Early-stage groups expanding startups ecosystem

The gradual maturity of Vietnam’s startup ecosystem is expected to boost fundraising and dealmaking activities.

Vietnam has witnessed a surge in mega rounds with some deals attracting at least $100 million in funding for homegrown startups, even before e-commerce giant Tiki raised millions last month.

A few months previously, VNLIFE, the parent company of VNPAY, wrapped up a $250 million investment in Series B funding round led by General Atlantic and Dragoneer Investment Group. This capital injection is expected to accelerate the growth of VNLIFE’s existing businesses and support its development of new platforms and technologies to better serve its merchant partners and Vietnamese consumers.

In the beginning of the year, MoMo, Vietnam’s largest e-wallet company, raised at least $100 million from six worldwide investors, including Warburg Pincus, as part of plans to become a super app and go public by 2025.

An Do, principal at Patamar Capital said, “Around $600 million of fresh funds are available to pour into Vietnamese startups. About one-third of the fund comes from 10 local funds and incubators focusing on pre-seed and seed rounds. This reflects the attractiveness of Vietnam’s startup ecosystem to both local and foreign investors.”

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 is estimated to reach about $20 billion despite the negative impact of the COVID-19 pandemic.

“The legal framework for Vietnam’s digital economy has been established and gradually improved. This, coupled with Vietnam’s efforts to improve investment climate and ease administrative procedures, helps lure more investment capital into the local startup scene,” An Do added.

As startups become more thriving post-pandemic, it is a boon to the local exit landscape. She noted that Vietnam’s startup market has only a few initial public offerings and mergers and acquisitions (M&A). When compared to a more mature ecosystem like Indonesia, there are more transactions and listings, such as the listing of Indonesian e-commerce shopping platform Bukalapak and the upcoming listing of GoTo Group. However, in the near future, some Vietnamese early-stage startups will be listed on the stock exchange markets in the form of their choice, which will be a good sign for the overall local market.

On the same note, Hoang Duc Trung, a partner at VinaCapital Ventures, said that Vietnam has witnessed more progress in terms of exits. In the past, Vietnam mainly recorded cross-border M&A deals. However, in recent years, there have been more deals involving domestic enterprises to develop the local eocystem. Some founders who are afraid of losing control also opt for M&A to gain the ownership of their startups.

Trung shared that there are new types of exits that Vietnam tech firms are pursuing such as Initial Coin Offerings, capital raising, crowdfunding, exit by token issuance and others. “As the Vietnamese market continues to mature, investors will have more options to divest from startups. If the startup is good, it can be listed on the stock exchange. It can also sell to a bigger partner suitable for the next investment round,” Trung said.

In addition, a number of companies in Vietnam are closely exploring a listing through the special purpose acquisition company route such as VNG, Tiki, and Loship.

Trung noted that the amount of capital pouring into Vietnam is enormous. Besides a large pool of talented people, Vietnam also has a large number of returning students from overseas who have used new technology and business models to tackle problems. This will help bring new tech solutions to the startup scene.

In particular, the local private sector has made great strides with big names like Sovico and Vingroup. These successful businesses not only contribute to a stronger ecosystem, but also bring investment and M&A opportunities for homegrown startups. “Vietnam’s startup environment is well-developed, allowing the country to rise further on the global investment map,” Trung claimed.

According to the Southeast Asia Startup Ecosystem 2.0 report by Golden Gate Ventures published earlier this year, Vietnam will emerge in 2022 as the third-largest startup ecosystem in Southeast Asia along with Singapore and Indonesia. Vietnam has already solidified its growing prominence in the region. In 2022, the number of Southeast Asia-focused venture capital funds will put more effort into early stage investments in Vietnam, and it will continue to grow in the next 10 years.