Like many of its startups, Vietnam is navigating an array of apparent contradictions. It’s a country where nearly half the population works in agriculture but which aims to escape the middle-income trap by becoming a startup nation. Yet its startups are still constrained by a number of limitations and shortcomings when it comes to funding.

“Vietnamese startups only attract funding in the tens of millions of dollars, and there are none that could receive funding in the hundreds of millions of dollars,” Mr. Nguyen Manh Dung, Venture Capitalist at CyberAgent Ventures, told the “Overview of Funding in Southeast Asia and the Vietnam Story” conference hosted by VPBank in Hanoi on September 5.

As Head of Vietnam & Thailand, Mr. Dung has made investments in the largest search engine marketing (SEM) agency of Google in Vietnam, CleverAds, and the leading e-commerce website Tiki, while being the founding investor in the largest gourmet search and review site, Foody, and the leading EdTech company in Southeast Asia, Topica Education.

While the Vietnamese market is viewed as having potential, Mr. Dung acknowledged that the country is falling behind its regional peers in attracting investors. The main reason comes down to market size. “In theory, capital will flow from large markets to smaller markets, especially from the US to Japan, China, India, and then Southeast Asia,” he said. “Indonesia remains the largest market, with a GDP 4.5 times bigger than Vietnam’s.”

Secondly, he strongly believes that Vietnam lacks good supportive policies for funding. “This is also the biggest difference separating Vietnam’s startup market and other countries like Indonesia, Malaysia, and Singapore,” he said. “The Vietnamese market bears many risks, such as procedures, sub-licensing, and a time-consuming disbursement process that only the most patient investors can invest in.”

It’s supposed to take 15 days to complete an investment in the country but it typically takes much longer. “If you’re in compliance with all regulations, repatriation of capital is straightforward,” he explained. “But the paperwork required to prove compliance can be quite difficult, so repatriating capital can take time and in the eyes of investors this is an area of risk.”

By way of illustration, he said an attempted revision to the penal code made the founders of digital companies criminally liable if they didn’t have all the proper licenses. A startup having to go to the government every time it wanted to change its products or business model to ensure compliance or else risk imprisonment would obviously freeze digital innovation.

Thirdly, Vietnamese startups remain less competitive compared to foreign startups, and, finally, there is currently no successful means of exit for investors when investing in Vietnam. Therefore, “they will pick other markets where it easier to retrieve their capital, which are Indonesia, Singapore, and Thailand,” Mr. Dung noted.

Figures show that 80 per cent of the $1.5 billion investment into startups within Southeast Asia in 2016 went to Indonesia and Singapore, with limited funds heading to Vietnam.

Despite there being potential in investing in Vietnamese startups, Mr. Do Hoai Nam, Co-founder of the Up co-working space, said that besides the amount investors can gain after exiting, they are also interested in knowing how the exit process can be done. In Vietnam, there are not many options to exit due to its incomplete merger and acquisition (M&A) system.

“Going for an initial public offering is a difficult solution, and only businesses with longer lifetimes have opted for this way,” Mr. Nam said. “Most startups have chosen to sell themselves to foreign conglomerates or other investors.”

VN Economic Times