Pivotal moment reached for capital funds based in South Korea
In a strategic move, South Korean venture capital firms are significantly increasing their investments in Vietnam, drawn by the country's expanding bilateral trade and investment ties, a vibrant startup ecosystem, economic stability, and alignment with South Korea's own innovation-driven policies.
Vietnam, with its rapid economic growth and high-growth market status for venture capital, serves as an attractive destination for these firms. South Korea is one of Vietnam's top trade partners, accounting for a substantial portion of export volume and value, creating a favourable environment for investment. The overall trade and investment momentum in Vietnam has been strong, driven by foreign-invested enterprises increasingly contributing to exports and economic activity.
The Vietnamese startup ecosystem has been growing rapidly, with crowd investing and equity-based crowdfunding becoming popular financing options. Funding levels have increased steadily in Vietnam’s startup segment, reflecting growing investor interest, including from foreign VCs such as South Korean funds. This growth can be traced back to 2017, when South Korean VCs began actively investing in Vietnam and peaked in 2019.
Vietnam's strong capabilities in software outsourcing and its transition into a broader digital transformation are also contributing factors. The country is developing deep tech industries such as AI, robotics, drones, and semiconductors, providing opportunities for South Korean firms to invest in promising sectors.
However, cross-border investing became challenging after the pandemic lockdowns, leading to a cautious sentiment among South Korean VCs regarding the recovery in funding for Vietnamese startups. Despite this, if recovery is evident, especially if exit pathways become more visible through merger and acquisition deals, secondary transactions, or a reopened initial public offering market, South Korean VCs are likely to return to investing in Vietnamese startups.
Nextrans, a company engaging with top engineering universities and government-led innovation programs in Vietnam, is one such firm that sees potential in the country. Nextrans' investment focus is evolving, with a shift towards AI, semiconductors, robotics, and healthcare, where Vietnam has a chance to create entirely new value. In line with this strategy, Nextrans plans to increase its investments in Vietnam and grow its portfolio of Vietnamese startups from 40 to over 100 companies in the coming years.
The ongoing US-China trade tensions are creating new strategic space for Vietnam, presenting an opportunity for it to assert itself as a neutral, agile manufacturing and technology hub. This, coupled with Vietnam hosting the largest South Korean expatriate community in Southeast Asia and ranking fifth globally, makes it a preferred destination for global talent and capital, if the government can craft smart, innovation-driven policies.
Sources: [1] World Bank. (2021). Vietnam: FDI Performance and Potential. [2] Tech in Asia. (2020). Vietnam's startup ecosystem is growing fast, but investors are still playing it safe. [3] Korea Bizwire. (2020). South Korean VCs eyeing Vietnam as the next startup investment destination. [4] Vietnam Net. (2021). Vietnam inflation rate at 3.57% in H1 2021. [5] DealStreetAsia. (2021). South Korean VCs are increasingly targeting high-quality growth assets in Vietnam.
Technology sectors such as AI, robotics, and semiconductors are attractive investment areas for South Korean venture capital firms in Vietnam, aligning with the country's digital transformation and deep tech industries development. These South Korean VCs are increasing their investments in Vietnam, driven by the country's vibrant startup ecosystem, economic stability, and favorable trade and investment ties.
