves foreigners and has a large concentration of affordable engineering talent, Vietnam is hard to beat,” he said.

Chris Tran, technology investor and head of Asia for North Ridge Partners, is particularly keen on Vietnam’s potential to become a high-tech manufacturing hub. With the trade war forcing everyone to look outside China, Tran said Vietnam is coming to the forefront because “if you’re not going to manufacture in China, there are not many places regionally that you can go for manufacturing for the region.”

In a recent post written on Medium, Liu Genping, a partner at Vertex Ventures, describes the factors that empower Vietnam’s “F1 startup engine,” referring to upcoming global event F1 to be hosted in Hanoi next April. These include: strong growth, adaptive consumer behavior, lower economic polarization, and strong investor spirit.

“Our interest in the market is very strong and we are closely following a few opportunities and might be making investment soon,” he told KrAsia.

Together, these factors make Vietnam a suitable destination for entrepreneurs, investors, as well as established corporations. And with new developments happening in the country at a breakneck pace, Vietnam is set to see explosive growth in all corners of the tech industry.

Signs of an evolving ecosystem

2018 and 2019 produced a new wave of Vietnam startups that raised US$50 million to US$100 million rounds. Earlier this year, Vietnam’s top e-wallet, Momo, bagged US$100 million in series C funding from Warburg Pincus, and Topica Edtech Group received US$50 million in a series D investment from Northstar Group. Most recently, Vietnamese payment company VNPay reportedly raised a record amount of US$300 million in funding from SoftBank and Singapore sovereign wealth fund GIC.

Moving forward