Monday Morning Coffee: The Startup Ecosystem in Vietnam

In this episode (MMC.007): The startup ecosystem in Vietnam. What are the advances and challenges? How can Vietnam overcome those challenges?

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Below is a transcript of the episode, edited for readability.

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Granger: Good morning! It’s Granger Whitelaw here with Monday Morning Coffee…Cameron, how are you today?

Cameron: I am little bit under the weather. I’m just recovering from a cold, so my voice is not as beautiful…


Overview of the Startup Ecosystem in Vietnam

Granger: Well, we’re here today to talk about our thought for the day, which is the startup ecosystem in Vietnam and all the startups that are here. They say there’s 3000 startups but there’s probably more like 4,000 startups and if you include all the people doing things on their side deals, there’s probably 10,000 startups, right?

Cameron: And programmers in their basement not actually establishing a company yet just working in products, right?

Granger: The rankings put Vietnam as the third largest startup ecosystem in Asia, which is great. Vietnam is only behind Singapore and Malaysia.

Granger: So the Global Innovation Index (GII) rates Vietnam at the 42nd among 129 economies. The main startup hubs in Vietnam obviously are Hanoi and Ho Chi Minh City. Hanoi is the technological hub, which we’ve talked about before, while Ho Chi Minh City is a bit more entrepreneurial. That makes sense, right? ab

Cameron: Yes, but I’m amazed that I don’t see Danang in there. That city is quickly rising. There are so many backend offices like tech offices in Danang and its surrounding.

Granger: Well, there are many offshore development corporations, right? And Apple has started to put infrastructure there. And as you talk to entrepreneurs in the community around here, a lot of people talk about going to Danang. Why not? You have the beach and the quality of life.

Cameron: When I look at a startup economy like that with all these companies, I think of Silicon Valley in the 90s. So, what makes all these companies start up there? It’s cheap cost of living, cheap food. So I can imagine Danang will definitely increase

Granger: And the cost of real estate… But another thing that causes these places to grow, as you just mentioned, is the need to solve local problems, right? So, if you look at what the entrepreneurs are doing, there’s a strong focus on using technology to solve local problems, whether it’s the environment, energy, transportation or all the problems that you have as you’re growing.

Cameron: And it’s also like you have the general idea, so you create a mobile wallet and then you can have all these other assets like tokenization or ones that specific specifically helping people find better gym memberships. So you can bundle these products together.

Granger: Or where are you going to order better food or can you get better recipes… All those kind of things, it’s a natural progression.


How big is the Startup Ecosystem in Vietnam?

Granger: Let’s look at some numbers. Vietnamese startups reached about $900 million in 2018, about triple the value in 2017. They have done hundreds of deals that are now getting to the B round and C round of the financing. The ecosystem here is expected to reach around 33 billion in 2025. That’s five years from now. So, we’re going to go from 900 million to $33 billion. That’s a big jump in five years.

Cameron: If we look at the economy, it’s like 6% increase every year…

Granger: Yeah, you look at these numbers, you’re like: Okay, they sound good right now! It’s just blowing up in a positive way. But how do you sustain that type of growth? You have a lot of issues. One of the major issues here is the access to capital. Citizens in this country are underbanked. There’s low access to funding for microbusinesses. There’s just not a healthy environment and culture right now for the VC community here. There’s a lot more, right? I was at the 500 startups event a couple of weeks ago and I was sitting there listening to Shark Linh and couple other VCs… There were probably a handful of people five years ago now, there’s probably a hundred. It’s a big increase. But to really build this type of a model and have tens of billions of dollars of investment into startups, you need a lot more investments.

Cameron: And it’s also about making FDI more attractive. So, the increasing the limits of what foreigners can own a company and making it easier for them to establish and manage and have more control.

Granger: But a foreigner and can own a company 100%.

Cameron: The thing is if you go for a company partnership with Vietnamese, you can also have some issues when it comes to control over the long term.

Granger: So, it’s about the legislation, right? Government supports are super important. I mean the government can provide funding at a state or provincial level. That would be positive, right? And World bank and other organizations and local banks getting involved in putting in VC or early stage funds is how you see it done in other countries.

