Firmer First Steps

7 June 2015 (by Son Ho, Vietnam Economic Times)| Vietnam has a great many start-ups and investors, both local and foreign, are keeping an eye on proceedings.

In its Tigers@Mekong project in the first quarter of the year, DHVP Research, with support from other companies, conducted a start-up survey in many cities and provinces around Vietnam. The survey content included the start-up environment, orientation, implementation capacity, and vision and strategy. Though the data is still being analyzed, that the survey attracted 3,200 respondents shows that many people wish to become an entrepreneur even though it’s not an easy path to take.

Positive present

“Vietnam’s socio-economic environment today is more favorable for entrepreneurs than 10 or 20 years ago,” said Mr. Tran Tri Dung, Managing Partner at the Hanoi-based DHVP Research, pointing out that many parents no longer force their children into a career of their choosing and some have become more willing to invest a large part of their savings in their child’s start-up. “Vietnam is a country with huge potential for start-ups to develop,” said Mr. Le Viet Dat, Co-founder of the Hatch! Program, a social enterprise that supports start-up businesses in Vietnam.

The entrepreneurship ecosystem in Vietnam includes a range of actors, such as State management agencies, financial organizations, angel investors, universities, incubators, and support units. In particular, the number of investment-funding ventures and incubators is continuing to rise, according to Mr. Dat. “If a start-up has an innovative idea and effective working team, supporters will not only invest financially but also invest in management resources,” he said.

Incubators and angel investors are now more active in supporting start-ups in their early stages that are not yet ready for risky investments. Hatch! is now following the model of Y-combinator from the US, which supports start-ups by directly consulting, holding networking events or workshops on techniques and skills, and providing investment funds from angel investors. “With this, start-ups now have a more favorable environment in their early stages and will be ready to call for capital from venture funds later on,” said Mr. Dat.

In recent times, he continued, the government has also made some positive moves toward entrepreneurship, investing in new businesses with potential or cooperating with organizations to hold events for start-ups.

Compared with other developing countries in the region such as Laos and Cambodia, the number and complexity of entrepreneurial activities in Vietnam are higher, according to Mr. Dung. Expressions in the entrepreneurial world such as “mentor”, “angel investing”, or “pitching” remain unfamiliar in Phnom Penh, he said.

Vietnam is well behind, however, when compared with developed countries. Regardless, foreign investors keep coming to the country, making it a destination for many programs and contests in entrepreneurship. TechinAsia is one example, whose winning project was Echoes, a Vietnamese start-up project. Notable in this is that the founder of Echoes, Josh Kopecek, is British, suggesting that Vietnam is also a land of promise for foreigners hoping to start their own business.

Hardships for founders

In 2012 Hatch! compiled a list of nearly 200 potential start-ups. Only ten are still going. Even though the list consisted of many with great promise, 95 per cent were unable to overcome the challenges.

According to Mr. Dat, this figure should not be considered in a negative light but rather as a true reflection of the risky and dynamic nature of entrepreneurship. Mr. Dung also believes that to fail is normal among start-ups, sometimes standing at 70 to 90 per cent. “Though there are no specific figures on the reasons why, I believe that finance is not the main issue,” Mr. Dung said. “When there is no coherent approach a start-up is easily driven by emotion.” Decisions are no longer based on a cost-benefit analysis or a realistic evaluation of data or empirical evidence. Closure soon follows.

A project must not only have potential; its leaders must also possess certain qualities. These are the two criteria most studied by investors, such as the International Data Group Venture Vietnam (IDGVV).

“The human factor is the most important in making a decision, because the success of a project is mostly dependent upon the founders and the team,” said Mr. Nguyen Hong Truong, Vice President of IDGVV. “Even though the product may match trends or find initial success, if the entrepreneur cannot engender trust the investor may decline to provide the funding.” Investors will always spend a certain amount of time watching and trying to understand the project’s founder and the project’s early development when making a decision. This period could range from three months to more than a year, Mr. Truong said, depending on the project.

In commenting on investing in technology start-ups, he said that investors usually expect two things: to exploit Vietnam’s market (because of its high and young population that favor the internet and mobile products and because of its high economic growth), and to create technology products that can be extended regionally or globally. The first is already happening and will continue to be promoted in the future, while the second requires a long time for competitive ability globally to be proven. It is still a trend, however, and can improve two to five years after an investment is made.

“The number of technology start-ups and the number of foreign funds or foreign investors have been increasing over the last two years,” Mr. Truong said. “This is promising and will raise new investment in the future.”

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