Vietnam is not the typical country one would immediately associate with startups and entrepreneurship. But the reality is that Vietnam has a bustling startup scene with great potential.

Many successful founders have been described as “the kind of entrepreneurs you expect to see in Silicon Valley”. In fact, there are talks that Vietnam could be the next Silicon Valley earning the name ‘Saigon Silicon Valley’.

Tech potential in Vietnam

Vietnam’s young population has spurred the growth in the country’s overall technological awareness. Around half of the population are active internet users and have social media accounts while the number of mobile subscriptions exceed the population itself at 131%. This is not uncommon for Southeast Asian countries – most people maintain more than one active SIM card, often to leverage various discounts from providers.
Not only is there a large user base for technology, the Vietnamese population is particularly adept at creating tech-based products as well. With 12 out of 90 million people having a background in IT, there is no shortage of talent in Vietnam. Neil Fraser, a software engineer at Alphabet Inc’s Google, notes that “Vietnam has the highest performing computer science students I’ve ever encountered”. It is a little-known fact that a team of Vietnamese engineers brought us the popular wearables brand Misfit. They were acquired by Fossil Group in 2015 for US$260 million.

Early education is the key to Vietnam’s strength in technology. Scores for reading, math and science in Vietnam are comparable or even higher than Western countries such as the US and the UK. Tran attributes these as the building blocks to Vietnam’s “foundation of computer science” which gives startups an “edge”.

Government support for startups is increasing

In earlier years, government support for startups was geared towards research and development. This was signalled by the establishment of NATEC – the National Agency for Technology, Entrepreneurship & Commercialisation Department launched by the Ministry of Science and Technology (MOST).

Recently, the Vietnamese government began to take on a more active responsibility in boosting the startup system. In 2015, international partnerships were formed to do so, including the Vietnam-Finland Innovation Partnership Programme (IPP) and the Swiss Entrepreneurship Program (SECO EP).

The most significant pledge was the government’s announcement of Decision 844 in 2016 – “supporting the National Innovation Startup Ecosystem by 2025”. There are three main deliverables the government hopes to achieve with this project.

1. Set up an “encouraging” environment for startups to thrive by 2020 including areas such as law and investment regulations

2. Cover 2000 startups with an estimated 100 of these likely to receive VC funding or merger and acquisition opportunities

3. Establish innovation “hubs” in Hanoi and Ho Chi Minh City by 2018. These will provide facilities to startups including training and activities.

The total expected transaction value of this project is expected to be around VND 2 trillion (approximately $US 88 million).

The growing startup ecosystem in Vietnam

Vietnam is home to a strong and centralised startup culture with the main “hubs” being the major cities – capital city Hanoi, Da Nang and Ho Chi Minh City. There are many institutions that actively foster the startup ecosystem.

HATCH! Ventures is one such example – it runs an accelerator program, a co-working space and the annual HATCH! Fair. This event is now the largest annual entrepreneurship conference and startup exhibition with a mission to “support entrepreneurs and promote the early stage startup ecosystem”. In the 2 years since its launch, it has supported over 100 companies and facilitated 10,000 event participants. In 2016, it broadened its focus into community building activities, co-working spaces and incubation. Additionally, it rebranded as HATCH! VENTURES allowing for direct investment into startups.

TechFest is another event for the startup community. It is hosted by the Ministry of Science and Technology in partnership with other ecosystem players. The first TechFest held in 2015 attracted over 1000 people, 50 investors, 50 startups and a total of US$1 million in investments. These figures doubled by the next year.

In comparison to other Southeast Asian countries, Vietnam has an unusually large amount of VC investors for a startup ecosystem that is still very much in its early stages. There is no shortage of seed and early-stage investments in the startup pipeline. Between 2015 and 2016, the quantity versus the value of deals closed has moved in contrary motion. This shows that overall deals are larger and more concentrated with 7 of these exceeding $10 million. However, it is inaccurate to disregard the smaller deals – 80% of deals closed in 2016 were under $5 million.

The main issue with a disproportionate amount of seed and early funding is that these startups are more likely to hit a roadblock in later stages. As such, startups in Vietnam hit their growth caps and generally struggle to achieve any greater scale because their product is limited to local demand. An exception is VNG corporation – the only unicorn startup from Vietnam. The next highest valued startups are VC Corporation and Vatgia sitting in the $75 -150 million bracket. This valuation gap illustrates the growth challenges experienced by later stage startups.