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eBay Tries Vietnam After China Bust

Did eBay learn anything from its botched entry into China? That question is about to be answered in a new market  – Vietnam.  eBay just acquired a 20 percent stake in Vietnamese e-commerce startup Peacesoft Solutions for a multi-million dollar sum in the “teens,” making Peacesoft the eBay of Vietnam.

How eBay fares with its new venture in Vietnam could foretell the future of this emerging market’s potential as the next frontier in Asia for tech investment.  Vietnam has many of the makings of a tech hub. On a recent reporting trip to Vietnam where I met with dozens of young scrappy entrepreneurs and ambitious venture investors, I was reminded of China’s own beginnings as a startup center a decade ago.

In Hanoi, I got to meet the young Vietnamese founder of Peacesoft, Nguyen Hoa Binh, 29 (pictured).  As we lunched at an outdoors café, I heard his story of growing up poor, studying hard to ace his classes in science and technology, and conceiving Peacesoft in 2001 while still an undergraduate student at Vietnam National University.

Then, e-commerce and online payment were unknowns to most Vietnamese. But as digital communications and commerce have begun to take off in this former war-torn country, Nguyen has successfully built Peacesoft to one of the country’s larger sites, with 1 million registered users.  That’s in spite of gaining some competition from other local up and comers such as Vatgia, modeled on Japan’s Rakuten.

That day we met, Nguyen was preparing to travel to Shanghai to meet with eBay about an investment – the next step in a partnership with eBay since 2008. Now that the deal with eBay is done, it brings back memories of how Chinese entrepreneur Bo Shao sold his e-commerce startup Eachnet in 2003 for $130 million and four years later – after a series of management missteps I recount in Silicon Dragon – saw it shut down and absorbed into the Tom Online portal.

I’m hoping Nguyen doesn’t suffer the same fate with Peacesoft, but time and lessons learned will determine that.

How this new eBay of Vietnam fares could impact many business models that have been adopted from the U.S. and China and are being tried in Vietnam now. There’s an Amazon and Dangdang of Vietnam – that’s VinaBooks. There’s a Google and Baidu of Vietnam – that’s Socbay. In Forbes, I wrote about how its risk-taking founder Nguyen Xuan Tai even turned down an acquisition offer from the Mountain View-based search giant back in 2006 and now owns the mobile search market in Vietnam – way ahead of Google.

You can bet that Vietnam now has multiple GroupOns as well. The lead one is NhomMua.vn, invested in by GroupOn cloner Rebate Networks from Berlin and IDG Ventures Vietnam.

China’s social networking giant Tencent has a copy too – Zing from an upstart in Saigon, VNG, which I wrote about in Forbes Asia.  Tellingly, Tencent invested in VNG and its former M&A director Johnny Shen joined the Vietnamese upstart in 2008 as chief financial officer and executive vice president of business development and strategy.

Vietnam’s talented and entrepreneurial software whizzes are the draw. But make no mistake –the market’s ecosystem for tech venture is no match for Silicon Valley or China’s own innovation hotspots. This nation of 89 million people has a relatively low 27 million Internet users but does rank up there with 66 million mobile phone subscribers, with newly launched third-generation mobile service beginning to take off.

Vietnam remains virgin territory for venture capital firms. Only three firms have been actively investing here: IDG Ventures Vietnam, DFJ Vina Capital and Softbank China & India. The eBay of Vietnam, Peacesoft, was invested in initially by IDG in 2006 and then in 2008 by Softbank.

IDG Ventures Vietnam is the country’s lead investor in newly emerging companies, bringing in business concepts from China, Korea, Japan and the U.S. and then incubating startups with local entrepreneurs. The firm has backed 40 startups since 2006 from a $100 million fund. A second IDG fund of $150 million is on the way to back more Vietnamese startups. The dream is to make  a fraction of the fortunes made from early deals with China startups Baidu and Tencent.

For now, market valuations to invest in newly emerging Vietnamese companies are low. These few venture partners already doing deals here would like to keep it that way.

As more international brands such as eBay enter Vietnam and get the formula right, however, the action will no doubt pick up in this newly emerging frontier market.

The beginnings of Vietnam’s evolution as a tech entrepreneurial center echoes China’s progress over the past decade. How eBay does with Peacesoft will have a decided impact on how far and fast this market matures.