Most venture funds in Vietnam are foreign invested

According to the Ministry of Science & Technology (MST), as of 2017, Vietnam had 3,000 startups. The number of startups and the scale of investment in startups are on the rise. There were only 50 investment deals which called for $205 million in 2016, while the figures rose to 92 and $291 million, respectively, in 2017.

However, the ministry said that investments in startups in Vietnam have been much lower than in other regional countries, while very few startups can call for tens of millions of dollars. The number of Vietnamese startups in M&A deals is modest and there is nearly no startup with an IPO.

In 2017, the startups in ASEAN attracted $7.86 billion worth of capital.

Lack of capital is the biggest problem of startups. They have to operate with their own capital or money borrowed from relatives. It is nearly impossible to access bank loans.

Nguyen Quan, chair of the Vietnam Automation Association, said there are five elements that create a startup ecosystem – technology supply, technology demand, investors, service organizations and legal framework.

At present, it is still difficult to start a business in Vietnam because the ecosystem is still imperfect. Vietnam does well in technology supply and demand, but is weak in three other factors.

“Our current laws don’t pay appropriate attention to venture investment which is the factor that determines the success of innovative startups,” Quan said.

In the world, venture capital poured into startups in 2017 reached $140 billion, while total economic value the startups all over the globe brought in 2015-2017 period was $2.3 trillion.

In Vietnam, there are about 40 investment funds, most of them foreign. Some large foreign investment funds have no offices in Vietnam, but show interest in Vietnamese startups.

Since the majority of venture investment funds have foreign sourced capital, a lot of startups register their business overseas, including Thailand and Singapore.

“Vietnamese startups have to do outsourcing for foreign firms as they do business overseas and pay tax overseas, but make products in Vietnam,” Quan commented.

In fact, the establishment of venture funds is mentioned in the 2009 High Technology Law and the 2016 Law on Small & Medium Enterprises. However, this has not been applied because of existing legal problems.

The good news is that the government will allocate a part of the state budget for startup activities. 

However, to implement the decision, management agencies still need to issue legal documents to guide the implementation of the government’s policy. Observing the rules of the market economy and approaching international practice is the optimum principle.

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