Pandemic could give rise to stronger startup arena

Vietnam Investment Review

Many startups will need to reinvent themselves in order to stay afloat in a tough economy. Photo: Le Toan
Although a large number of startups are hanging by a thread due to the COVID-19 pandemic, investors are still predicting a bright future for the Vietnamese startup scene.

A number of venture capital and fund investors are still pouring capital into the Vietnamese startup market to capitalise on long-term growth. In particular, Japan’s Hiroshima Venture Capital has launched ¥1 billion ($9.3 million) fund that will invest in local startups and small- and medium-sized enterprises in the country.

Meanwhile, Vietnam’s accelerator ThinkZone invests $250,000 into five startups comprising beauty service platform iSalon, home healthcare services for babies Bluecare, household tasks support platform Housecare, software-as-a-service platform Hachium, and Airiot, a compact Internet of Things product.

Vietnam-based e-commerce enabler Onpoint has recently raised over $8 million in a Series A funding round led by Kiwoom Investment and Daiwa-SSIAM Vietnam Growth Fund 2 LP.

Daniel Muller, head of Finance at Amanotes, a mobile game publisher based in Vietnam, said that venture capital and fund investors see the country as a very attractive investment destination. This is due to its favourable demographics and economy, the opening up of the business environment, and the relative progression in tourist and business rankings.

“Investors that are based throughout Asia have woken up to the potential that Vietnam offers as they overfish other markets and regions,” he said.

According to Muller, Vietnam has seen tremendous growth in the tech scene over the last few years. This is all thanks to encouraging governmental policies and free trade agreements. The increasing emergence of new technology as well as a young, active workforce are also major attractions to the nation’s startup scene.

Furthermore, plenty of tech-focused startups in Vietnam’s e-commerce, fintech, e-learning, AI, and cloud-based services have received global recognition and investment. To put this into perspective, from 2017 to 2019, the country experienced a six-fold increase in the investment value of technology deals.

In its Southeast Asia Tech Investment 2019 report, Cento Ventures, a venture capital firm specialised in under-invested emerging digital markets, pointed out that investment in Vietnam-based startups increased enormously. In 2019, this investment was worth $741 million, making up 18 per cent of the country-specific capital deployment, a huge jump over 2018 where it only accounted for 4 per cent, or $284 million. Also for the first time, investment in Vietnamese tech startups last year exceeded that in Singapore, to rank second in Southeast Asia.

Dang Duc Thanh, director of the Start-up Success Institute, said that the pandemic has created an opportunity for startups to disrupt the market, with customer behaviour switching from offline to online channels. He noted that since the outbreak, these firms have introduced a variety of technological products such as remote training, express delivery, and online grocery services to meet the local market demand.

Ravi Saraogi, co-founder and president of voice AI startup Uniphore APAC spoke at length about the situation. “We believe that Vietnam has taken various measures to successfully minimise the spread of the virus. This is a difficult time but also an opportunity for businesses to plan their next move, one of which is to power themselves with technology that can be agile and flexible for such scenarios,” said Saraogi.

“When social distancing is encouraged and a normal lifestyle seems like a luxury, we can see consumers moving to digital channels for products and services,” Saraogi continued. “This indicates there will be a change in consumer behaviour even after things get back to normal. Digital will be the new normal.”

According to Muller from Amanotes, with the internet economy experiencing a growth rate of 40 per cent in 2020, Vietnam is the perfect location to nurture and develop tech-based initiatives, compared to neighbouring countries such as Indonesia or the Philippines.

“Despite the impact of the pandemic, we feel that this could be a golden opportunity for tech companies to transform, breakthrough, and prosper in the digital sphere,” said Muller. “Vietnam has witnessed a sharp growth in online socio-economic activity since March, and we are confident that the numbers will continue to soar in the near future.”

To become successful, he recommended that startups “keep the pace of change, embrace cutting-edge tech, learn from the global best practice, maintain the cultural positioning of Vietnam, and show the world your fun side.”

Vietnam’s startup scene is fast becoming a darling for venture capital funds and investors, but the ongoing health crisis will be a test of how the burgeoning industry can survive. One example is bus booking platform Vexere, which succeeded in raising money from Asian funds such as Woowa Brothers and Access Venture last year. Vexere has so far dealt with its lack of financial strength to stay afloat, but after bus companies halted operations during the nationwide social distancing campaign, the firm has struggled with a major loss in revenue.

The import-export and domestic delivery industries have also suffered significantly. Loglag, a logistics startup, is feeling the pinch on the back of lost revenue. In the first quarter of 2020, it earned only a third of its income in the same period last year. To survive the pandemic, the company has been forced to reduce 30 per cent from staff salaries, and marketing strategies have been put on hold to cut costs. Additionally, other businesses who work with Loglag have requested extending debt payments, as they are also experiencing hardships.
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