Measures proposed to increase startups’ access to capital

Momo e-wallet employees in their office. — Photo VNA/VNS

The recent surge in startup activity in Vietnam has attracted both domestic and foreign investors. However, industry insiders suggest that more efforts are needed to improve startups’ access to finance so they can fully realize their potential.

According to the National Agency for Technology Entrepreneurship and Commercialization Development under the Ministry of Science and Technology, there are currently about 3,800 startups operating in Vietnam, of which 11 are valued at over US$100 million and three at over US$1 billion each.

Funds for financing these startups come primarily from state support, investors, foreign and domestic venture capital funds, funds established by enterprises, incubation centers, business support organizations, business angel investors and loans.

Data from BambuUP, a comprehensive innovation platform, shows that Vietnam has some 210 venture capital funds investing in startups, including nearly 40 domestic funds.

The Vietnam Innovation Center (NIC) Innovation and Technology Investment Report 2021 revealed that $1.4 billion in venture capital was invested in Vietnamese startups in 2021. About 90 percent of that amount came from foreign venture capital funds, according to estimates by ThinkZone Ventures, a local venture capital firm.

Meanwhile, a report by consulting firm Bain & Company indicates that Vietnam is a leader in Southeast Asia in attracting long-term investors. Investors believe that investment activity in the country will increase by 83 percent in the period 2025-30 compared with the current situation.

However, experts note that international investors face many challenges when operating in the local startup investment market. Foreign venture capital funds investing in Vietnamese startups, as ordinary foreign investors, face difficulties in obtaining investment licenses, managing their investments, disposing of capital, repatriating profits to their home countries and dealing with tax issues.

Due to these challenges, many foreign investors choose not to invest directly in Vietnamese startups, but instead require them to restructure and establish parent companies in other countries. This allows them to invest in these parent companies and benefit from foreign incentives. However, this restructuring comes with additional costs for consulting, establishing and maintaining legal entities abroad, which creates unfavorable conditions for startups operating in an unfamiliar legal environment.

ThinkZone Ventures reports that regulatory issues pose a significant challenge to investing in Vietnamese startups. To address this, it is necessary to improve the business climate and establish comprehensive regulations for startup investments.

Bùi Thành Đô, founding partner and CEO of ThinkZone Ventures, said policies must support investment funds and create a transparent, fair and stable business environment where funds can confidently invest in Vietnamese startups. Preferential policies should also be introduced, such as tax cuts, financial assistance, concession loans and the creation of special economic zones with favorable infrastructure and services.

In addition to the efforts of startups themselves, BambuUP CEO Nguyễn Hương Quỳnh believes that to make the Vietnamese startup ecosystem more attractive to domestic and foreign investors, more startup support programs should be launched. Stronger communication efforts are needed to inform investors about the Vietnamese startup ecosystem, and a favorable mechanism for foreign investment funds to invest in or exit local companies should be created.

She also stressed the importance of supporting cooperation between domestic enterprises and start-ups, as investment strategies of domestic companies can facilitate capital flows.

Phạm Ngọc Huy, managing director of Lotte Ventures Việt Nam, suggested developing a mechanism that would encourage entrepreneurs to create investment funds for startups. He believes such a model will be more effective than investment funds for businesses because it puts long-term social value above profit.

Investors are the key element of a strong ecosystem. When many investors are willing to provide support, more domestic and even foreign startups will come to Vietnam. To achieve this, the first condition is to create an optimal environment to attract foreign investors and build a solid capital market, Huy said. — VNS