Vietnam has one of Asia’s newest and most dynamic start-up scenes. Home to just 1,600 start-ups at the start of the Covid-19 pandemic, that total has jumped to more than 3,000 now, including four unicorns, according to start-up data platform Tracxn.

Vietnam's tech start-up Kobiton.

The view was mentioned in the “Emerging Giants in Asia Pacific” report by KBMP and HSBC, which examines new economy businesses across the region with strong potential to impact the global business landscape over the next decade.

The report noted driving the country’s digital economy is a large, young population willing to test and adopt new technology consumer services, supportive government policies, and a surge in overseas funding.

“Vietnam has emerged as a hub for start-ups, closely competing with the likes of Indonesia and Singapore,” CEO of HSBC Vietnam Tim Evans said.

With a young, energetic and educated population, high smartphone and internet penetration, and strong government support, Vietnam should maintain its position as a compelling destination for tech entrepreneurs and investors, making the country a thriving environment for potential unicorns,” he added.

Although Vietnam’s GDP per capita remains relatively low compared to others in the region, its economy is expanding faster than any other market. Growth is predicted to hit 5.5% in 2022 and 6.5% in 2023, near pre-Covid-19 expansion levels, according to World Bank estimates.

The report pointed out that Ho Chi Minh City-headquartered super-app provider VNG is Vietnam’s longest-standing successful start-up to date.

Launched in 2004 as a gaming business, but now with offerings including chat app Zalo, which so far has had more than 60 million users, and e-wallet ZaloPay, it reached unicorn status as far back as 2014.

Investors in the company include Singapore’s Temasek, China’s Tencent, and Goldman Sachs.

Riding the surge in e-commerce, deliveries, and online media boosted by the pandemic, VNLife, operator of B2B mobile payment provider VNPay, became Vietnam’s second unicorn in 2020.

Venture capital deals surged to US$1.1 billion in 2021, up from $301 million in 2020 and $330 million in 2019.

By year-end, two more companies also became unicorns: game developer Sky Mavis and the country’s most widely used e-wallet, MoMo.

“Strong funding is coming from Asia, especially Singapore, followed by South Korea, China, Hong Kong, and Japan”, said Kien Nguyen, KPMG Private Enterprise at KPMG Vietnam.

“Nearly all of this money has gone to companies addressing the domestic market. Local demand should stay strong for the next two or three years before there is any need for consolidation or global or regional strategy,” Nguyen added.

Government focus on growth

According to the report, the Vietnamese Government provides support for new firms through its National Technology Innovation Fund and set up a FinTech Steering Committee in 2017 to formulate and submit an annual action plan to the State Bank of Vietnam on the building of an appropriate ecosystem.

But aside from ensuring that the country’s telecom infrastructure remains held by state-owned companies and local firms control data services, it has largely allowed Vietnamese start-ups a free hand to chart their part, it noted.

“At the app level, there is very little state involvement,” said Luke Treolar, Head of Strategy at KPMG Vietnam.

“That layer of Vietnam’s digital economy is more or less completely private,” he added.

In the medium term, the big question now is whether it will tighten regulation on the field, or stick with its current open approach.

While e-commerce accounts for less than 5% of all retail sales, its value rose by more than half in 2021.

“Similar rates of high growth rate can be expected for the next several years. If that happens, Vietnam will have Southeast Asia’s second-biggest digital economy, behind Indonesia, by the end of the decade,” Treolar said.