According to the Vietnam Innovation & Tech Investment Report 2024, from Do Ventures, Vietnamese startups secured a total of $529 million in investment during 2023, marking a 17 per cent decline against 2022, highlighting the ongoing challenges posed by global economic instability on Vietnam’s tech investment scene.

Meanwhile, when compared to the decline in global venture capital, of 35 per cent, Vietnam’s relatively modest 17 per cent fall shows that its market is holding strong despite significant pressure. Within Southeast Asia, Vietnam maintained third position in terms of deal volumes and reclaimed third position in total investment value. Singapore took the lead in both categories, followed closely by Indonesia in both.

In a time marked by tough fundraising conditions, rising interest rates, and tight capital flows, the question arises: How can startups find a path that is not only sustainable but also profitable in such a volatile environment?

Turning capacity into products

Vietnam’s garment industry began under an outsourcing model that largely produced for foreign brands. Over time, businesses mastered every detail of production, from sourcing thread to managing processes. With this knowledge, they stepped out of their comfort zone, creating Vietnamese-branded products and proudly selling them on the global market. This journey from outsourcing to “Made in Vietnam” success is a lesson in transformation: turn capabilities into products and share them with the world.

The country’s automotive industry has undergone a similar transformation. For example, THACO began as an assembler but quickly mastered production, from understanding Kia and Mazda’s manufacturing cycles to navigating the supply chain. Rather than competing with major brands, THACO cut its own path, focusing on trucks and small vehicles to fill a niche market. This wasn’t just about making cars, it was about strategically understanding the industry and creating products that addressed specific market needs.

These stories of vision and resilience were shared at the Scale Up Forum 2024 by Mr. Nguyen Thanh Nam, Founder of FUNiX, Board Member at the FPT Corporation, one of the founders of FPT, and former CEO of FPT Software. He emphasized the core lesson Vietnam’s startups must embrace: turn your capacity into products and sell them. For this to happen, three things are crucial: ambition, professional knowledge, and perseverance.

On the subject of raising capital, Mr. Nam offered a grounded perspective. “Not having capital is normal,” he told the forum. “Every startup begins from scratch.” He then underlined that there are three kinds of capital every new company needs: physical capital (money), human capital (talented people), and social capital, which is the ability to build networks, form relationships, and connect with others. Social capital, though often overlooked, is perhaps the most crucial. In the early days of a startup, it is essential to have connections, to weave a web of support both internally and externally.

As companies grow, balancing these three types of capital is vital. In large organizations, it’s not just the external network that counts, it’s the synergy within the company. But, often, internal cohesion is neglected. CEOs, CFOs, and HR leaders may focus on their specific domains, but few truly invest in building internal and external networks. Strengthening social capital, fostering internal collaboration, and attracting external talent can significantly boost a company’s capabilities. After all, one good person can elevate an entire team of good people.

Navigating capital challenges

As raising capital becomes more challenging, many startups have broadened their search for funding and turned to banks for support. From a banking perspective, the problem boils down to one simple yet crucial point: managing cash flow effectively.

Mr. Tran Hung Huy, Chairman of the Asia Commercial Bank (ACB), pointed out that while startups excel in innovation, product launches, and enthusiasm for new ventures, they often fall short when it comes to managing cash flow and running operations efficiently. “The difficulty for startups is that most are great at ideas, setting up businesses, and launching new products and services,” he said. “Many struggle, however, with managing cash flow and their day-to-day operations.”

When asked about ACB’s support for startups, Mr. Huy explained that it depends on the startup’s industry and circumstances. He shared an example from five years ago, when ACB had a fund similar to a venture capital fund to invest in startups, which helped it better understand its customers. “Back then, a company could be valued at $3-5 million just because they had a great idea,” he explained. “It would project that, in 3-5 years, it could be worth $50 million, $70 million, or even $100 million.”

However, he cautioned, “the value may be $50-70 million, but we wouldn’t lend because that kind of growth is not sustainable. In the banking industry, it is hard to be aggressive with lending when that’s the case. Our risk appetite is vastly different from that of venture capital funds.”

