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Can Vietnam become a global tech hub?

Vietnam is hoping its nascent tech ecosystem can compete on a global stage, and it has started to gain the attention of international investment. Eddie Thai '12 discusses the challenges and opportunities along the long road to reach the country's potential.

By Yale
Published: Sep 11, 2017

Image: Vichy Deal/

Every investor knows there are no sure bets. Getting team, timing, and idea to align in a way that carries a startup to a successful exit, and beyond, is hard—and unpredictable even in an established tech ecosystem. What’s it like to experience that mercurial process in an country that’s essentially in startup mode itself?

Like many startups, Vietnam is navigating apparent contradictions. It’s a country where nearly half the population works in agriculture that aims to escape the middle-income trap by becoming a startup nation. It’s a communist country that tapped capitalism to average 6.4% GDP growth through the 2000s. More than 40 million people have escaped poverty in the last two decades, but the World Bank views the gains as fragile, particularly in rural areas.

The Guardian noted, “Its recovery from war is close to miraculous, particularly in cutting back poverty,” while warning that the balancing act of state capitalism “has ended up with the worst of two systems: the authoritarian socialist state and the unfettered ideology of neoliberalism.”

Yale Insights talked with Eddie Thai ’12, a partner in 500 Startups’ Vietnam fund, about navigating the tech scene in an emerging economy. Acknowledging the challenges, he sees the necessary elements for a tech hub that is uniquely positioned to solve problems for the developing world.

Q. Give me a sense of the work you’re doing with 500 Startups Vietnam.
Five Hundred Startups is a global venture capital firm launched in Silicon Valley in 2010; it could be considered a pioneer of the “lots of little bets” model. Traditional VC firms may have 10 to 30 portfolio companies, usually focused in the handful of hubs around the world like Silicon Valley, New York, or Tel Aviv. But we observe that the nature of technology innovation has changed substantially. Teams anywhere in the world can develop a product and target a large audience with less money than they may have needed before. Yet most startups still fail, and it’s still really hard to predict the big winners. So for an early-stage venture capital firm, we think a better strategy is to make many modest investments on high-potential entrepreneurs around the world.

In 2016, 500 Startups created a $10 million Vietnam-focused fund that’s aiming to invest in 100 Vietnam-connected companies. I am one of two lead partners. While we believe innovation can come from anyone, anywhere, Vietnam presents an exceptional opportunity because of macroeconomics, demographics, and tech talent.

Q. What types of startups are you seeing in Vietnam?
Generally, the companies fit into two buckets. One is local or regional “painkillers”—firms solving specific problems, often by localizing products or business models that have worked elsewhere. The other is startups with global aspirations leveraging Vietnamese skills and perspectives.

Vietnam has some great entrepreneurs, and its tech talent is increasingly being recognized. Even before we started investing here, there were a number of success stories arising from both buckets. VNG could be considered the “Tencent of Vietnam” since both started off as game developers and distributors. It was Vietnam’s first unicorn. Misfit Wearables was co-founded by a Vietnamese American and substantially engineered by talent in Vietnam; it was acquired by Fossil, the watchmaker, for $260 million. Another example is Atlassian, an Australian-founded company that leveraged a couple hundred Vietnamese engineers to build their products up until their IPO in late 2015 on NASDAQ at a roughly $3 billion market cap.

Q. Give me a sense of the Vietnamese market.
I think of Vietnam as essentially a 30-year-old economy. Prior to 1990, it had gone through a century of French colonial occupation, two decades of internal fighting, and another 15 years of economic devastation. But since 1990, when the government began opening the economy, Vietnam has been the second-fastest-growing economy in the world behind China, after you exclude very small economies.

Today, it’s a country in transition. Last year, Vietnam was newly classified by the World Bank as a middle-income country, though its GDP per capita is just north of $2,000. While the easiest growth has largely been captured through improved agriculture productivity and low-cost manufacturing, fortunately, in this country of 92 million people, half are under age 30 and many have the basic building blocks required to take advantage of the new economy.

To put the development into perspective, when the first venture capital firm came to Vietnam in 2004, there were only about 5 million internet users and virtually no smartphones. Fast-forward to 2017: there are now 50 million internet users and more than 30 million smartphone users.

