Vietnam through the eyes of local startups

Marlon Luft Uncategorized

With a population of 90 million, Vietnam is the third largest market in Southeast Asia after Indonesia and the Philippines. Like its counterparts, Vietnam is also home to a lot of young people, approximately 40 percent of whom are less than 25 years old. This growing population of young people will likely be the next generation of consumers and bring big opportunities for entrepreneurs tapping into this emerging market. The country is also well-connected, with 50 percent of the population on the internet and more than a third using smartphones.

But while some may think Vietnam has a largely homogeneous ethnicity, there are distinct subcultures that impact the way startups work in the country.

So how does one navigate around Vietnam? And what is the local startup ecosystem like? I asked local entrepreneurs and Vietnam ecosystem experts Son Le Thanh and Anh-Minh Do for their insights.

Northerners and southerners

Before diving into the Vietnamese startup ecosystem, we must first understand its history.

The Vietnam War that ended in 1975 brought about two distinct groups: the northerners that originated in Hanoi, where the government seat of power is located, and the southerners that lived in Ho Chi Minh City (HCMC).

There are cultural differences between the two. According to Son, who was born and raised in Ho Chi Minh City, southerners tend to be more open-minded, pro-business, and are direct in doing business. On the other hand, northerners emphasize political connections as a key strength (given their proximity to the government seat of power) before engaging in business.

Khoi Nguyen, the founder and CEO of WeFit, agrees with this assessment. He sees HCMC as a place for startups doing end-customer services, while Hanoi is for startups with more political affiliations.

Singaporean Alvin Koh, the founder and CEO of Hanoi-based Peko Peko, has been in Vietnam for over three years. He observed that northerners are generally better at studies, have the habit of saving money, and are more conservative, whereas the southerners are more dynamic, willing to start up, and spend as they earn.

From my conversations with Vietnamese entrepreneurs, there is a disparity. Northerners tend to view themselves as more cultured and refined, with a penchant for formalities, metaphors, and sarcasm—even in their daily speech. “Northerners are [also] afraid of change, which makes it a difficult market to adapt to technology,” said Duong The Vinh, the co-founder and CEO of HCMC-based Cititech. “I noticed Hanoi-based companies who would rather go global from the start than to test their product in Hanoi [as the beachhead market].”

Viet Kieu and the overseas educated

To add to the diversity, the Viet Kieu, the diaspora who left Vietnam during the war, are returning after receiving word of the country’s current opportunities. A report showed that an estimated 1.5 million Viet Kieu live in the US alone, with many more in other countries. Their return is a driving force in the Vietnamese economy, as they contributed an estimated US$12.3 billion in remittances in 2015.

They not only bring money but also the entrepreneurial skills and connections that come with it. One such example is Sonny Vu, a Vietnamese-American who founded MisFit Wearables Corp, which was acquired by Fossil Group for US$260 million. Another is Binh Tran, co-founder of Silicon Valley-based Klout, who now runs 500 Startups’ Vietnam fund.

“Let’s also not forget the Vietnamese who were educated overseas and are contributing back to the startup ecosystem,” added Son. A report written by Anh-Minh Do, former managing editor for Tech in Asia in Vietnam, substantiates his views.

According to Anh-Minh, the overseas educated have an edge over the Viet Kieu:

“Vietnamese nationals who study abroad have a significant advantage over overseas Vietnamese in Vietnam because of their understanding of the culture and the way of life. Generally, overseas Vietnamese have a Western mentality attempting to understand an Eastern mentality, but this process is too difficult for building a Vietnamese team or attacking the Vietnamese market. Going east to west and back to east is way easier.”

Opportunities in the Vietnamese market

The middle-class consumer lifestyle

Like other emerging Southeast Asian markets, the growing educated middle class is the focus of many entrepreneurs. Ecommerce is a growing market which reached US$4.1 billion in 2015, growing annually at 37 percent.

 

“Vietnam is highly relationship-based. Building a close relationship with your clients is critical to success.”

 

Tapping into this wave is Cao Nguyen, the founder and CEO of HCMC-based UseData, a marketing automation platform. According to him, “95 percent of ecommerce stores are SMBs, which use advertising to draw sales. This is not efficient.” To this end, his company taps on timely, personalized messages to build a relationship with customers to grow sales.

Alvin agrees on the need to develop relationships. “Vietnam is highly relationship-based. Building a close relationship with your clients [is] critical to success,” he explained.

A healthy lifestyle is also catching on among the middle class. This insight led Khoi to found WeFit, a fitness app offering a single monthly pass to hundreds of gym studios and fitness classes across Hanoi and HCMC.

There is also a 94.5 percent literacy rate among the middle class, an impressive level of education for the large growing nation. Khanh Tong, the CEO of Hanoi-based Checkit, takes advantage of this, creating an app which summarizes key insights of Vietnamese books.

Good resource pool of tech talent

“One of the big advantages [of doing a] tech business in Vietnam is we have great talent with low operation costs,” says Duong.

