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Economic Sector

Last updated: Wednesday, February 22, 2017

 

Creating Favourable Legal Framework for Start-up Development

Posted: Wednesday, January 18, 2017


Although the investment and development of innovative and creative start-ups is risky and not always successful, successful ones will generate many jobs, raise product value, and bring tremendous added values to the economy of each country. In Vietnam, the entrepreneurship movement at large and innovative and creative start-up movement in particular have gradually formed a business start-up ecosystem. However, it is essential to change mechanism and create a favourable legal framework to foster this activity in the coming time.

Many successful countries in the world
Innovative and creative start-ups are sensitive to market trends and cutting edge technologies in the world. In spite of their fledgling incorporation and small scale, staffed by talented employees, they have new technological initiatives, innovative business models, rapid potential growth and willingness to accept risks. They play an important role in commercialising new technologies, advanced technologies and research & development (R&D) results. They have the competency to become powerful scientific and technological companies with enormous contribution to national economic development. In the world, many innovative and creative start-ups achieved stunning success and quickly become leading technology firms, such as Google, Facebook, Microsoft and Ebay.

Moreover, a successful start-up is valuable.

For example, Viber - a mobile communication firm - was a start-up business in Israel and sold to Japan’s Rakuten Group for US$900 million. Yahoo was offered US$30 billion for its stake in Alibaba, the largest e-commerce company in China. Alibaba’s market capitalisation on the New York Stock Exchange was 231 billion in 2014, higher than the combined market value of Amazon and eBay, two leading e-commerce firms in the United States

Some successful start-ups in the world were founded by Vietnamese people, e.g. OneBox - a provider of internet-based fax solutions founded by Bill Nguyen, Misfit Wearable - a fitness tracker company founded by Sony Vu or Hememics - a company specialised in blood cell preservation set up by scientist David Ho. OneBox and Misfit Wearable were sold for US$850 million and US$260 million, respectively. Hememics called US$10 million of investment capital after two years. Right in Vietnam, there are many successful start-ups like Vatgia E-Commerce Company, which grew 40-45 per cent a year in the latest three years. The company is valued US$75 million.

Although they can generate many values for the society and the economy, start-up businesses need time and support from various social sectors for development. Specifically, from inputs at universities and research institutes (suppliers of excellent founders, highly commercialised research results, innovative business ideas) to business incubators and business promotion agencies (trainers of entrepreneurs), infrastructure for start-up (to test, experiment, prototype and commission), start-up events (to connect and enhance entrepreneurial culture), investors for start-up business (buyers of products and services made by start-ups, suppliers of high-quality experienced personnel) and specially the government (make policies, create favourable regulatory environment for start-up and investment). Cultural, political and social factors in couple with international connections and market sizes are also important to innovative and creative start-ups. When linked together, all these factors will become an innovative and creative start-up ecosystem of a country.

To turn innovative and creative start-ups into a culture, the fastest way other nations use is launching major start-up events. All elements in the start-up ecosystem are called to engage in those events to exchange and learn experience from each other; create frank, direct exchange channels for policymakers and investors; connect potential start-ups with suitable investors to have examples of successful fundraising and start-up development. At the same time, it is necessary to introduce potential start-ups to domestic and international communities. In fact, the world has many successful start-up events which then become prestigious annual gatherings and Vietnam can learn from this experience. Typical examples include Slush of Finland, The WEB of Ireland and Echelon of Singapore, which attracts 10,000-40,000 participants and bridges start-up entrepreneurs with customers and investors worldwide.

Building a start-up ecosystem in Vietnam
In recent years, the start-up movement in Vietnam has becoming more exciting and the start-up ecosystem has started to develop. More incubators and start-up support bases have been established. Such organisations as Hatch!Program and Topica Founder Institute start to open training courses on business start-up. The Ministry of Science and Technology also hosted and implemented very new business promotion models from the United States within the framework of the Technological Commercialisation Scheme based on the Vietnam Silicon Valley (VSV) model. Training and seed capital were provided for nine start-ups in 2014 and 11 in 2015.

Previously, only a handful of small-scale start-up events were held by universities and targeted at students, for example, Kawai by Foreign Trade University and National Start-up Contest launched by the Vietnam Chamber of Commerce and Industry (VCCI). Bigger events began to appear from 2013, including HATCH! FAIR, Saigon Tech Start-up Fest and Start-up Wheels.

Recently, the Government has focused on implementing solutions to scientific and technological market development in support of innovative and creative start-up. Individuals, teams and enterprises with innovative and creative start-ups have new ideas based on technology, non-technology, intellectual property or innovative business model and dare to accept risks to bring their products and services to market and bring added values to the community and society. Many typical start-ups are successful like Flappy Bird, VNG (predecessor of VinaGame) and The Kafe. These results were recognised by international communities and illustrated by a 19-place jump in Vietnam’s innovation index in international rankings in 2015, standing 52nd out of 141 countries in the world and securing a place in the Top 3 ASEAN.

The Vietnam-Finland Innovation Partnership Programme (IPP) is the first to fully support innovative and creative start-ups and innovative and creative start-up ecosystem. IPP has assisted 18 start-up teams, four start-up organisations and 12 start-up coaches in 2015. These activities continued in 2016.

On May 18, 2016, the Prime Minister approved the national scheme called “Support for innovative start-up ecosystem to 2025” with the aim of creating an enabling environment to promote and support the formation and development of fast-growing businesses powered by intellectual property, technologies and new business models. It targets to support 2,000 innovative and creative start-up projects and 600 start-up enterprises by 2025. In addition, 100 companies will successfully call investment capital from venture investors. M&A deals are estimated at VND2,000 billion.

From experience of other countries in the world, Vietnam has also provided various incentives to encourage innovative and creative start-ups. In May 2015, the Ministry of Science and Technology in cooperation with the Vietnam National University of Hanoi and private partners and associations organised TechFest 2015 - a national start-up and technology festival. This event was reported to attract the biggest-ever number of investors and enterprises. It drew more than 50 domestic and international investors, over 50 exhibitors, and more than 1,000 visitors. Over 20 seminars on tech trends, investment experience, investment call and corporate construction were organised. A total of US$1 million was invested in start-ups. Winners at start-up contests also garnered valuable awards from Finland, Singapore, Hatch! Fair in Vietnam, and the Netherlands.

After seeing the potentiality of start-ups at TechFest 2015, some venture capital funds and business promotion organisations started to establish offices, sought investment opportunities, and supported start-ups in Vietnam. For example, Expara of Singapore coordinated with Microsoft Vietnam to promote business in Ho Chi Minh City. 1337 Ventures Fund also joined hands with universities in Vietnam to open training courses on start-up in early 2016 while selecting and investing seed capital for some potential start-up groups.

In spite of gaining some successes in the start-up ecosystem, start-up and its supports are still new and hard in Vietnam. Without good cooperation and backing, start-ups still face a lot of difficulties, particularly legal definitions and laws on tax, finance and investment.

To further develop innovative and creative start-ups and shape an entrepreneurial culture, Vietnam needs to have venture capital funds. To date, no venture capital funds are set up in Vietnam (only some foreign funds opened representative offices in Vietnam). The county also needs to strengthen communication and dissemination of knowledge, and open major start-up events in general and innovative and creative start-up events in particular to catch the attention of the public.

Hanh Nguyen

 





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