Blockchain and AI bringing better value

Cris D. Tran, development director The Sandbox

Investors in the blockchain market are currently more cautious and hesitant when it comes to larger investments, as they are uncertain about effectiveness. When selecting a project to provide funding for, investors typically focus on what makes the project’s product unique, whether it has been tested, and whether it has gained market acceptance.

Therefore, it is extremely difficult to raise an investment capital of about $100-150 million in blockchain and AI startup projects at this time. Startups that can attract such funding to build a future-proof product are indeed rare.

The investment funds’ focus in both the blockchain and AI sectors is currently on the virality of the product. For them, a successful tech product must entice users and require minimal reliance on SEO or marketing tools. This demonstrates that the business is operating well, has the ability to generate revenue on its own, and has a proven business model.

Additionally, startups also need to consider capital costs when seeking funding. Before the US Fed’s interest rate hike, there was a significant influx of capital into startups. However, in the current climate, funding is primarily directed towards startups that can demonstrate real cash flow.

The strength of the startup market in the blockchain and AI sectors in Vietnam lies in its fast adoption of tech. However, the Vietnamese market lacks a solid foundation for extensive AI research, and the workforce is not keeping up with the pace of technological advancements. As a result, it can be challenging to gain trust from investors.

As a startup operating in the blockchain and AI space, The Sandbox Vietnam is well aware of these challenges. We are eager to collaborate with partners on the Web 3.0 platform to build suitable spaces and campaigns. We are interested in partnering with education or investment-focused entities to incorporate more blockchain elements into our product.

Do Ngoc Quynh, general secretary Vietnam Bond Market Association

The bond market is not typically considered a suitable fundraising channel for startup companies in general, and particularly for blockchain technology-based startups.

The architecture of the financial market is designed to cater to different risk appetites, with different types of investors at each risk level. This results in the formation of various financial intermediaries, tools, and investment products. In developed countries with strong economies, such as the United States, many projects in the research and development (R&D) phase still engage investment funds despite the presence of various risk factors.

Meanwhile, the Vietnamese financial market, being relatively underdeveloped, is currently lacking in venture capital funds and mechanisms to provide financial resources for startup enterprises, particularly those in the R&D phase, as they are considered to have a higher level of inherent risk. Indeed, if successful, these projects or enterprises have the potential to generate profits multiple times over.

On the other hand, established businesses with tangible products will find it easier to access capital. However, the profit rate may be around 20-30 per cent.

In the current challenging economic context, investment funds will be more cautious when making decisions. They will not want to enter the pre-seed, seed round, or Series A rounds. They will only make decisions when they see clear opportunities.

Even with the current Switch Up Accelerator funding model supported by the Vietnam Blockchain Association, the majority of capital comes from foreign sources. This is because, in the Vietnamese cultural and business environment, there is a lack of investors with such risk appetite and perspectives.

With the development of legal frameworks and the market economy, Vietnam is expected to gradually attract risk-taking investors with global mindset and appetite in the near future. Indeed, at the current stage, early-stage startups still heavily rely on foreign venture capital funds rather than domestic ones.

Furthermore, AI and blockchain are just a part of the global trends such as digital transformation, environmental, social, and governance criteria, and green development. Startups also need to pay attention to the evolving global trends in order to seize opportunities.

Phan Duc Trung, vice chairman Vietnam Blockchain Association

Blockchain and AI are two distinct technologies. AI is currently in need of significant funding, and small-scale global AI startups need about a few hundred million USD to several tens of billion USD. Most startups aim to build AI models that can assist users globally, and these AI products primarily use the English language. Consequently, processing Vietnamese language for Vietnamese users would indeed incur additional costs.

Meanwhile, the capital market for blockchain technology is not a concern. Blockchain does not require any external capital incentives other than a legal corridor because this market already attracts capital by itself. According to statistics from Chainalysis, the amount of money flowing into the Vietnamese blockchain market from July 2022 to July 2023 reached $120 billion.

AI requires capital, while blockchain does not necessarily require capital but relies on legal frameworks. Both environments require legal considerations in the process of raising funds, but at different scales. While AI demands significant capital investment, blockchain requires proof of legitimate sources of funding.

Vietnam is a country that has shown great absorption of foreign direct investment and possesses a relatively stable market in terms of exchange rates and interest rates. This creates improvements for foreign investors to bring in capital, but it also carries risks as they may have excessively high profit expectations. If not met, investors will redirect their investments to neighbouring countries. According to our recent data, Vietnamese startup companies in the blockchain and AI sectors are currently being valued lower than companies in the region by around 35 per cent.