Vietnam in crosshairs for South Korean startups

Vietnam in crosshairs for South Korean startups

As foreign startups, including South Korean ones, are expanding operations to Vietnam in greater numbers, the market may slip out of the hands of Vietnamese startups if they fail to whip up enough support.

These agreements included Yeah1, which received $100 million from a group of investors, Topica, which received $50 million from Northstar Group, and Sendo, which gained $51 million, and seven undisclosed deals valued at about $533 million.

The sectors of fintech, e-commerce, traveltech, logistics, and edtech have attracted investors’ eyes. Of these, fintech sat in the first place in both deal value and deal count, with eight deals for $117 million. E-commerce came in second, with significantly fewer deals (only five, against 21 in 2017) worth approximately $104 million. They are followed by traveltech ($64 million), and logistics and edtech (three or four deals valued at over $50 million) for each sector.

Among around 388 startups receiving funding over recent years, VNG Corporation becomes Vietnam’s first-ever tech unicorn, whose existing value has mounted to $1.2-1.5 billion now, while Yeah1 has just debuted on the Ho Chi Minh City Stock Exchange with a valuation slightly above $500 million.

The remaining startups are far off the billion-dollar mark. According to an expert, startups rarely remain afloat after the third year.

In the opinion of Yinglan Tan, founder of Insignia Ventures Partners, a $120 million investment venture fund, Vietnam needs time to build an ecosystem. For example, Silicon Valley spent decades to reach where it is now, and Chinese companies went through a similar period of construction.

“Vietnam is only at the starting line, but it had a very promising start because of the convergence of favourable factors like ambitious investors and IT talent.

Investments have been pouring into the market. Good ideas and investments are the most important factors to develop a billion-dollar unicorn,” said Tan.

However, startups maintain operations through investments that they heavily outnumber.

Additionally, funders usually pay more attention to well-known startups rather than poorly-performing ones. Thereby, competition for investment is fierce.

The quality of human resources also remains a problem. An expert said that senior employees always demand high salaries, and only accept normal wages if there are good conditions like promising products or a share in the business.

Vietnamese startups have also been facing external threats, such as competition from foreign equivalents from countries like South Korea.

Telling VIR about the reason why they chose Vietnam as their destination, Patrick Jeon, Generation Convergence Startup Campus’ global team manager, said, “The South Korean market is very small, developed, and the population is old now, thus, the government wants enterprises to go abroad. You can see that almost all of the largest groups in South Korea, including Samsung, LG, and Lotte, arrived in Vietnam, showing the country’s potential is tremendous. Along with those, small- and medium-d enterprises (SMEs) also see opportunities.”

In addition to the sectors where they have been successful like electronics, construction, real estate,

processing, and banking-finance, South Korean investors and startups are also showing interest in IT and services.

“This is the third time I have visited Hanoi to organise a programme for startups. The reason we

selected Hanoi is because the market in Ho Chi Minh City is more developed. Hanoi is the capital city and has the presence of almost all of the largest groups,” added Jeon.

However, he also emphasised that along with the efforts of startups and investment funds, government support also plays an important role in helping startups develop.

In the case of South Korea, for example, the government runs a number of initiatives, including matching funds with international investors, establishing entrepreneurship programmes at universities, and opening up research institutes, providing safety nets for scientists who strike out on their own. The government has built 15 organisations and agencies to support startups.

In Vietnam, the government has provided many policies to develop SMEs and startups. However, these companies need even more support to be able to seize the opportunities.

“The road ahead for startups is not flat. There will be very many internal and external factors impacting the development and success of Vietnamese startups,” said Tan from Insignia Ventures Partners.

“However, I think this is a golden time for them because there is a rare convergence of the most

important factors like abundant talent, capital, and government assistance.”

vir