Vietnam's digital economy is on track to reach a valuation of $43 billion by 2025, growing at an impressive annual rate of 20%. According to the Vietnam Innovation & Tech Innovation Report 2024, this robust growth is supported by an outperforming venture capital environment where Vietnamese tech startups secured $529 million in 2023, significantly outperforming the global market with a 17% decline compared to a 35% drop worldwide. The growth of the resilient venture capital ecosystem is driven by a booming e-commerce sector which has been late to start but is catching up quickly to peers. Vietnam's internet economy grew 28% year-over-year, making it the fastest growing in Southeast Asia.
Vietnam's digital economy has the highest growth potential in Southeast Asia with a projected annual growth rate of 20% from 2023 to 2025. If those milestones are met, the Vietnamese digital economy would be valued at $43 billion by 2025. This is according to the Vietnam Innovation & Tech Innovation Report 2024 released on April 24.
The growth predictions and general findings of the report mirror reports from regional competitors' statements and align with Google, Temasek, and Bain's e-Conomy SEA report which are consistently bullish on Vietnam's status in the region as a promising digital up-and-comer.
Download the Vietnam Innovation & Tech Innovation Report 2024 report here:
Resilient Venture Capital Ecosystem
In 2023, Vietnamese tech startups secured $529 million in venture capital, a decline of only 17% year-over-year, compared to a 35% drop globally. The performance maintained Vietnam's position in deal count and total deal value, with Singapore as the frontrunner, followed by Indonesia. According to estimates from industry insiders, in 2023 Indonesia's deal value and count were about three times higher than Vietnam's. Singapore's deal value and count were nearly ten times higher than Vietnam's.
Strategic Government Initiatives
The Vietnamese government has implemented key initiatives to bolster the tech sector, such as the establishment of NIC Hoa Lac, a nearly 20,000-square-meter innovation hub. This initiative is part of a broader strategy to enhance the national innovation ecosystem and attract foreign investment, crucial in a country where public and private initiatives aim to boost the tech industry's GDP contribution significantly.
While the report paints a rosy picture, it is widely understood that Vietnam's tech sector is held back in part by an authoritarian communist government. The results on the manufacturing side of the governing style have been impressive, but an honest assessment of the policy toward tech innovation is lacking. For starters, the country's regulatory framework for Fintech and digital assets remains unclear, and the country lacks important sandbox initiatives where concepts can be tested without fear of government reprisals. Human resources challenges remain a constant with a persistent skills gap annually in the number of IT workers to support sustained growth in the tech industry.
Healthcare and Education Sectors Saw Noticeable Funding Upticks
Healthcare sector investments soared by 391% in 2023, while the education early-stage sector saw an impressive 107% increase in funding. This shift in funding focus highlights a recalibration in investment priorities towards critical development sectors in the country. This makes sense given the country's progress in escaping poverty and becoming a player on the world stage.
Conversely, retail venture investments dipped 84% from the previous year. Real estate and infrastructure investments decreased sharply by 89%, and financial services firms' investments fell by 30%.
Exit Landscape Shows Promise
Venture investing will not thrive in an ecosystem without sufficient exit options for investors to realize gains. Vietnam's most promising development on the exit front is its progress in shifting from a frontier to an emerging market economy. 2023 saw a significant growth in IPO exits (i.e., companies going public) for Vietnam's growth companies, and also in the opening of more local and international conglomerates willing to consider M&A transactions to acquire certain firms.
While the trend is positive, the IPO industry is coming from a low base. There were only three IPOs in 2023 which raised $7 million in capital. The total market capitalization of those IPOs in 2023 was only $37 million.
Some of the largest deals included Sea Limited’s acquisitions of Foody and Giao Hang Tiet Kiem, PropertyGuru’s acquisition of Batdongsan.vn, and Ant Financial acquiring eMonkey, Vietnamese companies have also bought startups in recent years. Mature companies like FPT and MoMo have invested in smaller startups. Local conglomerates such as Vingroup, Masan Group, and Sovico Holdings have recently acquired startups to bolster their own technology and digital capabilities through M&A transactions. One of the largest of these acquisitions was Masan’s control investment in credit scoring company Trusting Social.
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