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Local startups in good shape but improvements needed

Released at: 22:30, 20/07/2016

Local startups in good shape but improvements needed

Photo: IDGVV

Mr. Nguyen Hong Truong, Vice President of IDG Ventures Vietnam, shares his thoughts and provides some advice for Vietnamese startups.

by Nguyen Ha

■ The government has mentioned the possibility of having a fundraising market for Vietnamese startups. Do you think the idea is feasible in the current circumstances?

Everyone knows that a public market for startups means raising public capital for companies with a high risk profile. The formation of such a market would depend on a number of important factors: (i) the development of the stock market and the readiness of the government to manage new stock boards; (ii) the quality of public investors, and (iii) the quality of the startups themselves.

The governments of developed countries have had many years of experience in managing different public markets and been through many periods of boom and bust, and their public investors have a long history of conducting stock trading with a good understanding of what it entails and a willingness to take risks. Businesses have started up and sought access to capital in these countries for decades, while in Vietnam the private sector has only been encouraged since the “doi moi” (renovation) process was adopted in 1986. It will take time for Vietnam to reach a certain stage of development before it has a high risk public market. Public market readiness, public investor readiness, and startup readiness will need to be fully analyzed and lessons learned from developed country’s before a public fundraising market for startups can be introduced, and for Vietnam, I believe, this remains a few years away.

■ How would you assess Vietnamese startup over the last few years?

Over the last few years Vietnamese startups have grown in both quantity and quality. More are being formed every day thanks to the success of previous endeavors and the rapid growth of the internet and consumer markets in the last decade.

Founders see more opportunities not just in Vietnam but also in starting businesses with products serving global markets from Day 1, such as mobile apps or Internet of Things products.

The quality of startups is also getting better as founders learn lessons from the previous generation. They contact angel investors or venture capital funds earlier, join startup accelerators as soon as they can, and promote their own products in as many forums as possible. These favorable conditions come from the startup ecosystem maturing in the last few years and there being greater access to capital.

Vietnam already has various kinds of startups similar to any other developed part of the world, from many small concerns valued at under $1 million to those in the hundreds of millions of US dollars and even “unicorn” companies (valued at $1 billion or more) like VNG. Some purely provide services domestically while some reach out regionally or internationally. Others are acquired by international strategic buyers and a number are well funded by international financial institutions. The only type of startup we have not seen so far in Vietnam is one making it to an initial public offering (IPO) in Vietnam or internationally.

■ What are the significant features - both good and bad - of Vietnamese startups?

The common feature of Vietnamese startups is a very high level of entrepreneurship. Vietnamese founders are very quick in applying new business trends, new technology and new business models and local startups are quickly catching up to international models.

Although more time is needed to secure ideal conditions for startups, such as an international quality workforce, instant access to new technology, and more advanced policies, the entrepreneurial spirit is a major advantage for Vietnamese startups. The tendency for young people to start a business is much greater than among their peers in Southeast Asia.

The shortcomings in Vietnamese startups are mainly managerial skills and experience. Vietnamese people are good at technology and the market is large enough for testing new startup products, but good business management practices still need time to develop. In Silicon Valley the level of economic development and startup culture sees startups beginning earlier and faster.

In Vietnam, founders start later and are slower. The gap should be closer, as Vietnam in general has had more than ten years of experiencing a startup culture and the level of market development has also been higher over the last few years.

■ What advice would you give to young Vietnamese who are keen to start their own business?

Product first! Always focus on building a great product as it secures long-term success.

Another important thing: Think innovatively but be mindful of using your own resources when starting a business. Different from starting a normal SME, a startup is a fast growing business that will need capital from venture sources. In other words, the success of a startup normally goes with venture capital funding - although getting funding is still only the beginning of a very long journey to go from good to great.

Venture capital will not come easily, even with interesting products, and innovation needs time to be recognized, so startups may run out of resources before they can get funding from venture capital sources. So being innovative is not just about having innovative technology or business solutions but also about being innovative in using your own resources and leveraging good social capital sources to survive until you have the funding to secure long-term success.

■ Some investors believe there is too much hype surrounding Vietnamese startups. What are your thoughts?

Startups are certainly a trend now in Vietnam and not just a strong wave in the country’s business community of starting a new business in the form of a startup and not in the form of a normal SME, and also a trend with support from many relevant stakeholders like the government, donors, investment agencies, business accelerators and universities.

However, it could be just hype if people get the wrong idea about the risk level and the potential of a startup’s return. There is no guaranteed payoff or a high degree of possible success for all startups. The hard fact is that most startups will fail, but the survivors may grow faster and with much greater value than a normal SME.

Both entrepreneurs (who want to start up) and investors and even government agencies need to understand the risk of creating and investing in startups, where there is very high risk and no guaranteed return. As long as stakeholders understand the game they are in then the trend will be a healthy trend. A startup culture is a key factor in driving innovation in an economy, increasing productivity and creating new markets, new demand and new opportunities for people. It is a necessary path towards success for all economies in the digital age.

The right understanding, right policy, and right action from all relevant stakeholders will make it a truly effective trend for the development of Vietnam’s economy over the next decade.

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