Granger: In the United States, you have universities like Yale, Harvard and Stanford… have endowment funds and co-development funds with the researchers that they have in the grad programs. All that type of thing is where you see a tremendous amount of growth in technology, right? My friend is the head of biology at CUNY, a University in upstate New York. They will take money and invest it into research for the grad students. They take 20% of the equity out of that. So, if you create something and it goes commercialized, the university actually participates in that 20% of 50% of the upside but they also give you the infrastructure needed, right? So, as you can see more of that here and as the universities get more involved in this type of thing and as the corporations get more involved in doing different types of VC investment, now you can get to that $33 billion.

Cameron: Are universities here not doing that? I can imagine they’re getting to the point.

Granger: I think RMIT and the technology university of Ho Chi Minh City are the two leaders in that. I don’t think they have this infrastructure from a government standpoint, right?

Cameron: When I went to RMIT events, it seemed like mostly education services. It’s more about getting everyone ready for that transition.


What are the opportunities and challenges for Vietnam’s Startup Ecosystem?

Granger: There’s the Project 844 that came out in 2016. There’s a lot of supporting for small and medium size enterprises. We should look into that more because that certainly is about supporting the national innovative startup ecosystem. And every day, the government is talking about wanting to be the leader in technology, cashless society and data security. We’ve talked about this all the time. If all those things kind of go congruently and the business is getting involved, you’ll see that growth.

Granger: There are challenges. They still lack of a talented workforce here, and there’s still has to be a lot of training. There’s a lot of really smart folks here, right? But they need training as well as more access, more experience, more opportunity, and more time. This doesn’t happen overnight.

Granger: And they have lack of funding, like we talked about. Private investment is growing, but it’s far from where it can be. Seeking money from Singapore, Hong Kong or other major finance hubs is the best thing to do. We just had a talk about Singapore’s GIA, which came to Ho Chi Minh City for the startup infrastructure. That type of thing makes a huge difference, right? Working with different governments, different countries, and putting real infrastructure for investors together, focusing on startups.

Granger: And there’s a lack of scale. How many people live in this country?

Cameron: 95 million, roughly.

Granger: So, when you see the scale of export here and you read about China and the coming to Vietnam and all the people doing business here, the majority of that is not staying in Vietnam, right?

Cameron: Yeah. It’s an export economy for sure.

Granger: And how Malaysia became one of the leaders, to answer your earlier question, is because they built products to sell within their country. Countries like the Philippines and Malaysia have their own economies that get sustained, right?

Cameron: Yes, they have the needs and they fulfill it easily within their own borders.

Granger: Vietnam is starting to do that. Like I said, these local entrepreneurs are started looking at local issues and solving them with technology. And the more they do that, you’ll be able to see this scale come up. You have 90 money people, what can I sell them? What does everybody need?  And you don’t need to sell to 90 million people to have that scale.

Cameron: Generally, the per capita income is increasing, especially in urban sectors like Ho Chi Minh City. There’s definitely a lot of money that can be used and utilized. I think the average amount Ho Chi Minh citizens spends on bubble tea per week is around 100.000 VND.

Granger: So, the capital, the access to capital, the middle class is growing. I just read yesterday that the real estate market is continuing to boom here. It’s crazy. And I think that it will continue to do so for a while.

Granger: Not only that, the lack of infrastructure is starting to get improved. You see them trying to improve sewers and the flood issues. You see them trying to upgrade the power here. If they could continue to do that, especially in rural areas, in access to Wifi, power and data centers, you will overcome some of the major challenges to get to this 33 billion in 2025, right?

Cameron: It’s a sprint. Honestly, it seems to be a sprint. It’s not a walk. It’s not a leisurely stroll. Best of luck! I want to see it.

Granger: I want to see it too. It’s Monday and hopefully you’ve had a nice cup of coffee with us this morning. For our thought for the week, think about how you can get involved with a startup! People always ask me: ‘Granger, how do I get involved with startup? How can I own some equity? How can I support these guys?’. There’re lots of ways to do it, especially in an economy like this. So, think about how you can get involved with a startup and support this entrepreneur community here, not only to make some money for yourself, but to help out other people and the country as a whole. Let’s talk about that on Friday!

The Lotus Talks is produced by The Vietnam Group. This episode was produced by Granger Whitelaw, Cameron Lynch and Toan Tang.

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