Vietnam’s startup economy is poised for success

Earlier this year, Douglas Abrams, CEO of Expara Ventures, came to Vietnam for the first time to attend Techfest, an event organized by the National Agency for Technology, Entrepreneurship, and Commercialization Development (NATEC), a body of Vietnam’s Ministry of Science and Technology (MOST).

Expara Ventures, which was part of a group of Singaporean investors including Golden Gate Ventures, KK Fund and JFDI, participated in the inaugural event held at Vietnam National University in Hanoi. The three-day event in May was the largest of its kind in Vietnam and sought to bridge the gap between Vietnam and the region while at the same time providing a national platform to promote the best startups and entrepreneurs in Vietnam.

According to Dr. Pham Hong Quat, general director of NATEC,

Forming a dynamic startup ecosystem on a national level might be challenging and unprecedented in Vietnam, however, with the proven potential of the startups, it would be an ideal destination for investors worldwide who aim for high and sustainable returns from investing in the future.

Currently, legislators in Hanoi are drafting the framework of a national project to promote the development of a startup ecosystem by facilitating a wide range of supporting activities including training, mentorship, business incubation and acceleration, and by providing financing to aid in the growth of new companies. As Dr. Quat says,

This national project will provide a sustainable ground for startups to turn their fledgling ideas into a reality, create jobs, and benefit the economy as a whole.

Thus, NATEC is part of a national push to promote kinh tế khởi nghiệp or the “Startup Economy” in Vietnam and it seems to be gathering strength. For example, the National Technology Innovation Foundation (NATIF) was set up (also within MOST) earlier this year with a budget of approximately $47 million and a mission to advance scientific and technological research in the enterprise and educational sectors

The Finland-Vietnam Innovation Partnership Program (IPP), with a budget of €11 million was co-funded by the Vietnam’s MOST and Finland’s Ministry for Foreign Affairs. IPP selected 12 Vietnamese “Innovation Champions” to train in Lean Startup methodology, effectuation, and agile development, etc. over two months.

IPP also selected 22 projects—18 startups and four system developers—to fund in cities such as Hanoi, Ho Chi Minh City, Da Nang, and Can Tho. The IPP recently co-organized the HATCH! Fair 2015/ IPP Midterm Demo on October 31 and November 1, promoted as the third annual startup conference and exhibition in Hanoi.

More public and private partnerships

In effect, the efforts of the NATEC, NATIF, and similar organizations have helped to lay down the foundation for the private sector to build upon by creating an entrepreneurial environment where a perfect storm may be brewing for Vietnam’s startup ecosystem.

According to Mr. Abrams, who entered the Singapore market in 2000 and Thailand in 2004,

Specifically in Vietnam, I see many promising young entrepreneurs, many with strong technology skills, active universities and research institutions, increasing use of internet, smartphones, social media and e-commerce, a relatively large domestic market and strong government support as factors which indicate a fast-growing market opportunity.

Since his first time in Vietnam this past May, Mr. Abrams has returned for four additional visits and his company recently opened a Vietnamese entity: Expara Vietnam in Ho Chi Minh City. Expara Vietnam has already made its first investment in a Vietnam-based start-up and will shortly be launching its first accelerator program with Microsoft Vietnam as a partner.

Besides the interest in Vietnam from Singapore-based organizations, this year was also marked by increased interest from institutional investors in the United States: Unitus Impact and 500 Startups. Both are based in San Francisco but with personnel in Hanoi and Ho Chi Minh City, respectively.

According to Shuyin Tang, principal at Unitus Impact and based in Hanoi,

Vietnam’s macro indicators look promising and the start-up scene has really evolved, but what also interests us as an impact investor is the huge potential for positive impact.

Unitus Impact is in the final stages of closing its approximately $40 million fund, which is the first livelihood-focused fund, i.e. “improving market linkages in supply chains and distribution systems”, according to the firm’s overview document, for Southeast Asia and India. The impact investor has already made two investments in Vietnam and is looking to increase that number in the future.

Ms. Tang, who joined Unitus Impact in August, says that,

We seem to be about to hit an inflection point, with regional venture capital firms showing a lot of interest, several co-working spaces and incubators/accelerators springing up, and more success stories to reference.

