Is Vietnam’s startup ecosystem facing a crisis?

In the last two to three years, Vietnam’s startup ecosystem has gained considerable momentum – and even more hype. This can be seen in the increase in Vietnam-related news on Startup Digest, the founding of many new startup-related media sites from Pandora to Twenty.vn, and an increase in the number of incubators. And let’s not forget Flappy Bird. But the good times are over. In the past month and a half, Vietnam’s startup scene has had to bear witness to a series of troubling events.

In mid October, VC Corp, a media startup that started in forums and now competes in ecommerce, media, and daily deals (all estimated to be worth over US$100 million by the World Startup Report), had its data centers shut down by its own staff. All of its websites went offline for about a week. Simultaneously, a former VC Corp employee leaked information about employee salaries, declining company culture, and more. This sent shockwaves through the ecosystem. For a large company like VC Corp to hit bottom so hard for a week made it clear to the ecosystem that leadership and management are still serious issues that even big startups cannot manage well.

But that’s not all.

Shortly after Vietnam’s techies finished marveling at a local media giant acquiring HaiVL, the nation’s answer to 9gag, something shocking happened. The site was fined and then shut down by Vietnamese authorities, purportedly for containing illegal content. This included some political content as well as inappropriate content related to cultural innuendoes.

The humor site was hitting 4 million views per day and its buyout was considered a local startup milestone. And now it’s gone. Rumors circulated that the founder, a 24-year-old male based out of Hanoi, Vietnam’s capital, was incarcerated. Whether or not that last detail is true, there’s certainly fear now oozing throughout the tech ecosystem.

On one side, it’s the internal problems that companies face. On the other side, it’s the legal and political landscape outside.

Uber not immune

Adding more fuel to the fear, Uber is currently being investigated by the Ministry of Transportation in Vietnam. The Ministry is evaluating whether current taxi laws can be applied to Uber. But Uber may be protected from this since it works directly with legal local limousine companies that already pay taxes. Uber provides a service to the companies, and doesn’t work directly with drivers like it does in the USA. Nevertheless, the case raises red flags for startups that want to disrupt new industries. Uber can handle it. It has deep pockets and top flight legal teams behind it. Young local startups do not.

These three cases (granted, the Uber case is a global issue) have put the entire ecosystem into hibernation. The best option is to be quiet. Startups simply do not want to announce any new products or funding anymore. It’s too dangerous. This means you will likely start to hear less and less about Vietnamese startups. Deals and product announcements will be discrete and low key.

See: Uber just arrived in Hanoi, the capital of Vietnam

This is not good for the entrepreneurial ecosystem. This is really bad for Vietnam. Foreign investors are already cold to Vietnam’s complex legal frameworks, and an inhibited tech industry will only serve to continue that. We at Tech In Asia know of at least three deals in the past few months that have not come with any public announcements due to the above reasons. In other words, from now on, Vietnam’s local startup scene may just have to learn to walk alone.

But this may not be a bad thing; for entrepreneurs, challenges are opportunities. It’s possible that we’re about to see Vietnam’s tech ecosystem shift towards global products and outsourcing. Keep your ear low to the ground and you might hear it coming.