May 15, 2024 | 06:40 GMT+7

High-tech projects and startups attract foreign investors

Thủy Diệu - Hoàng An -

Foreign investors have been eyeing high-tech projects and startups in Vietnam as the country looks to ‘go green’.

Green and clean high-technology plays a pivotal role within Vietnam’s ongoing green transition and has caught the attention of a host of foreign investors.

Startups attracting capital

Until recently, the past decade saw strong growth in venture investment in Vietnamese startups. From just a few deals with total capital of some $10 million in 2013, deal numbers peaked in 2021, with 165 and capital of over $1.4 billion.

Venture investment in Vietnam has, however, been hit by the global economic headwinds since 2021. Deal value fell 13 per cent year-on-year in the first nine months of 2023, to a combined $427 million, with deals tumbling 40 per cent to their lowest level since 2018, at just 56. 

Figures from Do Ventures and the Vietnam National Innovation Center (NIC), excluding subsequent additional venture investment in existing projects, show that transaction numbers are down significantly in small and medium-sized deals. The biggest decline, of up to 50 per cent,
has been seen in deals of less than $500,000. Transactions worth $10-50 million, however, have seen no significant change, which reveals the increasing presence of “mature” tech companies in Vietnam’s startup ecosystem.

According to Ms. Le Hoang Uyen Vy, Co-founder and CEO of Do Ventures, fundraising has become increasingly problematic amid the continued challenges as investors adopt a more cautious approach in decision-making. When evaluating a company, investors pay greater attention to unit economics (revenues and costs per specific unit) than rapid growth, especially with companies in their early stages. The fall in both deal numbers and capital clearly demonstrates the caution and selectivity being embraced. While the average value of Pre-A and Series A rounds continues to rise, the average value of Series B rounds in the first nine months of 2023 is down 44 per cent year-on-year, revealing the level of impact from tightening capital markets.

In a relatively young market like Vietnam, most industries present opportunities for startups to grow and attract investment. Investment funds, particularly foreign funds, have, however, identified their own preferences and priorities in choosing sectors for investment, according to
Ms. Nguyen Ngoc Huong Thao from the AVV Investment Fund. “Some fields always receive priority from different investment funds, depending on the scale of the market and the investment period that may favor startups,” she said. “Startups using financial technology, education
technology, and AI are among those catching the attention of investment funds in 2024 and in the future.”

Raising capital from foreign investment funds faces more than its share of difficulties this year. Ms. Hoang Thi Kim Dung, Country Director of Genesia Ventures Vietnam, said startups need to optimize their costs and diversify their sources of income to ensure cash flows and boost their appeal. “They must focus primarily on their core product, providing real value to persuade customers instead of pursuing a strategy of acquiring customers at any cost,” she said. Startups should also fully focus on the sustainability of their business model and the quality of their growth, by optimizing unit economics, increasing the efficiency of capital utilization, finding ways to develop products suitable for the market, and increasing gross profit margins.

For startups, focusing on core products is still considered a key factor in attracting investment, particularly from large-scale foreign investment funds. According to Mr. Tran Hoai Van, Chief Operating Officer (COO) of Actable AI, an AI startup founded by a team of overseas Vietnamese
in the UK and developing products for different markets, including Vietnam, investment capital flows everywhere on a global scale. “It is important that startups have an effective business model that meets market needs and has the ability to penetrate into new markets,” he said. “At that time, attracting investment flows would no longer be such a big problem. It is therefore necessary to find business models suitable for specific markets, and I think virtual assistant chatbots customized to Vietnam’s needs are a business model of potential.”

FDI in green, clean and high-tech fields

In addition to startups, FDI capital flows into Vietnam have also focused on high-tech sectors over recent times, which are considered spearhead industries, especially since 2019, when the Politburo officially issued Resolution No. 50 on orientations to complete institutions and policies
and improve the quality and efficiency of foreign investment cooperation by 2030.

Of particular note are a series of recent high-quality FDI projects, such as those in the manufacturing of mobile phones, electronic equipment, and chips. For example, global semiconductor product packaging and testing services provider Amkor Technology invested $1.6 billion in the Yen Phong II Industrial Park in northern Bac Ninh province to build a semiconductor manufacturing plant; its biggest plant in the world and put into operation last October.

One month prior, in September, South Korea’s Hana Micron Vina Co. opened a semiconductor plant in neighboring Bac Giang province, which was the first in Vietnam’s north. It manufactures integrated circuit boards used in mobile phones and other smart electronics. The company plans
to increase its total investment in the plant to over $1 billion by 2025, and earn annual revenue of an estimated $800 million while generating 4,000 jobs.

Chinese Apple supplier Luxshare-ICT, through its Vietnamese subsidiary, poured an additional $330 million into its electronic component manufacturing project in Bac Giang in November, bringing its total investment in the province to $504 million. The company also invested $290 million in two projects in north-central Nghe An province producing smart electronic components.

Still in the north, Quanta Computer Inc. from Taiwan (China) signed an agreement last year with authorities in Nam Dinh province to invest $120 million in developing a factory producing laptops and desktops at the My Thuan Industrial Park, while authorities in the port city of Hai Phong granted an investment license to LG Innotek last June, approving additional investment of $1 billion from 2023-2025, raising its total to over $2 billion, to build a plant producing camera modules for export. The new capital is expected to generate 2,600 new jobs, bring annual profits
to $400 million, and raise its annual State budget contributions to VND100 billion ($4.01 million). LG is the largest investor in Hai Phong, with total capital of $7.24 billion, or 37 per cent of the city’s total FDI as of mid-2023.

This series of recent projects and a number of giant tech firms already establishing a presence in Vietnam, such as Intel and Samsung, demonstrates that foreign investment attraction in high technology and technology transfer in Vietnam is seeing positive results.
The country has clearly begun to attract new investment in high-tech sectors, and the strong investment by global tech conglomerates into its tech production industry has rapidly expanded the domestic market, making Vietnam a “production hub” for major players such as Samsung
and LG.

Many analysts believe that recent FDI flows into Vietnam signal a new trend, in which foreign capital is focusing on green and clean technology as well as high technology such as chip and semiconductor production.

However, these moves also set new requirements in human resources in high-tech industries, calling on Vietnam to adapt to cater to such investment flows. In order to retain these major tech companies, it is essential to not only maintain macro-economic stability and offer preferential tax, fee, and land policies, but to also develop technical infrastructure such as industrial parks, factories, and electricity and water supply, and, most importantly, a high-quality local workforce.

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