Total funding into Vietnam tech startups fell 82 percent to $66 million in the first half of 2023 from $372 million in the first half of 2022, indicating a funding winter in the region, Tracxn Technologies Ltd. said Monday.

The market intelligence platform said in a statement that the decline can be attributed to unfavorable macroeconomic conditions, uneven recovery from the COVID-19 pandemic, increasing inflation rates, and uncertain global events, which have made investors more cautious about funding startups.

As compared to the total funding of $113 million in the second half of 2022, the total funding also dropped 41 percent.

According to the statement, the Vietnamese tech startup ecosystem has emerged as the third-highest funded startup ecosystem in the Southeast Asia region to date, but this space has seen a rapid decline in funding in recent years, presenting challenges for the local entrepreneurial landscape.

Despite the decline in funding, early-stage startups accounted for 88 percent of the total funding in the first half of 2023, amounting to $58.6 million.

However, this represents a 33 percent drop compared to the second half of 2022 and an 81 percent decrease compared to the first half of 2022.

Seed-stage funding experienced the sharpest decline, with only $7.3 million raised in the first half of 2023, reflecting a 71 percent drop from the second half of 2022 and an 81 percent decrease compared with the first half of 2022.

In the first half of 2023, the funds raised were predominantly from the first quarter, accounting for nearly 89 percent of the total funding.

Funds worth $58.6 million were raised in the first quarter alone, a sharp contrast from $8.5 million raised in the second quarter of 2023 and a plunge of 97 percent from $289 million in the second quarter of 2022.

The funding landscape in the first half of 2023 was dominated by the HealthTech, FinTech, and enterprise applications sectors, according to Tracxn.

Notably, the HealthTech sector achieved record-breaking funding of $53.5 million, showing a remarkable 259 percent increase from the second half of 2022 and a 118 percent increase from the first half of 2022.

Thuocsi, a Ho Chi Minh-based marketplace provider for pharmacies, raised an impressive $51 million.

However, the FinTech and enterprise applications sectors received minimal funding, worth $6.2 million and $5.1 million, respectively.

Despite the downward trend, Tracxn said the Vietnam startup ecosystem holds significant potential for growth, thanks to the country’s government support measures such as tax exemptions for information technology (IT) companies and land rent concessions.

Furthermore, it said the government’s commitment to establishing a cashless economy will contribute to the development of the FinTech ecosystem in the region.

Notably, the first half of 2023 did not witness the emergence of any unicorns or initial public offerings (IPOs), with the last unicorn emerging in the first half of 2022.

Only one company from the Vietnam tech space has gone public till date.

Four acquisitions were recorded in the first half of 2023, representing a 33 percent increase compared with three in the second half of 2022 but 20 percent fewer than five in the first half of 2022.

M Class, VLeisure, CrewFire, and Duelist King were the four companies that were successfully acquired.

In terms of funding distribution, Tracxn noted that Ho Chi Minh City, Hanoi, and Binh Thanh attracted the maximum investments, highlighting their prominence in the Vietnamese tech startup ecosystem.

Touchstone Partners, TNB Aura, and ThinkZone emerged as the most investors in the Vietnam Tech space, while ThinkZone, East Ventures, and YCombinators took the lead in seed-stage investments.

Smile Gate Investments, UOB, and Pavilion Capital Partners were the most active investors in the early stage.

Cited the International Monetary Fund (IMF), Tracxn said Vietnam’s economy grew at a rate from 8 percent in 2022 to 4.7 percent in the current year.

Despite the country’s economy has slowed down, Tracxn said there are optimistic prospects for the second half of 2023 as the State Bank of Vietnam has implemented measures such as interest rate cuts to boost the economy.

To stimulate activity within the startup ecosystem, it noted the Vietnamese government has taken several initiatives.

These include the establishment of Assistance Policies for the National Innovative Startup Ecosystem, which provides funding and creates a national startup ecosystem portal.

Moreover, the government is setting up a National Innovation Center that collaborates with prominent tech companies like Google and Amazon to offer training and support for young entrepreneurs.

Additionally, it said efforts are being made to support women entrepreneurs and promote student entrepreneurship.

Thus, in the face of the declining funding trend, Tracxn opined the tech startup ecosystem in Vietnam remains poised for growth, backed by government initiatives.

Tracxn is a data intelligence platform for private market research, tracking 2 million entities through 1800+ feeds categorized across industries, sub-sectors, geographies and networks globally.

The “Vietnam Tech Semi-Annual Funding Report – H1 2023” report, is based on the firm’s extensive database.

Vietnam startups funding plunges 49 percent year on year in 1Q, says Tracxn