At the Vietnam Silicon Valley Startup Forum held in San Francisco on December 9, 2017, speaker Jeff Lonsdale shared about the conditions that develop the best technology ecosystem. Drawing from his experiences in Silicon Valley and his understanding of global markets, he also highlighted the challenges and opportunities Vietnam faces in its journey to becoming a sustainable technology power.
Historical Analogy: Silicon Valley vs. Route 128
One of the best ways to understand what drives successful tech ecosystems is through historical analogy. Consider the rise of Silicon Valley in the 1950s, an agricultural region at the time, versus Boston’s Route 128, which had a rich two-century history of industrialization. At that point, there was no question that institutions like Harvard and MIT were superior to Stanford and UC Berkeley. In fact, the first modern venture capital firm, American Research and Development Corporation (ARDC), was founded in 1946 by leaders from Harvard and MIT.
However, Silicon Valley’s story took off with the founding of Shockley Semiconductor in 1956 by William Shockley, who had discovered the transistor effect. Despite Shockley’s brilliance, his poor management style drove away eight talented engineers, later known as the “Traitorous Eight.” They left to form Fairchild Semiconductor in 1957 with backing from Sherman Fairchild.
The real magic of Fairchild was not just its success in producing transistors, but in spawning a wave of spin-off companies known as the “Fairchildren”. These included AMD, worth $10 billion today, Intel, now valued at $200 billion, and National Semiconductor, which achieved $1 billion in annual sales by 1981. The venture firm Kleiner Perkins, which funded tech giants like Amazon, Google, and Uber, also emerged from this lineage. By 2014, public companies traceable to Fairchild were collectively worth $2.1 trillion.
In contrast, Route 128 suffered due to non-compete agreements that restricted engineers’ mobility, leading to fewer spin-offs and less innovation. While Digital Equipment Corporation (DEC) became Massachusetts’ largest private-sector employer, it missed key trends like the rise of personal computers and was eventually acquired by Compaq in 1998.
Key Advantages of Silicon Valley
Several factors contributed to Silicon Valley’s dominance:
Legal and Funding Environment:The absence of non-compete agreements allowed talent to flow freely between companies. Additionally, a decentralized venture capital system fostered competition and collaboration.
Culture of Innovation:The culture encouraged challenging authority, taking bold risks, and valuing young entrepreneurs. Twenty-year-olds were often trusted with significant responsibilities, enabling rapid innovation. The focus remained on building products that people wanted, faster and better than anyone else.
Vietnam’s Startup Ecosystem: Case Studies
Payments Startup (2014)
A payments startup in Vietnam raised $18 million but shut down when a competitor received a payment license. The decision was based on the assumption that regulatory approval would not be forthcoming. In successful ecosystems, the market—rather than regulators—typically determines winners. This highlights the need for a more market-driven approach in Vietnam.
Flappy Bird
The game Flappy Bird, developed by a Vietnamese creator, achieved international success. However, the developer faced intense scrutiny over taxes and legality, leading to the game’s withdrawal. In other ecosystems, such success would attract investment and opportunities for growth. This case underscores the importance of a supportive environment for innovators.
Vietnam-SF Stealth Startup
A more positive example comes from a stealth startup founded by Vietnamese engineers returning from the U.S. They established a company with a Silicon Valley-style culture in Ho Chi Minh City. By recruiting top talent through hackathons, they provided real-world experience to recent graduates, showcasing how Vietnam can leverage its human potential.
Challenges Facing Vietnam
Short-Term Investment Mentality
Many investors in Vietnam seek quick returns, limiting opportunities for long-term growth. The absence of angel investors willing to invest in early-stage startups constrains the ecosystem's potential.
Startup Culture
Employees often prefer immediate cash compensation over equity, reducing long-term incentives. Additionally, there is a lack of expertise in areas like consumer-focused product design, which limits innovation.
Government Intervention
Inconsistent regulations and sudden policy changes hinder startup growth. Excessive taxes and bureaucratic hurdles can stifle innovation before companies achieve scale. These challenges discourage foreign investors from committing to the Vietnamese market.
Government’s Role in Supporting Innovation
Successful Models
Several global examples demonstrate how government support can foster innovation:
DARPA (U.S.): Funded early internet protocols and self-driving car research.
Stanford University: Incubator for startups like Hewlett Packard and Google.
MIT Lincoln Labs: Spawned companies like Digital Equipment Corporation.
Bell Labs: Innovated technologies such as the transistor and laser.
Recommendations for Vietnam
To foster a thriving tech ecosystem, Vietnam should:
Decentralize Funding: Encourage a competitive venture capital environment.
Ensure Regulatory Stability: Create consistent policies to attract and retain investors.
Support Innovation: Invest in research institutes and protect intellectual property while avoiding restrictive regulations.
Successful tech ecosystems thrive under the right legal, funding, and cultural conditions. Vietnam possesses immense potential to become a sustainable tech power by addressing these challenges. The key takeaway is that tech ecosystems are networks that grow organically—they cannot be rigidly planned. By creating an environment that supports innovation, Vietnam can transform its human capital into a future filled with wealth-generating technology companies.