Despite being a relatively poor country, Vietnam does quite well versus developed countries on PISA test scores for math and science. The universities graduate about 100,000 engineers per year.  And these engineers cost a fraction of comparable talent in Silicon Valley.

Q. What’s the perception of startups within Vietnam?
There’s a lot of hype about tech startups right now. The government estimates there are 14,000 tech companies, though not all of them are startups. Our estimate is there are up to 3,000 startups today with perhaps another 1,000 coming online every year. This is substantially more than a decade ago, but it’s based on a core trait that is not new to the Vietnamese: seeing opportunity and taking entrepreneurial action to seize it. The tech startup focus among young folks is inspired by what they’ve read in TechCrunch.

A negative driver of the interest may be an overall slowdown in growth of traditional white-collar jobs. Recent grads find there isn’t as much demand for their finance or marketing degrees as they expected. When faced with either continuous struggle to find a white-collar job or getting involved in this new and exciting world of tech startups, many people decide to do the latter.

The Vietnamese government recognizes the strategic importance of the broader tech sector to drive future economic growth, improve competitiveness of local companies, generate jobs, and eventually increase tax revenue. Borrowing from Israel, they proclaimed their vision to make Vietnam a “startup nation,” and declared 2016 to be “the year of the startup.”

Q. How many investments have you made at this point?

We’ve made 12 investments. About two thirds fit in that local or regional bucket. The others are global. They include e-commerce, fintech, ed-tech, and hardware companies. I’m really excited, not only because they may create good returns for my investors, which is our duty, of course, but also because I see, in a number of these teams, opportunities to make broad social impact as well. The fintech investment is working to extend access to credit to the underbanked by developing alternative ways to assess credit worthiness. There hasn’t been much work on this in Vietnam or other emerging markets, so it could really increase access and reduce borrowing costs for the bottom and middle of the pyramid.

The ed-tech investment uses speech recognition and machine-learning technologies to teach English pronunciation. Since English is a gateway to a variety of higher-paying jobs and pronunciation is a barrier to fluency, this is an improvement on the existing suboptimal options currently available around the world.

It’s still early in the game, but our startups are doing well so far. Five of them have already raised a combined $10 million of next-round capital. Investors include Sequoia, Social Capital, Google Launchpad, Stanford StartX, and other investors from Asia and Europe. For several of these investors, these are their first investments in Vietnam-connected startups.

Q. What are you providing the startups?
The typical investment is going to be between $40,000 to $100,000. For that, we don’t seek control—we take less than a 10% stake, and we’re not taking board seats. What we provide is support clarifying their vision, recruiting senior talent, and bringing in advisors and other investors. That includes access to 500 Startups’ international network of over 3,000 founders and mentors. We also provide access to a number of special offers through systematically negotiated partnerships with Amazon, SendGrid, and a variety of other service providers. It can amount to more than $1 million in non-cash credits.

Beyond that, it’s very bespoke. Sometimes it’s design feedback. Sometimes it’s advice on IT infrastructure. Sometimes we connect them to potential business partners or market entry folks in other countries. But our internal objective is to prepare these teams for the next round of institutional investors within 6 to 12 months and set them up for big potential outcomes.

Q. You mentioned helping to recruit C-suite talent. Is there a pattern to when that is needed?
Vietnamese executives tend to have a solid handle on their functional area of expertise; it’s harder to find somebody who’s got the integrated perspective unless they’ve had experience studying or working abroad.

Fortunately, Vietnam has a global diaspora community of more than 4 million people. It’s Vietnam’s secret weapon in the global tech scene. Many have had jobs in leading tech companies or started businesses elsewhere and now are looking to either return to Vietnam to build something or leverage what’s here for global efforts.

My partner, Binh Tran, is an example of this. He was born in Vietnam but left when he was very young and basically grew up in Orange County. He worked in the tech industry for 20-plus years, starting as a developer and eventually moving into technical co-founder roles for four successive startups. The last one was a company called Klout, which was famous—or infamous—for its “Klout Score” of social media influence. He sold the company in 2014 at a $200 million valuation. After that, he came back to Vietnam for a visit and ultimately decided he wanted to be part of the emerging tech landscape.

