Vietnamese entrepreneurs need to prepare for funding winter

A customer buys lychees online via MoMo app. MoMo raised 200 million USD from four investors in late 2021, pushing its valuation above 2 billion USD.(photo: VNA)

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 1.4 billion USD in investment, a relatively large number in ASEAN. However, the number dropped by 40% to 855 million USD last year and is forecast to fall further this year.

Le Hoang Uyen 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.

Tran Bang Viet, 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 Viet.

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.

Le Huynh Kim Ngan, 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 Ngan.

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 USD from Deutsche Bank in 2022.

Nguyen Ba Diep, 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 USD fell by 55% in number. Those between 500,000 USD to 3 million USD followed suit with a fall of 20%. The situation was not better even for those of less than $5000 in the seed stage, witnessing a fall of 19%./.