Most of the 40 venture funds operating in Vietnam are foreign ones, so State agencies should take drastic steps to support the establishment and development of local venture funds as a way to bolster startups, said Nguyen Quan, chairman of the Vietnam Automation Association.

A young entrepreneur introduces a mobile app to tourists at a shopping mall

Startups in Vietnam have encountered numerous difficulties, especially the lack of capital, he added. The legal system has yet to include incentives for venture funds even though they are considered the decisive factor in the success of innovative startups.

According to the National Agency for Technology Entrepreneurship and Commercialization Development under the Ministry of Science and Technology, Vietnam had had some 3,000 startups as of last year, and the investment in startups is increasing. In 2016, startups carried out 50 transactions and attracted US$205 million, while the respective figures last year were 92 and US$291 million.

However, the investment in startups in Vietnam remains lower than in regional countries. In addition, the number of merger and acquisition deals and initial public offerings involving startups remains low.

Meanwhile, startups in other ASEAN countries attracted US$7.86 billion last year.

The greatest challenge for innovative startups is access to capital. They have to depend on their own capital as they can borrow little from banks.

Quan took Israel as an example, saying the Israeli government had financed 10 venture funds with US$8 million per fund.

Last year, the capital injected into venture funds worldwide totaled US$140 billion, and startups generated US$2.3 trillion between 2015 and 2017.

In Vietnam, foreign venture funds, despite not opening representative offices in Vietnam, have expressed keen interest in local startups.

However, many startups invested in by foreign venture funds have to register their business abroad, such as in Singapore, Thailand and Hong Kong. These startups tend to become outsourcing companies for foreign firms as they do business and pay taxes abroad but manufacture products locally, according to Quan.

The establishment of venture funds, which is covered in the 2009 High Technology Law and the 2016 Law on Support for Small and Medium Enterprises, remains incomplete due to the lack of guidelines and obstacles created by criminal and State budget laws.

Market watchdogs have suggested the inefficient use of the State budget on high-risk investments could cause losses and wastefulness.

In Decision 844, dated 2016, approving a project to support the national innovative startup ecosystem by 2025, the Government allowed the use of part of the State budget for startup development. The State Capital Investment Corporation was assigned to propose mechanisms to contribute capital, while other investment organizations were to set up funds for innovative startups.

To enforce the decision, State agencies must issue detailed guidelines based on market principles and international practices.

However, the project to boost the establishment and development of domestic venture funds remains unfulfilled.

Quan proposed the State allow the launch of venture funds and map out pilot programs to select a suitable model. The State should also make high-risk investments and build the legal foundation to manage venture funds as a way of boosting the development of innovative startups, he said.

SGT