For startups in Vietnam, independence has its challenges

Road Trip 2015: The second half of a two-part series about Vietnam's startup scene takes a deeper look at some rare success stories and how the country is fostering -- and hindering -- its homegrown tech community.

Shara Tibken Former managing editor
Shara Tibken was a managing editor at CNET News, overseeing a team covering tech policy, EU tech, mobile and the digital divide. She previously covered mobile as a senior reporter at CNET and also wrote for Dow Jones Newswires and The Wall Street Journal. Shara is a native Midwesterner who still prefers "pop" over "soda."
Shara Tibken
9 min read

Click here for more Road Trip 2015 stories.

HO CHI MINH CITY and HANOI, Vietnam -- I was lost. But at least it wasn't just me. My taxi driver seemed just as befuddled.

I was searching for NCT Corp., one of the largest streaming music providers in Vietnam. The company's offices are in District 10, a part of Ho Chi Minh with few foreign visitors and with confusing -- at least to me -- address markers. My driver circled the area for about 20 minutes before we finally gave up and called for help.

It turned out, all I needed to do was look up. NCT is located on the seventh, and top, floor of the HAGL Building, which towers over the neighborhood.

NCT, a streaming music service akin to Spotify, is one of the rare tech success stories in Vietnam. It boasts 10 million active users each month and is valued at more than $20 million (By comparison, Spotify has 75 million active monthly users and is valued at $8.5 billion.). And while Vietnam's government debates the level of influence it should have on fostering startups, NCT is an example of a company that has been able to succeed on its own.

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NCT, a music streaming startup based in Ho Chi Minh City, tries to make its offices a fun place to work. Shara Tibken/CNET

NCT is also a company emblematic of where Vietnam wants to go. The country is trying to transition from serving as the world's new outsourcing hub to a center where it creates products that change the way people live, while also helping the national economy. But companies operating in Vietnam face a number of challenges, including some from their own country. Bureaucracy and corruption are common pitfalls, and it's difficult to obtain funding. While the government is attempting to bolster the efforts of startups, it's unclear whether those attempts will bear fruit. As such, many have opted to go it alone.

The ability of companies -- like NCT, online gaming giant VNG and app Flappy Bird -- to thrive in Vietnam, in spite of the challenges, shows it's possible. The hope is that they won't be the only ones.

"This [Vietnamese tech] market has great potential -- not one Flappy Bird, but a lot of Flappy Birds," NCT CEO Nhan The Luan said through an interpreter.

Making music -- and money

When Luan started the company in 2009, it was a quasi-Napster clone, allowing people to upload and share whatever they wanted with their friends. But it soon shifted to licensing music from major labels like Universal Music Group and Sony Music and offering a streaming service called Nhac Cua Tui ("My Music" in Vietnamese). It now charges about $2 per month for users to stream music on mobile devices -- less than the $3 monthly fee for Apple Music.

Each room in the office has a different look and feel. One -- with blue doors and shutters, a white picket fence and a murals of trees amid a Mediterranean-like seaside town -- gives the impression that you're outside. The "relax room" has comfy couches and stone mosaic walls that encourage you to sit and rest. The space where the licensing business resides -- NCT has exclusive rights to about 40 percent of Vietnamese music and then licenses it to other companies -- looks more like a typical business office, with large wooden cabinets. Along one wall hangs a black-and-white painting of Apple co-founder Steve Jobs.

Luan's office is situated in a corner, with a large window offering an impressive view of the city below.

"We want to win this market long term in Vietnam," Luan said.

It's not an idle boast. NCT has flourished over the years by targeting its home market, seeing its base double from a year ago.

But doing business in Vietnam can still be tough. In some ways, the Vietnamese government's policies benefit foreign companies more than those built and run in Vietnam. Under Vietnamese law, if users can leave comments on a website, a Vietnam-based company must obtain a social networking license. Getting a license can be difficult and time consuming -- and foreign companies don't need the same licenses. NCT has had to register as a social media network, but Facebook, the world's biggest social media network, has not. NCT also has a second license, for information sharing.

In NCT's early days, two full-time employees dealt with the government. As NCT grew and became more established, it learned the system and figured out which officials to seek out. While it still has in-house lawyers, it no longer has full-time employees focused on navigating the Vietnamese regulatory system. That doesn't mean it's hearing from the government any less often.

"We always have notice of visits from the government," Luan said as he showed me the latest letter to arrive from the ministry. "You have to show them all the reports of the operations, everything. It's a long list."

"Before, [I] would lose sleep over it. Now it's part of a routine," he added.

Restricted freedoms

Vietnam can be a difficult place to operate for other reasons. Corruption remains a serious issue. According to a report from Transparency International, only 52 of the globe's 175 tracked countries are considered more corrupt than Vietnam.

Free speech and Internet freedoms are still curtailed as well. Vietnam may not be as oppressive as China -- you can access Facebook and Google here -- but it's not "open" when compared with the liberties that US citizens and companies enjoy.

If there's a government policy banning any sort of online content, Vietnam-based companies must completely shut it down. But Vietnam doesn't block YouTube or Facebook like China does, so the content is still available for Vietnamese viewers in those locations.

"So where do the users go?" Luan said. "They go to where they can have it."

Vietnam's fledgling startup scene (pictures)

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Startups, meanwhile, run the risk of being shuttered for doing anything that offends the government. In mid-October, the Ministry of Information and Communications shut down Haivl, Vietnam's version of the popular comedic websites The Onion or 9GAG, after the media noted that it had received $1.5 million in funding from 24H Online Advertising, a high amount for a Vietnamese startup.