This past August, 500 Startups also announced two new venture partners with ties to Vietnam: Binh Tran in San Francisco and Eddie Thai in Ho Chi Minh City. Already, 500 Startups has publicly invested in at least four Vietnam-based startups and has invited one to its accelerator program in Silicon Valley: Beeketing, which is also one of the IPP-funded teams.

Beeketing, which provides marketing automation services for Small and Medium Enterprises (SME), was founded by Truong Manh Quan in 2014. The Vietnamese founder recently flew to Silicon Valley to participate in the 500 accelerator Batch 15, where he will spend four months in training and another two months in the United States to raise additional funding. According to Mr. Quan,

There are more than 25,000 online stores in the U.S. and Europe using Beeketing to sell to more than 40 million shoppers monthly, and our revenue has been growing 50% month over month for the last seven months straight.

Co-working towards success

Another recent success story in Hanoi is OnOnPay, which provides a way to top up mobile phones online and was incubated at Hub.IT, a co-working space in Hanoi’s Hoan Kiem district.

OnOnPay received funding from Captii Limited this past August and the company plans to expand into Thailand next year. To OnOnPay founder Sy Phong Bui, the startup scene in Vietnam, especially in Hanoi, can be improved and community support is a key ingredient for success. According Mr. Sy Phong,

We are trying to build a better ecosystem with concrete actions: mentoring young founders, organizing monthly meet-ups for startups, and connecting startups to potential partners. With the current trend of development, I think we will see a blooming of startups’ success quite soon.

The rapid progress of OnOnPay since its summer launch has demonstrated the value that an incubator or co-working space can offer via a strong community and the network effect of having people from different backgrounds sharing ideas, resources, and solutions with each other.

Local Vietnamese seem to have noticed this as well. In the past several months, at least three new co-working spaces have emerged in Hanoi to join the existing ranks of HATCH!, Hub.IT, Clickspace, and others.

Toong, a premium co-working space with plans to expand; Hanoi Hub (not related to Hub.IT), a feng shui workplace; and Coffice, a space that is, according to its website, “dedicatedly designed for independent workers.” Down in Ho Chi Minh City, Dreamplex is set to debut this month as the largest co-working space in Vietnam.

The concept of a co-working space is relatively new in Vietnam as people have opted to work in coffee shops instead of paying for the use of a dedicated space. However, the perception is shifting, in part due to the community-building efforts of co-working spaces across Vietnam.

In general, co-working spaces are one step closer towards facilitating effective communication, especially between founders, aspiring entrepreneurs, and potential international investors who are interested in learning more about Vietnam in order to invest in Vietnam-based projects.

In a larger sense, major cities across north, central, and south Vietnam, in particular Hanoi, Da Nang, and Ho Chi Minh City, will all need to support the rise of the startup economy in different ways, by leveraging on their respective strengths and advantages.

For example, engineering talent in Hanoi, the ability to form government and diplomatic community relationships, and proximity to Hai Phong (the largest port city in northern Vietnam) and China to the north for imports are all qualities that no other city in Vietnam can replicate.

In Ho Chi Minh City, there is a natural gravitation towards marketing. The entrepreneurial spirit runs deep, and it’s a two-hour flight to Singapore, where many regional corporate and investor offices are located. The city is the most cosmopolitan and international in Vietnam, with the largest consumer market.

Da Nang, a coastal city, has beautiful beach access and terrain, a high quality of life, a low cost of living, accessible local government, and fresh air when performing outdoor activities—again, all qualities unique to Vietnam.

In the coming years it might prove necessary to develop specialization in Vietnamese cities or regions as the ASEAN Economic Community (AEC) begins to take shape next month. This provides the framework for a unified ASEAN market and the increase in competition that comes with reduced barriers to the flow of goods and workers across borders.

For example, developing clusters of Agritech in Can Tho, Fintech in Ho Chi Minh City, Edutech in Da Nang, or maybe Nanotech or Biotech one day in and around Hanoi. Or at the very least, getting to a point where domestic or international entrepreneurs and developers say to themselves, “I want to do Xso I will go to Y city in Vietnam.”

In any case, Vietnam’s startup economy is clearly rising and the Vietnam market may develop more quickly than expected given the existing ecosystems in the region and the regional and international interest in Vietnam.

The ingredients are here for success—now the rest is up to the makers, designers, creators, entrepreneurs, investors, and other stakeholders in the community to continue forward together into the eye of the storm.