Venture debt is becoming a sought after funding solution for startups

In this time of uncertainty, startups change their fundraising strategy to target venture debt funding instead of angel investors. 

Bob Koppes – Head of Product & Strategy – PropertyGuru Group

2021 record number of 1.4 billion USD in venture capital invested into Vietnamese startups amidst market uncertainties and upheaval caused by COVID-19, according to the report by Vietnam National Innovation Center and Do Ventures. 

Last year, a Vietnamese American investor shared her plan to catch the Vietnam emerging startup ecosystem fostered by the country’ strategy to promote no cash payments. That was where she saw the potential growth in the tech industry in the near future as well as the next level of Vietnamese fintech. In 2022, she puts this plan on hold.

This year, Vietnamese startups are more cautious in scaling their team fast. Propzy sent a notice of dissolution for Propzy Service Company to the Department of Planning and Investment of Ho Chi Minh City, citing a change in its business plan. The startup has laid off 50% of its employees amid business model restructuring.

Despite the Covid’s impact, the real estate’s prices has been soaring, the highest rate being 31% in Hanoi in QII 2022, according to Batdongsan. However, some experts identified that rising house prices but low liquidity was a signal that the market was in a partial bubble. 

But “It’s not so much the market’s problem. Vietnam proptech focuses on local solutions, and local developers while startups in the region are going after bigger solutions for larger developers. A lot of startups have been funded to grow fast but funding is drying up.” Bob Koppes – Head of Product & Strategy – PropertyGuru Group comments on the low performance of startups in proptech.

The hedge funds and venture capitalists are restricting their capital. That’s where the problem is to some startups across the world. The big protech players, also so non- proptech are also laying off staff because of the funding shortage, Bob said.

Delivery e-commerce startups have been contributing to the success of the F&B industry since pre-pandemic. In 2020, Vietnam was the third fastest growing country in Asia in terms of food expenditure. With the GDP expected to start to grow sharply, the F&B industry will have a big room for growth, according to the report from Vero and Decision Lab. 

Food delivery grew by 183% in Southeast Asia, according to Austrade. Supper apps have been helping to promote the F&B industry in recent years, encouraging consumers to takeaway food, meal kits and home cooking, according to Aske Østergård, CEO and Co-founder at Decision Lab.

Aske Østergård, CEO and Co-founder at Decision Lab.

That did not impress the VCs much. Recently, DealStreetAsia reported that Loship – the delivery e-commerce startup shifting equity funding plans in its Series C equity funding round in 2021 to debt financing this year. 

2022 has seen a significant decline with global funding in the first quarter having fallen by 19% to 144 billion USD from QI, according to CB Insights. The days of cheap capital have come to an end. Venture debt activity across the region has been rising significantly, particularly in key markets such as Singapore, Indonesia, Vietnam and India, according to The Asset. 

The shortage of venture funding in Southeast Asia is a good opportunity for a lending platform like Funding Societies in the Vietnam market, said Ryan Galloway – Country Director for Funding Societies in Vietnam. 

Venture debt has become more integral to a startup’s fundraising strategy. However, startups need to be smart and tenacious to create a contract that works for their company in order to properly harness venture debt, some experts said. 

Though Vietnamese startups still set up trust on an investor who practiced funding them for years at 500Startups – Binh Tran. He now leads Ascend Vietnam Ventures and commits to increase investments in  startups in Vietnam, seeding up to 2 millions USD into 25 startups by next year and following on with checks of up to 5 millions USD. 

 “Vietnam’s dynamism, accessibility, low cost of living, as well as abundant quality engineering  talent attract many founders. On top of that, many tech solutions built here can address similar challenges and customer behaviors in other emerging markets worldwide. Vietnam will continue to  be seen as one of the best places to build global or regional market-leading companies.” Binh shares his thoughts on the Vietnam startup ecosystem.

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Source: Vietnam Insider