Vietnamese startups have been heavily invested in recent years, but experts are concerned about a bubble in the sector after some companies got burned last year.

Mon Hue had to close the door last year after so much buildup.

Local startups received more than US$800 million in funding last year, which included an investment of US$300 million into fintech firm VNPay, the largest deal for a fintech firm in Southeast Asia in 2019.

However, investors are becoming more cautious while investing in Vietnamese startups as they see some foreign and domestic companies, such as Mon Hue and WeWork, disappointed investors last year for failing to make a profit after so much buildup.

Investment fund Mekong Capital, which was set up in 2001 and manages hundreds of millions of US dollars, is keeping itself cautious and finds more value in old economy investments than the tech startups that have driven much of the deal flow.

Chris Freund, a partner at Mekong Capital, told the media that some of the tech business models don't make sense, warning that the sector is starting to resemble a bubble.

One example is food delivery startups, which handle inexpensive items like coffee and yet are facing off against local super-apps such as Grab -- which even though it is a market leader is widely perceived to be losing money.

"I don't see how they will ever be profitable. If venture capital money dries up, the whole industry will collapse," Freund said.

Nguyen Hoa Binh, chairman of tech startup NextTech Group, said that many startups in Vietnam collapsed last year, which has left great adverse impacts on investors’ sentiment.
There has been a chaos among investors and startups both in Vietnam and the world, Binh stressed.

More scrutiny of new investments

For years, investors were willing to back losing businesses to gain market share. But now, there is more scrutiny of new investments.

Vietnam Innovative Startup Accelerator (VIISA), for example, requires its tech startups to meet a list of benchmarks throughout their time in the program.

“Apart from very intuitive selection criteria that all applying startups have to go through, the program has introduced a new development measurement method, which helps us to capture the progress of startups that are accepted into VIISA,” Vo Hieu, a board member and chief financial officer at VIISA, said, adding that this process will bring out the best in each person for the particular business they have founded and committed to.

To find investors, Pham Ngoc Huy from Vietnam Silicon Valley, suggested that Vietnamese startups should call for capital from South Korean investment funds.

According to Huy, in the thoughts of many Vietnamese, Singapore is the nearest market for Vietnamese businesses to find investors. Vietnam’s startups also tend to call for capital from the US. However, Vietnam is still not a targeted market for investment funds from these countries, except for highly promising projects.

Meanwhile, South Korean investors have big money and are competing fiercely with each other to find startups to invest in. As the number of good startups in South Korea is limited, they tend to look for startups in other countries. Vietnam is a major choice partly because of business culture similarities.

According to Huy, the good time for startups to call for capital is when startups have developed for a certain time, and can define their business model, strategy and business structure. At that time, the value of businesses begins to increase.

However, he noted, in the first phase of development, startup founders should not think too much about the value of their businesses.