Vietnam startups have seen both funding and valuations fall drastically to start this year. According to Tracxn, US$40.6 million was raised by firms during the first quarter of 2023, a 49 percent decline when compared to the same period in 2022.
Not only is it a tougher environment to bring in new capital but Vietnam startups are also facing valuation issues. Chad Ovel, Partner at Mekong Capital, the country’s oldest private equity firm, explained to Nikkei Asia that founders now face difficulty determining their value.
“Startup valuations in Vietnam could fall 50 percent from their recent peaks as company founders adjust to a decline in venture capital investments,” Ovel stated. “With less capital coming in from the VC community, the founders are more realistic in their valuation expectations. No one’s accepting the low valuation now, but sooner or later … maybe another six months, another 12 months, they will.”
This situation is a far cry from the second half of 2021 when Vietnam startups were raking in funding and seeing valuations soars. Of course, a lot has changed since then. Increasing interest rates along with geo-political conflict have created global economic concerns.
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Additionally, some high-profile fraud cases and other criminal charges in Vietnam have perhaps spooked the business community. There is also concern over the Vietnamese property market, which could drag down the country’s overall economy in the coming months.
According to Mekong Capital, Vietnam startups are still worthy of investment and this time could represent an opportunity to “buy the dip” as some say. When compared to elsewhere in Asia, there is still value to be found in Ho Chi Minh City and Hanoi.
“Regional VC funds, there was so much capital chasing too few opportunities in Vietnam that they were paying crazy valuations,” Ovel pointed out. “I can’t even explain, like eight times revenue or ten times revenue … There’s too much easy money for too long, and the mentality has not shifted.”
The key for startups, regardless of where they are located, is rejecting the old, growth-first mindset and instead focusing on sustainable revenue.
“They have to shift from the old days where it’s just easy to grow every year, to a new kind of business model, which is to optimize and really improve all of their metrics like efficiency,” Ovel told the website. “We’re using this opportunity to really get [the startups] leaner and stronger. And then when the capital starts flowing again, we go back to growth.”
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