Vietnam’s Startup Ecosystem: Resilience Amidst Global Challenges
Vietnam’s startup ecosystem has garnered significant attention from foreign venture funds and angel investors in recent years, positioning itself as a key player in Southeast Asia. However, the ongoing global health crisis poses challenges that could hinder the inflow of fresh capital into the market. In a recent conversation with Eddie Thai, a partner at the U.S.-based venture capital firm 500 Startups, insights were shared on the current landscape of Vietnam’s startups and the strategies adopted by funds in 2020.
Surge of Investment in 2019
For the first time, investment in Vietnamese tech startups surpassed that of Singapore, ranking second in Southeast Asia. Thai attributes this increase to the maturation of Vietnam’s startup ecosystem. The initial wave of success typically emerges in sectors like media, e-commerce, and payments. As these companies expanded their reach, they attracted considerable investments—significantly benefiting firms like Tiki, Sendo, Momo, and VNPay.
Long-term Appeal for Investors
Looking ahead to 2020 and beyond, the prospects for Vietnam as a tech investment hotspot remain robust. Thai envisions immense long-term potential, not just for companies targeting the local market but also for those aiming at international audiences. However, he warns that several short-term risks must be factored in.
One significant concern is the economic impact of COVID-19. While Vietnam has been effective in managing health risks, the broader economic repercussions—diminished trade, a decline in tourism, and reduced domestic consumption—are likely to affect tech startups negatively.
Moreover, international investors are postponing trips to Vietnam. This shift translates to a decrease in the availability of financing in the near term, which could stifle growth for many startups.
The High Stakes of Company Valuation
Thai also addresses the rising valuations seen in Vietnam’s startup scene. Prior to the pandemic, valuations surged as international interest grew, with some startups commanding prices that exceeded those of comparable firms in Silicon Valley. While this trend can spark excitement among founders and early investors, there are inherent dangers.
High valuations often set unrealistic expectations for future fundraising rounds. Investors may become hesitant to engage when they perceive a mismatch between a startup’s progress and its valuation. Such scenarios can lead to missed opportunities and, ultimately, fundraising challenges.
Mispricing in the Venture Market
The complexity of startup valuation adds another layer to the conversation. Thai notes that assigning a “correct” valuation is more of an art than a hard science. Many startups in Vietnam may be mispriced—either overvalued or undervalued—due to the current market inefficiencies. Limited investor understanding of the Vietnamese ecosystem, coupled with founders’ inexperience in fundraising, creates an environment ripe for mispricing.
500 Startups’ Role in Vietnam
500 Startups has been an active participant in Vietnam’s startup landscape, with notable investments in 19 new companies in 2019. The firm aims to maintain this momentum into 2020, targeting a similar number of investments. As part of its ongoing commitment, 500 Startups manages the Saola Accelerator, which has seen its second batch kick off recently under the guidance of Sean Percival, a former VP at MySpace.
By the end of 2020, the goal is to have invested in a total of 80 companies, showcasing 500 Startups’ dedication to fostering innovation and supporting the entrepreneurial spirit in Vietnam.
The Future of Vietnam’s Startup Scene
The conversations and insights shared by Eddie Thai reveal a landscape filled with both promise and caution. While the potential for growth is substantial, stakeholders must navigate the challenges posed by global uncertainties, economic fluctuations, and the intricacies of valuation. The adaptability and resilience of Vietnam’s startups will ultimately shape the future of this vibrant ecosystem.