What you need to know about the Vietnamese Startup Ecosystem in 2019?Vietnam has become a notable hotspot for startups in recent years. The country in many ways has the right ingredients for the development of innovative startups.One of the most dynamic environment for startups in the Asia — Pacific region Vietnam has the third-largest market in ASEAN (nearly 100 million people), high Internet coverage and a very competitive and globally connected market. In particular, according to a report by Ernst & Young, Vietnam is ranked second in the number of incubators, accelerators and research labs (after Singapore) and is also home to one of the rare “unicorn” startups of ASEAN, VNG, currently valued at 2.1 billion USD. Total deal value starting from 2016 has seen year on year growth of at least 50% and most recently the year 2018 has seen almost 300% growth when compared to 2017 in the total value of deals in the ecosystem, from 291 million USD to about 889 million USD. This growth can be seen as a reflection of a growing and maturing ecosystem, with more startups reaching later funding rounds. The surrounding ecosystem has become more favorable for new startups to open business and develop products. Vietnam now has greater infrastructure and services to support startups such as more coworking spaces, incubators and accelerators, different organisations and agencies supporting innovative startups and the ecosystem is more visible to the international communities with more Vietnamese startups making a name overseas and events showcasing Vietnamese startups to the international community. The accelerating growth of co-working spaces More coworking spaces are popping up than ever, with about 170 coworking spaces across the country, an astonishing growth of 250% compared to 2017. Most of these facilities are concentrated in the largest startup hubs in the country, including Ha Noi, Ho Chi Minh City and Da Nang; consisting of about 95% of coworking spaces in the country, while smaller regions such as Thua Thien Hue, Quang Nam, Hai Phong seeing coworking spaces developed to help nurture the budding ecosystems there. Some notable brands include Toong Co-working Space, UP Co-working Space and even foreign brands such as Regus and Wework are currently operating in Ho Chi Minh city. Notable numbers of investment landscape The investor landscape in Vietnam is also rapidly developing, with both local and foreign investors beginning to invest into Vietnamese startups and other new innovative businesses. Previous numbers have shown there are about 40 foreign and domestic investors who are active within the Vietnamese startup ecosystem and research by Cento Ventures and ESP Capital also backs up this estimate, with there being an estimated 61 investment funds in Vietnam in 2019, 10 of which are domestic funds. Foreign investors, especially Korean and Singaporean investors have become more active within Vietnam in 2019 with 13 and 11 funds respectively, reflecting a near doubling of activity compared to previous the previous year. Foreign investment has always played an important role in the ecosystem and this recent surge in activity indicates a greater interest from foreign investors as the ecosystem develops and is the source of the lion’s share of deals in Vietnam. Some of the notable deals, such as the 29 million USD investment into VNG by Temasek, the Singaporean Sovereign Wealth Fund, the 300 million investment into VNPAY from Softbanks & GIC investments and also the 100 million USD investment into MoMo from Warburg Pincus. The VNG deal is the first deal that gives VNG the status of an “unicorn’’, a private company with valuation above 1 Billion USD, with an estimated market capitalization of about 51 trillion VND (US$2.2 billion), which marks the first confirmation of a Vietnamese unicorn startup. Vietnamese investors are also becoming more active. According to the same ESP report, Vietnamese investors, while not having the same level of resources, are active investors, participating in 36% of the deals in the first half of 2019. Notably active Vietnamese investors this year include CyberAgent Ventures, ESP Capital and Vina Capital Ventures, with CyberAgent Ventures having participated in 5 known deals so far in 2019 (Luxstay, Jamja, Wefit, TheBank and Kyna). New funds were also established in 2019 such as the VinTech Fund, established in May 2019, has invested into 12 companies/commercialisation projects as of October 2019. The fund seeks to invest in 15 projects with investments of 500,000 USD per project. Another fund that was established in 2019 is Next100, an investment arm of the NextTech Group of Technopreneurs. It is a US$10 million early-stage startup fund with the goal to inject US$100,000 to US$1 million in each startup. Incubators & Accelerators: New game-changers of the startup ecosystem Business