From 3,800 to 10,000 startups: Will the Vietnamese startup ecosystem hit 10,000 in 2022?

Two more startups, gaming studio Sky Mavis and e-wallet operator MoMo, also joined the unicorn club with their latest funding rounds. These two sizable transactions contributed to the record-high number of financings — 147 disclosed deals last year.

Those achievements partly reflect that Vietnam is primed for bringing disruptive technologies to mass adoption. The country now has over 96 million people with an expanding young, educated and tech-savvy population. In addition, Vietnam has a smartphone penetration rate in the top 10 worldwide and is slated to become the second-largest Internet economy in Southeast Asia by 2025, as predicted by Google and Bain & Company.

The overall picture signals that the Vietnamese startup ecosystem is growing rapidly and heralds a period of exponential growth for years to come.

However, it is unclear whether the country has overcome the “glaring weakness” that TechinAsia mentioned in an article, pointing to a short supply of existing Vietnamese seed-stage startups that can grow into the next funding round.

“There’s no short supply of venture capital financing for Vietnamese startups… But from the VCs’ perspective, there seems to be a short supply of local tech companies that can or want to compete with their regional peers,” the article said.

So far, more than 200 VCs, mostly foreign, have established a presence in the country, and the number keeps expanding. It is the need of the hour to increase the quantity and quality of the current 3,800 startups.

“Even with the record-high number of deals, on average, each VC invests in less than one Vietnamese startup per year,“ Saigon Innovation Hub (SIHUB) CEO and founder Tuoc Huynh said at the “Vietnam’s startup investment outlook in 2022” event co-hosted by SIHUB and Swiss EP. “At this rate, we need at least 10,000 startups to serve the current spate of VCs.”

“The question here is how we keep up the momentum by nurturing more early-stage startups to move up to Series B, C, or Series D funding rounds and be ready for larger exits,” Huynh emphasized. “This requires a sustained effort, not an overnight fix.”

Incubators and accelerators at the forefront

“We need more incubators and accelerators to foster the growth,” added Huynh.

As of 2021, Vietnam has 79 incubators and 40 accelerators. They serve as key actors in strengthening founders’ capacities. Even though these figures have been constantly growing over the past years, they are still modest compared to other countries like Indonesia, where 95 incubators were recorded in 2016.

“When Swiss EP first came to Vietnam six years ago, few really understood basic concepts such as mentor, incubator or accelerator,” said Anh Nguyen, program manager at Swiss EP Vietnam. “Our goal is to enable a sustainable supply of high-quality startup supporting organizations to move the needle.”

This explains Swiss EP’s approach when it started operating in the country in early 2016. Swiss EP has joined hands with local “early adopters”, such as the Ministry of Science and Technology of Vietnam (MOST) and Saigon Hi-tech Park Incubation Center (SHTP-IC), to build the foundation for a vibrant Vietnamese startup ecosystem with the necessary legal framework, abundant financing sources, sufficient human capital, necessary supporting programs and exciting entrepreneurship culture.

“Now we have a quite comprehensive ecosystem addressing startups’ needs at different stages of development,” added Nguyen.

Operating in seven countries in the world, Swiss EP sees itself as an “ecosystem accelerator”. The Swiss government-backed program connects its local partners with experienced international entrepreneurs and experts to help improve mentoring, early-stage investing, incubation and accelerator programs, as well as build up local staff capacities to meet world standards.

For instance, ThinkZone, one of Swiss EP’s early accelerator partners, collaborated with Catalina Catana, who is an expert coming from Swiss EP’s entrepreneurs-in-residence program. She served as ThinkZone’s Head of Accelerator Program in 2020 and helped fine-tune the firm’s training curriculum from the get-go. Capitalizing on these experiences, ThinkZone is launching its Fund II this year leveraging the country's relatively new regulatory framework for venture funds, Decree 38.

A prospect for larger exits

Last year, the initial public offerings (IPOs) of regional unicorns such as Grab and Bukalapak caught the fancy of global investors in the Southeast Asian market. Vietnam now finds itself in the hot seat to quickly pick up the pace and put forward some IPO candidates. In 2020 and 2021, the second and third Vietnamese startups went public --- Clever Group and Society Pass. Not only does this serve as an impetus for more international investment into the country, but it is also expected to drive the ecosystem forward with experienced tech entrepreneurs ready to foster the next generation of founders.

One of the initial efforts in Vietnam is the first IPO-focused accelerator program launched by Swiss EP’s partner SIHUB in 2020. This is a part of SIHUB’s larger goal to create a platform that helps facilitate startup transactions.

At the other end of the continuum is the encouragement for more local angel investors to take stakes in potential early-stage startups. This will help create a larger supply of local startups well-prepared for future scale-up and venture investment.

“We are looking into bringing international investors to join with local ones in a cross-border co-investment scheme,” added Nguyen. “This draws on one of the best practices recommended by Swiss EP’s global experts.”