Since 2012, the site had allowed people to upload humorous pictures, videos and articles, and it operated unimpeded by the Vietnamese federal government. Less than two weeks after the funding news came out, the Ministry of Information and Communications decided the company had "severely" breached laws on digital content on the Internet.

Building a community

The Hanoi offices of Topica, a startup that offers English and university courses online, bring to mind the phrase "organized chaos." About 400 men and women in their 20s and 30s are crammed into the office, sitting on metal folding chairs along narrow white tables. Dart boards with pictures of CEO Pham Minh Tuan and other executives are scattered around the offices, and the white walls are decorated with posters of quotes from famous thinkers such as Steve Jobs ("Stay hungry, stay foolish") and Thomas Edison ("I have not failed. I have found 10,000 ways that won't work").

There's even a cardboard cutout of Facebook CEO Mark Zuckerberg along with the quote, "Move fast, break things," in the space designated for the Topica Hub -- an open area in the company's offices where entrepreneurs can host their own events in the evenings.

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The Hanoi offices of Topica, a startup that offers English and university courses online, feature posters with quotes from Facebook CEO Mark Zuckerberg and others. Shara Tibken/CNET

Topica came out of a Vietnamese university project funded in part by Bill Gates in 2006. In 2008, it spun off of the university and got funding from IDG Ventures Vietnam and Japan's CyberAgent Ventures. Topica has more than 21,000 students taking its university courses online, which are offered through partnerships with seven schools.

"We are the leading online education company in Southeast Asia, and we plan to maintain this lead in the next five years," said Tuan, who has an MBA from NYU's Stern Business School and is a former McKinsey consultant.

Topica, while a startup itself, is trying to fill a gap in the Vietnamese tech world -- the lack of an ecosystem. Along with the Topica Hub, it also operates the Topica Founder Institute, a franchisee of the US-based Founder Institute accelerator, which fosters early-stage startups into more mature businesses. The 25 graduates of the Topica accelerator over the past three years have raised $10 million in funding so far. The biggest success story is Appota, which helps mobile developers distribute applications and games. The company last year secured a second round of funding from Japanese and Singaporean investors.

Topica's next project, called the EdTech Lab, will feature virtual reality devices, drones, robots and other new technologies that Vietnamese entrepreneurs can't easily access on their own. Developers, selected from a group of applicants, will have access to the lab for three to four months to create their proposals for new educational uses, like using drones to monitor test takers.

In the few short years Topica has helped other startups, it has seen interest in tech soar.

"I used to go to a lot of student competitions for startups and they used to be all quiet and not so much interest from the public," Tuan said. "From last year, I started seeing a big difference, like it was a music show or a celebrity show. Students are looking up to startups and they're fighting for tickets to shows like that."

One foot in Vietnam, the other in the US

Wearables device maker Misfit may not have any fancy virtual reality devices or drones, but it has one key asset: a chief executive who can straddle both Vietnamese and American cultures. Sonny Vu moved to the US from Vietnam when he was six but maintained close ties to the country. So when he founded Misfit, he started it in both countries at the same time.

By the end of the year, about half of Misfit's employees -- expected to total about 265 -- will be based in Vietnam, working on logistics, algorithms and other items for its wearables, including its Link app. No manufacturing is done in the country, and Misfit doesn't actually sell any products here, either.

But having so many of its employees in Vietnam gives Misfit an edge, Vu said. It's able to hire from the top talent in the country -- often people returning to Vietnam from study or work abroad -- and is able to operate more cheaply than if it had a bigger presence in the US.

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Wearables maker Misfit has offices in Ho Chi Minh City, where developers have created products like its Link app. Shara Tibken/CNET

"What we've done is optimized our hiring to be in places where we have unfair competitive advantages," Vu said. "So in Vietnam, we have an unfair advantage here. Why? Because we're just the coolest company to work for."

Rockit Online, a company that teaches English and other classes over the Internet, got $500,000 last year from Silicon Valley-based venture capital firms Formation 8 and Learn Capital. It has both Vietnamese and American founders, and its CEO, Dao Thu Hien, has a long background in the US, including a stint in New York Mayor Michael Bloomberg's offices. She started her other company -- Golden Path, which helps Vietnamese students prepare for studying abroad -- in New York before returning to Vietnam in 2012.

"The appetite for funding a new startup is low among the local investors," Hien said. "That means a lot of entrepreneurs will need to tap into the international market. Being a company from Vietnam, with Vietnam being not a major economy in the world, it's challenging to get the attention from investors in the US or Europe."

Many of Vietnam's successful startups have founders who have foreign connections or spent time overseas. Out of 27 of the most successful tech startups from Vietnam, nearly half of them have founders who worked or studied abroad, according to a study conducted by Topica.

Vietnam's booming manufacturing sector (pictures)

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But it's the people who've spent their entire lives in Vietnam who are increasingly starting companies such as NCT. That can make it harder to break out overseas -- if they even want to. In many cases, the new startups are focused squarely on Vietnam and Southeast Asia, with plans to move to China or the US "maybe someday."

"The US is a tough market ... [and] for a foreign company to enter China, it's going to be tough," Luan said. NCT has explored the Chinese market but so far has no plans to open up shop there. And when it comes to streaming music, there isn't much room for newcomers in the US.

"Our plan for the foreseeable future is still local," Luan said.

Click here to read the first segment of CNET's two-part tour of startups in Vietnam.