“Software engineering [graduates] can command a starting salary of US$500 and above US$1,000 for [those with] more than three years of experience,” Son elaborated. “This is considered a relatively high income.”

He continued saying that high-quality developers often come from universities such as HCMC University of Science. According to him, these universities have a roster of well-versed and experienced lecturers who have had overseas exposure and training.

He also gave credit to startups or large overseas tech companies who built their tech teams in Saigon. “As their job scopes demand high-caliber engineers, this has raised the bar for someone to be considered a good engineer,” he said.

On the grassroots level, organizations like Grokking Vietnam organize regular events to bring the best minds in the software engineering community together to share the best practices in building large-scale and complex software systems.

The Vietnamese entrepreneur

Khoi finds that Vietnamese entrepreneurs work very hard, spending an average of 14-16 hours a day working. “They also enjoy meetings, especially informal hangouts,” he said. “Most startup founders have technical backgrounds and are very strong in software development.”

Son attributes this attitude to necessity. “This is due to the inflation rate rising faster than wages,” he said. “Many entrepreneurs are part-timers who do freelance businesses or teaching to supplement their wages.” He also mentioned a culture of peer pressure for entrepreneurs to be shortsighted in their businesses and to succeed as quickly as they can.

Cao noted that most startups are built by young people, who are lacking in skills, networking, and experience. According to him, this will impede the production of successful companies.

Alvin said, however, that young people are willing to work hard, fail, and try again. This resilience is a hallmark of Vietnamese entrepreneurs that runs deep in the country and its history. He added jokingly, “If there is one unique behavior Vietnamese entrepreneurs have, it is the habit of drinking beer in noisy beer joints called Bia Hoi.”

Government initiatives in the ecosystem

“Everyone is talking about startups now, and a lot of people have started something in the past year. The government is also showing some support by changing the laws, hosting some events, and opening some accelerators,” Khoi said.

To further support the ecosystem, the Vietnamese government approved the Innovation Partnership Progam, which is a “national program to support an innovative startup ecosystem in Vietnam by the year 2025.”

In HCMC, a US$38.5 million, 52-hectare Saigon Silicon Valley was created based on the same model in the US. This center aims to “attract enterprises of overseas Vietnamese and international corporations in high-tech and supporting industries, research, innovation, and transfer applications.”

A fairly new but advancing tech startup cluster in Da Nang has also been formed.

According to Son, “Da Nang operates differently, as its infrastructure was built from scratch, therefore bypassing legacy setup issues.”

Challenges faced by entrepreneurs

Despite a supportive ecosystem, entrepreneurs in the country still face challenges.

Lack of funding

“It’s quite hard to convince Vietnamese investors to take a risk at the very beginning, and foreign investors or VCs take too long to process,” said Khoi. “We have to bootstrap at the beginning, and the beginning is always the hardest time since our product is new and unfinished, while people still have many doubts.”

Khanh agreed that the country’s startup ecosystem is still in its infancy and has limited resources—a lack of co-working spaces, VCs, and startup programs. According to him, angel investors are new to the scene and do not really provide the necessary support. Because he lacked the confidence in the country’s legal system, he incorporated his startup in Singapore instead, receiving investment from Telstra Australia and joining the Muru-D Singapore accelerator.

Unclear government policies and slow implementation

Despite the initiatives to support startup development, Alvin noted that government regulations are often slow to be implemented and lack strong frameworks to benefit startups.

Cao concurred saying, “While some recent government funds have been announced, they are still not very clear to startups what they can bring besides, hopefully, money and a lot of paperwork.”

Duong added, “I think regulations in Vietnam are good enough for tech business in Vietnam for now. The law is not complete to support [startups] and needs time to develop, but the good news is we now see the government is ready to support.”

Language barriers and the need for international collaboration

Son sees a disparity between local and overseas Vietnamese in fundraising, likely because of the language barrier the former faces when reaching out to foreign VCs.

“Furthermore, startups have products ready but are more focused on the Vietnamese market due to language familiarity […],” he sad. “There is a need for more overseas collaboration to gain exposure and knowledge transfer.”

 

Advice to startups:

According to Alvin, raising smaller rounds from family and friends definitely helps:

“In the funding scene, there are a growing number of angel and seed funds recently. However, as many of these are new angels, usually the process is not so structured, which could potentially slow down the fundraising process. Be prepared for this round of funding to take three to six months and bootstrap wisely in the meantime.”

 

Conclusion:

I’ll use Khanh’s words to end this article:

“From the point of view of a startup, we need more early-stage VCs and more angel investors, both in quantity and quality. A lot of startups need knowledge at selling and pitching to sell their startups and ideas better. Even if the VCs don’t invest in them, it would be helpful to provide feedback, so they can learn and become ready to invest.”

This article is the eleventh of the Through local eyes’ series, where local startups give their take on Asian startup ecosystems.

By Techinasia

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