In March, Vietnam was named as one of the three Southeast Asian countries that continued to dominate the region’s equity funding landscape in a report by DealStreetAsia and Enterprise SG.

The rest of us might wonder: How does the country manage to do this? What are the factors that keep Vietnam attractive in this challenging time? What lessons can we learn from it?

In an interview with e27, Hieu Vo Tran Dinh–Deputy Director at Dragon Capital, CFO at Vietnam Innovative Startups Accelerator (VIISA), and Founder of the Vietnam Fintech Club–gives us his insight into what makes Vietnam a favourable destination for investors.

According to him, there are two factors: Attractive valuation and speedy recovery from the COVID-19 pandemic.

“Valuation of Vietnamese startups is often a bargain in absolute terms and it has strong metrics in relative terms. For instance, we have successfully applied a very consistent discipline in terms of valuation for startups that joined our acceleration stage. Those companies had to set valuations in the range from US$300,000 to US$1 million, and this entry level has helped both startups and investors,” Hieu says.

“For startups, this has helped in maintaining a healthy shareholder structure and a realistic approach to planning their fundraising. For investors, it’s easier to negotiate with them as it’s usually only need to look at operating metrics that support their investment taxes rather than hustling around valuation multiple. The outcome of this is that we see Series A round valuation from US$5 million to US$10 million in Vietnam, which is a bargain relative to other markets.”

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Regarding its speedy recovery from the pandemic, it is reflected in Vietnam’s growth rate.

“Prior to the pandemic, Vietnam’s economy has maintained a consistent GDP growth from a range of five per cent to seven per cent for over a decade. The growth rate has quickly recovered to 2.9 per cent last year which was a stunning sight for any economic observer. Vietnam’s economy has shown impressive resilience during the COVID-19 pandemic, evidenced by its positive GDP growth and rising export figures,” Hieu explains.

“This has created a favourable investment landscape, with a surge in entrepreneurial activity and increasing interest from investors.”

Hieu also adds that the government’s efforts to promote innovation and entrepreneurship, such as the National Innovation Center and incentives for high-tech startups, make Vietnam an attractive destination for investment.

“As an investment manager, I see great potential in Vietnam’s growing ecosystem of startups and its position as a key player in the global innovation economy,” he says.

The lessons we learned

So, what are the lessons that other countries can learn from Vietnam in building its startup ecosystem? According to Hieu, there are three main lessons that other startup ecosystems can learn from Vietnam.

The first two lessons are the government’s active role in creating a favourable business environment and having a disciplined approach to valuations, which have already been discussed in the previous paragraphs. The third lesson is local companies’ strong focus on solving local problems and meeting the needs of the domestic market, which has allowed them to grow and scale quickly.

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“Finally, Vietnam’s startup ecosystem has a strong sense of community, with founders and investors often collaborating and sharing resources to support each other’s success. I would suggest the Swiss EP programme as a raw model example for this ecosystem connector. These lessons highlight the importance of government support, a focus on solving local problems, disciplined valuations, and a supportive community in building a successful startup ecosystem,” Hieu says.

According to him, in this challenging time, local startups have also learned to adapt by changing their approach to running a business.

Previously, companies can raise funds by relying on factors such as growth, new users, and transaction volumes. But today, startups in Vietnam have switched to “more practical metrics” such as revenue and cash flow.

“Everyone would ask the question, ‘If you raise this round and then you cannot raise the next round, what will happen?’ So, I think it’s getting really realistic … the financial model must make sense in terms of runway movements and in terms of cash flow, that support all the scenarios that may happen. The base scenario should be a positive cash flow and self sustained; the best case scenario with the high growth is a market share dominance.”

Fintech remains key to Vietnam

Dragon Capital is a fund management firm that has been active in the Vietnam startup ecosystem. A fund management firm, it caters for a wide range of activities from public fund management to wealth management for family office sovereign funds in Europe, Japan, and the US. Hieu describes the firm’s involvement in venture capital as opportunistic and a principal investment mandate.

In Vietnam, Dragon Capital sees the fintech sector and related services as one of the most promising verticals, followed by SaaS for SMEs.

“Vietnam has around 300,000 SMEs up and running. They are open to new ideas, willing to accept new sort of services and business, as long as it makes sense,” Hieu says.

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Image Credit: Tron Le on Unsplash

This article was first published on April 18, 2023

The post Attractive valuation, quick COVID-19 recovery keep Vietnam attractive for investors: Dragon Capital’s Hieu Vo Tran Dinh appeared first on e27.

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