To secure bank support, Mr. Huy emphasized that startups need to show profitability. “If a startup comes to a bank and says it will make a profit in ten years, no one will dare lend,” he said. “But if there’s a clear path to profits in 2-3 years, banks will be much more willing to back them.” For banks, it’s about striking a balance: a strong business model, proven cash flow, and a realistic pathway to profitability.

Embracing core values

Dr. Le Anh Tuan, Chief Investment Officer at Dragon Capital, reflected on how the landscape has changed in just a few years. “About five years ago, social media platforms like YouTube, TikTok, and Facebook weren’t as widespread, and information flowed at a much slower pace,” he told the forum. “There was less herd mentality compared to the past 2-3 years. Today, with new tools speeding up communication, both the upwards and downwards volatility has become much more intense. This rapid pace has led to an oversaturated information environment, increasingly complex geopolitics, and fluctuating monetary policies worldwide, including in Vietnam. In such a turbulent setting, sometimes we need to slow down and take a step back.”

“When investing in a business, the management team is one of my top priorities,” he continued. “If I see that the people behind the company are decent and honorable, that’s a huge plus. Businesses go through cycles of ups and downs, but strong management can steer the ship through those cycles. In an unpredictable investment environment, we need to focus on what changes the least, which is good management.”

Meanwhile, Mr. Phan Minh Tam, Chairman and CEO of the Simple Tech Investment Holding Group (STI), recalled the global startup wave that hit about 7-8 years ago, which also made a significant impact in Vietnam. “It was essentially a FOMO [fear of missing out]-driven wave, but it brought in substantial foreign capital and domestic investments into tech startups,” he explained. “I sensed early on that something wasn’t quite right. In technology, it’s essential to create not just growth but also profit. A company that only focuses on growth without making a profit is at a major weakness. One of the key issues I noticed was liquidity. While startups in the US or global companies can generate liquidity, the real challenge for businesses in Vietnam or Southeast Asia is how to sell the company or raise an IPO. Anyone can raise capital or divest, but not everyone can make money.”

Sharing insights from a startup’s perspective, Mr. Ta Son Tung, Co-founder and Chairman of local information technology (IT) company Rikkeisoft, said that unlike typical startups, Rikkeisoft adopted a B2B (business-to-business) model from the outset, focusing on profitability through operational efficiency. “We have been profitable from Day 1 and have never operated at a loss,” he said. “As a result, we have never faced any pressure regarding fundraising.”

During Covid-19, while Japanese small and medium-sized enterprises (SMEs) received significant government support, Rikkeisoft’s focus on large corporations helped it weather the storm, even as its SME clients cut costs. Post-pandemic, struggling SMEs forced competitors to scale back, while Rikkeisoft’s corporate clients rebounded strongly, fueling 40 per cent annual growth in the Japanese market in 2023-2024.

This success has translated into rapid expansion, with employee numbers growing from 1,600 to 2,200 in 2024. “Financial strategy is now key,” he noted. “It’s no longer just about profitability through operations.” Early in 2023 the company appointed its first CFO and began preparing for an overseas IPO by 2028, with two funding rounds planned before the listing.

In a recent milestone, Rikkeisoft signed a strategic partnership agreement with Sumitomo, one of Japan’s largest conglomerates, in a deal worth trillions of VND; the biggest in Vietnam’s IT sector this year. Even without this investment, Mr. Tung is confident in Rikkeisoft’s ability to sustain 40 per cent annual growth, citing the vast potential of the market.

“The IT landscape has evolved,” he said. “A decade ago, software outsourcing was simple. Today, we are tackling projects worth millions of dollars.” Moving forward, the company aims to build a consulting team in Japan to solidify its position and drive future growth. “For zRikkeisoft, I dream big,” he continued. “An IPO in five years and unicorn status would be incredible. And after that? Who knows, maybe something even bigger.”