One morning recently, Vinnie Lauria found himself weaving through the narrow streets of Ho Chi Minh City on a motorbike with his three-year-old son for the school run. Had he still been living in Silicon Valley, Mr Lauria's journey would have been less adventurous, but this was where the action was.
Mr Lauria, an American and co-founder of Golden Gate Ventures, moved to Vietnam in 2022 after time in Singapore and San Francisco, joining a growing number of foreigners lured there by a belief that the dense metropolis is a new centre for start-ups.
“South-east Asia is going to be a global growth engine in the next 10 years, and Vietnam will be at the centre of it,” said Mr Lauria, who wears his hair in a ponytail and dresses tech casual in a printed shirt and white shorts.
For many westerners, the enduring image of Vietnam is of a war-torn, impoverished nation where Nike makes its shoes.
These days, coders are moving to the nation’s commercial centre of Ho Chi Minh City to launch start-ups focused on everything from insomnia to microloans. But becoming Asia's next start-up focus will require overhauling regulations and navigating some hefty economic headwinds.
The number of start-ups in the country nearly doubled from the beginning of the pandemic through to mid-2022, according to a July report by KPMG International and HSBC Holdings. Some of the world’s biggest investors, including Sequoia Capital, Warburg Pincus and Alibaba Group Holding, are backing those offering promising solutions.
In 2021, Vietnam drew a record $2.6 billion through 233 private deals, up from the $700 million in 140 deals a year prior, according to a Google, Temasek Holdings and Bain & Co. report. Local firms are also competing with its South-east Asian peers, accounting for 13 per cent of the total venture funding flows into the region after Indonesia and Singapore in 2021, according to Do Ventures.
Officials want more. By 2030, they aim to turn Ho Chi Minh City into a magnet for tech funding and envisage a digital economy that represents 40 per cent of the city’s gross domestic product.
Last month, the government ordered city officials to prioritise attracting foreign investment to high tech projects while also offering other incentives to lure global talent and firms to establish innovation research centres.
There are results already. Gaming developer VNG, the nation’s first unicorn, is expected to pursue a US listing in coming months. Money is pouring in, with a salary payment firm and another agricultural platform becoming the latest start-ups in recent weeks to receive millions in funding rounds.
Industry insiders said Ho Chi Minh City has the makings of another Silicon Valley-lite: a heavy maths and science educational system, a decades-old software outsourcing industry that has created an abundance of inexpensive and talented engineers and the benefits of Vietnam’s economic expansion, which last year was one of the fastest across Asia.
A decade ago, funders could spend six months mulling an investment, said Vy Le, co-founder of Do Ventures. Now, she said: “If we don’t make a decision within one or two months, other funds will definitely take the deal”.
Every month, she meets on average ten overseas funds.
The road ahead will be bumpy. A global venture-capital slowdown, combined with a local economy weighed down by a property crisis and slumping factory orders, is adding to the challenges of the budding industry.
There is also the question about the uncertain “ecosystem” given that the country's start-up sector has only been in existence for a decade or two, the Asian Development Bank said in a 2022 study.
“Analysis shows that some policy reforms are needed to create an enabling environment for the creation of innovative enterprises, promote the growth of tech start-ups, and improve the availability of financing,” it said. ADB added that beneficial government policies like strong intellectual property protections will also be crucial.
Vietnam’s start-up sector has been years in the making. In 2013, the launch of Flappy Bird was hailed as a gaming phenomenon that would boost the country’s start-up heft.
While that game was later pulled, it showed the way to a new generation of firms like mobile payment provider VNPay, which according to ADB became the country’s second unicorn in 2020.
Founders said that there have not been more success stories because the government has yet to establish a proper framework for stock options. Cumbersome regulations are also hindering the ability of these firms to go public.
Requirements for technology companies to store user data in the country, whose internet is tightly controlled by the government, have raised concerns from US business groups.
Regulatory backlogs have also slowed down visa applications for foreigners and establishing ownership for overseas entities is unwieldy. Vietnam restricts foreign ownership of companies to more than 49 per cent in some sectors.
Still, that has not deterred foreigners such as Mr Lauria, whose fund had started backing local start-ups in 2014 and opened offices both in Ho Chi Minh City and Hanoi last year.
He decided to take the plunge after watching the country’s extraordinary growth per capita triple over the past decade. He thinks online spending could increase fivefold over the next six years.
Start-ups are also tapping an acceleration of Vietnamese citizens returning home, according to Nguyen Nguyen, who runs a Sequoia Capital-backed artificial intelligence firm that helps people without credit histories obtain loans.
“This is a big homecoming, or reverse brain drain,” said Mr Nguyen, who returned to Vietnam after earning his PhD in economics from Rice University in Texas. About two-thirds of his employees at fintech start-up Trusting Social have at least a master’s degree from overseas.
The sector has undergone a “night-and-day” transformation, said VNG’s co-founder Le Hong Minh, whose glass-walled headquarters overlook the Saigon River, an area once known for making textiles.
High smartphone and internet adoption, a large young population and fast-growing middle class are now redefining the country.
“The new Vietnam is well beyond what people outside of Vietnam understand,” said Binh Tran, co-founder of Ascend Vietnam Ventures, who returned from the Bay Area with his family in 2020.
“This is a very accessible market and language is not a big barrier … you will find a lot of young hungry talent eager to join your start-up.”