Last updated: Wednesday, May 15, 2019


Seeking Ways to Develop Start-up Investment Market

Posted: Thursday, May 24, 2018

Funding start-ups is extremely important as it is the launchpad for their success. But, there is a need for a more rational approach to grow this living source.

Dr Vu Tien Loc, President of the Vietnam Chamber of Commerce and Industry (VCCI) and Director of the National Start-up Programme, said Vietnam now has about 50 investment funds using various forms of start-up funding, but they are unfocused and small. The start-up ecosystem, particularly fundraising ecosystem, is still weak and start-up funding is irregular.

He said, to have a good start-up ecosystem, the role of the business is very important. Accordingly, forerunners will finance start-up investors. “They have a huge capital base and, in their social responsibility, start-up support is one of the largest community development goals. It is necessary to incorporate it into action programmes of leading corporations in Vietnam. Spare funds for start-ups,” Mr Loc added.

Mr Tu Minh Hieu from the Scientific and Technological Market and Business Development Bureau under the Ministry of Science and Technology, said venture funds in Vietnam ranked fourth in ASEAN since 2012 after Singapore, Indonesia and Malaysia.

In 2017, Vietnam received 92 innovative start-ups with a total funding of more than US$291 million, up nearly 100 per cent in start-ups and nearly 50 per cent in capital against 2016. Despite a relatively strong growth, innovative start-up funding in Vietnam is quite modest relative to the region and the world. According to Tech in Asia, in 2017, Southeast Asia drew US$7.86 billion for start-ups. As a result, Vietnam accounted less than 5 per cent, a very small proportion.
“This is both a challenge and an opportunity for start-ups in Vietnam, as venture capital channelled into Southeast Asia is plentiful. If Vietnam attracts more from this source, its venture capital market will develop a lot,” he said.

Investment value, divestment value and venture capital increase year after year. ASEAN drew US$7.86 billion for venture projects since 2015. In Vietnam, apart from venture funds and angel investors, many big companies also set up venture funds like FPT Ventures, Viettel Ventures and CMC Innovation Fund. Angel investors are growing in number.

Thus, the innovative start-up market in Vietnam is diverse and active, spurred by domestic and foreign funds. However, capital scale, connectivity and cooperation in innovative start-up investment in the country are still small, below the potential and demand of innovative start-up ecosystem.

Mr Hieu said, the regulatory corridor for innovative start-ups and innovative start-up investment is getting better. The “Supporting National Innovative Start-up Ecosystem to 2025” Project, or Project 844 approved by the Prime Minister in Decision 844/QD-TTg 2016, is the first national effort in innovative start-up supports and activities to develop the national innovative start-up ecosystem. At present, the Law on SME Support of 2017, which came into force on January 1, 2018, stipulated investments on innovative start-ups, including income tax exemption and reduction for innovative start-up investors, and allowed localities to provide reciprocal investment for starting innovative SMEs with private equity funds. Decree 38/ND-CP dated March 11, 2018 on investments for innovative start-ups, allowed the establishment of investment fund for innovative start-ups as well as the use of local budgets for innovative start-up investments.

Besides, the amended Law on Technology Transfer of 2017 also allowed using science and technology funds at enterprises to invest, arrange reciprocal capital and receive reciprocal capital for innovative start-up investment.

In addition to policies that directly affect investors, innovative start-up ecosystem development policies are also focused to attract more investment funds.
Remarking on potential start-up development, Mr Hieu said Vietnam has about 3,000 innovative start-ups engaged in potential areas such as health, agriculture and finance. As for domestic funding channels, big firms have start-up support programmes. Over 30 business groups reported net earnings of over VND1,000 billion in 2017 along with numerous companies with lower profit values. Nevertheless, just a few companies invest in this market.

VCCI President Loc said, a penny invested for start-ups may generate hundreds of dollars for society. For that reason, companies should include start-up financing in their investment plans. If the start-up market has this source of support, it will have breakthrough development in the coming time. The role of business associations in this movement is also enormous, especially in expanding business participation.

Ms Trinh Thi Huong, Enterprise Development Agency, Ministry of Planning and Investment

The objectives of Decree 38 are to identify and recognise innovative start-up investment as a business investment; determine the legal status of innovative start-up investment companies and innovative start-up investment funds that Vietnam’s current legal system does not govern; provide more options for investors; introduce general principles and framework regulations as the legal foundation for private investors to pool in innovative start-ups; and unlock capital flows for innovative start-ups by encouraging the establishment of innovative start-up investment companies, innovative start-up investment funds and the mechanism for using local budgets to invest in innovative start-ups.

According to Article 5, innovative start-up investment funds do not have a legal person status as a maximum of 30 investors pool money to set up them. Innovative start-up investment funds cannot invest in other innovative start-up investment funds either. Also according to Article 5, contributed capital can be any of Vietnamese dong, gold, land-use rights and other valuable assets. Investors may not use loans to pool capital to set up innovative start-up investment funds. Innovative start-up investment funds can deposit money at commercial banks and invest less than 50 per cent of authorised capital of starting small and medium-sized enterprises (SMEs) after they get investment certificates.

All the capital and assets contributed of the fund's investors must be accounted independently from the fund management company. Investors who contribute capital to establish a fund agree on the authority to decide on investment portfolio and this content must be stipulated in the fund charter and the contract with the fund management company (if any).

These new features will create breakthroughs in innovative start-ups.

Mr Nguyen Duy Hieu, Director of Vietnam Science and Technology Enterprise Fund
Some start-ups copied others rather than applying their own creativity. They sought certified and successful business models in other countries and adapted them in Vietnam. Although they may be effective at first, they are actually copycats rather than innovations.

Therefore, starting a business in Vietnam is still in its early stages. Having a proper knowledge and perception of start-ups is extremely necessary. We should learn ways in other countries to shape a good environment for innovations rather than imitate the start-up paradigm.

Lawyer Nguyen Van Loc, Chairman of LP Group
The legal corridor is important for Vietnam to have an effective start-up investment market. Although it already has the Law on SME Support and Decree 38/2018/ND-CP on innovative start-up investment, companies’ investment in innovative start-ups are confronting hardships.

At present, there are three levels for investors to invest in a start-up: Seed capital, growth, and market expansion.

The Clause 3, Article 8 of the Law on SME Support provides incentives for investors but Decree 38/2018 has no regulations or clear instructions on incentives for investors after investing in start-ups. Such regulations are not clear enough or attractive not enough to draw investors.

Moreover, laws intervene unnecessarily deeply into relations among investors, banks and start-up. Binding this relationship will inevitably become a barrier to investors to invest in start-ups.

While new models are rapidly established, the legal flow of Vietnam is still cramped and slow. In the meantime, support schemes are not linked to beneficiaries, let alone how close those links are.

Therefore, it is necessary to construct a corridor for companies to invest in start-ups with ease, because investors cannot feel at ease if start-ups are caught in legal matters or investors cannot invest more in start-ups.

Quynh Chi

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