Q. How different is it compared to doing venture investing in the U.S.?

The funding environment in Vietnam is still underdeveloped. There are very few seed-stage investors actively investing. So when we announced this $10 million fund, which is very small in the global scene, it was covered in many local news outlets as well as such global media as Wall Street Journal, Bloomberg, and TechCrunch. Our brand merits some coverage, but the excitement is also a sign of how sparse the funding environment has been. That means there’s typically a lot of education to be done with both founders and investors on everything from fundraising terminology to basics on financing strategy to what to seek or avoid from potential investors.

Because Vietnam doesn’t yet have a well-established system to handle business disputes transparently and quickly, we have to be mindful about ensuring our interests are protected. That might mean looking primarily at startups that are structured with a holding company in Singapore, Hong Kong, or the U.S. It might mean being particularly mindful about due diligence on character. Fortunately, we’re finding world-class teams. We won’t lower our standards here versus other markets.

Q. What else needs to be developed in the ecosystem?
While Vietnam is nominally a communist country, in practice the economy is far more capitalist than communist. Yet there’s still tension between factions within the one-party government. The digital economy potentially represents a relaxation of control—freer flow of information and freer commerce—which is fine by the more pro-capitalist faction and a concern for the faction that wants the government to continue to proactively steward the economy.

Q. Are there particular challenges to doing venture investing in a communist country?
Regulations have improved substantially since the 1980s, but there’s still a way to go. It can be difficult for foreigners to invest here. Technically, it’s supposed to take 15 days, but typically it takes two-plus months to complete the process. Similarly, if you’re in compliance with all regulations, repatriation of capital is straightforward. But the paperwork required to prove compliance can be quite difficult, so repatriating capital can take time and therefore, in the eyes of investors, is an area of risk.

The government seems to be genuinely interested in developing as a startup nation, but it’s a two-steps-forward, one-step-back situation. As an illustration, an attempted revision to the penal code made founders of digital companies criminally liable if they didn’t have all the proper licenses. There’s nothing wrong with regulating business or incentivizing compliance with the rules, but the issue was that the penalty was not a fine, not suspension of business activity, but imprisonment. Having to go to the government every time you want to change your product or your business model to ensure compliance, or else risk imprisonment, would obviously freeze digital innovation.

Fortunately, that’s not the end of the story.  While efforts to influence policy are standard in the U.S., it’s quite uncommon here in Vietnam and even rarer for anything to change as a result of those efforts. Which makes the outcome of this example all the more interesting. The startup scene mobilized. Thousands of folks signed a petition protesting the change. Many others talked with government officials behind the scenes. Eventually, the prime minister declared that the revision would not be implemented. It was a big win in the end, but it really symbolizes the ongoing tension between what it takes to be an innovative country and some policymakers’ instincts.

Q. What drew you to Vietnam?
My parents are originally from Vietnam. I was born in the U.S. and had a fairly normal American childhood, but I was always aware of my Vietnamese heritage. At first I experienced it through language and food. But I remember when I was eight or nine, I saw my mother’s plane ticket to the U.S.; I realized how much chance played into my growing up American.

It sparked curiosity about Vietnam. It also created a sense of obligation to make the best use of my opportunities and, eventually, to do what I could to make sure that people whose families didn’t leave Vietnam have access to the same sorts of opportunities and resources that I had.

Q. Where do you see Vietnam going?
In 30 years, Vietnam has a chance to be a top 30 economy. As importantly, it has a chance to be a hub of innovation for the developing world.

Innovation can happen anywhere, but certain places are better for certain things. The traditional hubs are wealthy cities with people who are working on, often, cutting-edge technology solutions that are serving the developed world. Vietnam is this interesting place with substantial tech talent that arose in this emerging market. Many Vietnamese engineers are painfully aware of emerging markets’ problems, which makes them well suited to solve them.

This picture I painted of Vietnam in 30 years is not a guarantee. And it’s a long journey between here and there. But I think the trajectory for the next 30 years is going to be determined by choices people make in the next 5 or 10 years. That’s why I’m here now.

[This article has been reproduced with permission from Qn, a publication of the Yale School of Management]

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