Venture: Vietnam plus

Growing up in Nha Trang, Vu Van was always top of her class in English and confident in her language skills. But on entering the MBA program at Stanford University, Van’s English was soon holding her back. She struggled to communicate effectively with professors and classmates because of her strong Vietnamese accent. The same problem afflicted students from China, Russia and Japan.

Two years ago, Van came up with a solution: ELSA (which stands for English Language Speech Assistant), a mobile app that uses artificial intelligence and voice recognition technology to teach pronunciation. ELSA can listen to a user speaking English and pick outs the exact errors across intonation, rhythm and pitch, and then shows how to correct them. One third of the users are from Vietnam.

“We’re a global company, because we target anybody who wants to speak better English,” says Van. “But we want to focus on the Vietnam market because it’s very big. Everyone here is spending so much on improving their language skills.”

Rising tide

Van is part of the large Vietnamese diaspora community targeting market opportunities beyond their home country. However, they are also utilizing Vietnam’s low operating costs and high-tech talent in the pursuit of these goals, contributing to a unique entrepreneurial ecosystem. Accelerators and early-stage investors from Southeast Asia and the US are establishing local footprints to tap into this start-up scene.

“A large overseas population, coupled with a large raw talent pool here, gives Vietnam an advantage as a potential tech hub. I see more of that here than anywhere else. Most companies in Indonesia and Thailand are addressing local markets. In Singapore, they talk about building regional companies. But Vietnam is generating so-called ‘one plus’ companies – active in their home market plus overseas markets like the US or Europe,” says Justin Nguyen, an operating advisor at Monk’s Hill Ventures.

Vietnam’s start-up movement sprung into life about three years ago. The government played a key role by opening up the financial sector and making debt financing more available to small companies in 2014. Other initiatives have followed with a view to creating 5,000 technology businesses by 2020. Notably, last year the government proposed easier rules for local and foreign VC firms to operate in Vietnam. 

Hanoi-based accelerator Topica Founder Institute (TFI) tracks local start-ups as well as businesses founded by Vietnamese overseas (some companies are registered in the US or Singapore to get VC funding). Only 59 start-ups were launched between 2011 and 2013. The total jumped to 67 in 2015, with $137 million committed in VC funding. Last year a total of $234 million went into 50 start-ups.

Financial technology – the likes of payment business F88 and Momo – received more than half of the capital invested last year, followed by e-commerce, education technology, and online media. Foreign investors accounted most of the dollars committed, while seed and Series A rounds dominated overall deal volume.

“Local people have seen Uber and Grab come here and they realize building their own start-up is possible,” says Jeffery Paine, managing partner at Golden Gate Ventures. “The government is also more into start-ups than two years ago. The laws haven’t changed much but at least foreign investors can now restructure Vietnamese companies in Singapore so that they can invest. In the past, the legal system was very gray and foreign VCs didn’t know what to do.”

IDG Ventures Vietnam and Japan’s CyberAgent Ventures were among the few VC firms operating in Vietnam in the early 2000s. In recent years, Singapore-based VCs like Monk’s Hill and Golden Gate have extended their reach into Vietnam, as have China-focused Gobi Partners and US-based 500 Startups. First generation tech success story VNG also launched a corporate VC fund, alongside local incubator Seedcom – which was set up by three Vietnamese serial entrepreneurs – to invest in start-ups.

Help wanted

Of particular interest to VCs is Vietnam’s young and tech-savvy population. About 60% of the population is under 30 and the Organization for Economic Co-operation & Development ranks Vietnam’s 15-year-olds smarter than peers in the US, Australia and the UK in science and mathematics. There are more than 230 universities nationwide, with Hanoi-based institutions accounting for most young engineers, although Ho Chi Minh City’s commercial environment is said to be better for scaling up businesses.

However, for all the technical skills of these first-time entrepreneurs, they have little or no experience building companies worth hundreds of millions dollars, and few people to guide them. “In Silicon Valley, the ecosystem is well established. If someone has a good idea and technical expertise, the chances of success are very high. But in Vietnam, even if you have really good ideas, you still can fail because the system is not ready yet,” says Tuan Anh Nguyen, chairman of Grab Vietnam. 

As such, Nguyen and executives from regional e-commerce platform Lazada, together with new generation founders such as Van, hold regular sharing sessions with younger Vietnamese entrepreneurs. Meanwhile, some local founders have also joined accelerators in Malaysia, Singapore, Australia and Silicon Valley in order to get exposure to the global ecosystem. At present most deals are early-stage, but more companies are expected to attract follow-on funding when they become ready to expand across the region.

“The quality of Vietnamese founders has improved a lot compared to two years ago,” says Bobby Liu, a co-director at TFI. “In the early days, it was difficult to get them to launch a business in English, but now many of them use English as the main language, unless they’re building something solely focused on the local market. Because of that, it might be easier for Vietnamese companies to expand regionally compared to start-ups in Indonesia and Thailand.” 

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• Topics
• Southeast Asia
• Early-stage
• Technology
• Vietnam
• TMT
• Venture
• Golden Gate Ventures
• Monk's Hill Ventures