Incubators and Accelerators are also becoming more widespread. With there being an estimated 37 incubators, mostly concentrated in Ha Noi and Ho Chi Minh City. Da Nang, a city with a developing ecosystem, has also built 3 business incubators, focusing on the city’s strengths: tourism, food and high-technology. In addition to the three big cities, localities such as Binh Duong, Can Tho, Soc Trang, Tra Vinh, Lam Dong and Thai Nguyen have also started establishing business incubators, showing that ecosystem development is happening across Vietnam. Many of these local incubators are developing with the aim of supporting local industries and groups, such as Soc Trang incubator which focuses on supporting ethnic minorities and female-owned businesses. Business Accelerators are still relatively rare, with only around 15. More are opening every year though, such as Thinkzone and Saola Accelerator which just opened in 2019. Saola Accelerator, the newest accelerator which is operated by 500Startups, is a US venture capital firm that has made many investments in Vietnam and also has an office in Vietnam. One of the most well-known accelerators is Vietnam Silicon Valley Accelerator (VSVA), which provides early-stage support and 40,000 USD funding to startups. Attempts of Vietnam government in initiating startup ecosystem: National Project 844 & the biggest annual event TECHFEST Local developments have also been complemented with ever greater efforts to connect and bring the ecosystem to the international stage. TECHFEST VIETNAM, the annual event for startups in the country hosted by the Ministry of Science and Technology (MOST), has helped provide an international platform for innovative startups and other stakeholders in the ecosystem to connect and also allows international investors and stakeholders to connect to the ecosystem. Now in its 5th year, the event continues to help attract attention and promote the ecosystem and has further expanded its activity aiming to promote the Vietnamese startups to international markets and investors, with TECHFEST hosting events in Silicon Valley, South Korea and Singapore where Vietnamese startups and policymakers were able to connect to potential investors and partners and explore these ecosystems. TECHFEST also developed important strategic partnerships 2019 by becoming the Regional Partner to Startup World Cup (SWC) by Pegasus Tech Ventures, an international startup competition that happens in Silicon Valley and allows the winners of the Innovative Technopreneur Contest to participate in the Finals of Startup World Cup in Silicon Valley. This allows opportunities for Vietnamese startups to shine on the global stage, like Abivin, the SWC 2019 Champion and winner of the 2018 Innovative Technopreneur Contest. The key to the development of the ecosystem has been the government efforts in promoting and developing the ecosystem. The key policy in this area has been the Initiative for Startup Ecosystem in Vietnam or ISEV (colloquially called Program 844, after the decision that created it) and is headed by the Ministry of Science and Technology of Vietnam. The initiative aims to build the foundations of the ecosystem through financially supporting organizations and ecosystem builders to help them carry out activities vital to the ecosystem. This includes capacity building programs for startups mentors and investors, media programs to help promote innovation and entrepreneurship in Vietnam and also includes TECHFEST, which aims to become a platform for stakeholders to connect to the Vietnamese ecosystem. Locally, other government initiatives have also been pursued to help kickstart local startup activities. One of the most active has been from Ho Chi Minh City, where the local Department of Science and Technology established SIHUB, a hub that acts as a platform for cooperation between local officials and private partners to pool resources and carry out support programs for local startups. Conclusion Over the last thirty years, Vietnam has moved from being one of the world’s poorest regions into one of the most dynamic emerging economies in the South — East Asia. In just 5 years, the amount of invested capital and the number of technology deals done have grown six-fold. Vietnam has become a hot country for innovation and entrepreneurship. There is still a lot of potentials to be realised in the Vietnamese ecosystem, especially in a few particular sectors including Edtech, Fintech, Agritech and even certain emerging technologies such as Blockchain and AI. In the next blog post, we will bring to you an overview guideline for investors about Vietnam’s investment landscape. References ISEV — National Program 844, 2020, Overview of the Vietnamese Startup Ecosystem Topica Founder Institute, 2018, Vietnam startup Investment Insight 2018 Ernst & Young (EY), 2018, “ASEAN FinTech Census 2018”