Vietnamese entrepreneurs need to prepare for the funding winter

A customer buys lychees online via MoMo app. MoMo raised $200 million from four investors in late 2021, pushing its valuation above $2 billion. VNA/VNS Photo

HÀ NỘI — Vietnamese entrepreneurs have to think for the long term as raising funds for startups has become more challenging in recent years.

In 2021, Vietnamese startups received over US$1.4 billion in investment, a relatively large number in ASEAN. However, the number dropped by 40 per cent to $855 million last year and is forecast to fall further this year.

Lê Hoàng Uyên Vy, CEO of Do Ventures, asserted that unfavourable macroeconomic conditions were to blame for the startup investment tanking over the past few years.

She said high policy and inflation rates, coupled with global uncertainties, had driven investors to cut back on spending.

As such, they had pumped their brakes on venture capital to avoid risks and shifted their focus to startups with sustainable growth potential.

"Startups that have a long-term vision are more likely to get funds from investors", said Vy.

Trần Bằng Việt, CEO of Dong A Solutions, asserted that the global economic recession would cause a further dip in startup investing in 2023. That means investor appetite was expected to shift away from risky startups to those with stable performance.

"Investment in seed-stage startups would plunge this year", said Việt.

CEO Vy believed that it was time for Vietnamese startups to think for the long term. She said they should switch from a scale-centred to a product-centred strategy to consolidate their position during the down periods.

"Many startups spend most of their capital on advertising rather than R&D, and they have to pay the price for hasty scaling", said Vy.

Lê Huỳnh Kim Ngân, director of ThinkZone Ventures, remarked that investors had become more selective about startups. They now cared more about startups' sustainability than their short-term financial situation, which, they believed, was for show only.

"Simplicity and efficiency will be used as a yardstick against which to measure a startup's performance," said Ngân.

The director forecast that two sectors attractive to startup investors this year would be finance and education. The other two sectors that would witness stable capital inflows were cybersecurity and the Internet of Things.

As venture funding is falling year by year, startups have to rely on bank loans to supplement their capital and prevent valuation drops. For instance, Be Group took out a loan of $60 million from Deutsche Bank in 2022.

Nguyễn Bá Diệp, deputy chairman and co-founder of MoMo, said that startups needed to present their spending and revenue in great detail to capture investors' attention and nudge them towards their profile in the first place.

He also asserted that financial mismanagement had been the cause of most short-lived startups. As such, a well-developed financial strategy would hold the key to startup's viability and success.

Amid the capital scarcity, S&P Global recommended that unicorns choose between aggressively expanding to reach economy of scale or focusing on reigniting their business.

"The startups cannot continue spending if operational turnarounds are delayed and cash balances are narrowing while fundraising remains difficult," said S&P Global.

Last year, startup deals of over $50 million fell by 55 per cent in number. Those between $500,000 to $3 million followed suit with a fall of 20 per cent. The situation was not better even for those of less than $5000 in the seed stage, witnessing a fall of 19 per cent.