Attracting venture capital for start-up businesses

Venture capital funds are an important source of capital for startups and research groups in the early stages when there is still high risk and they cannot access bank capital. Thanks to the support of funds, individuals and research groups have more motivation to turn their ideas into real products and commercialization.

Not only providing funding, venture capital funds also help start-ups closely link research with learning about market needs, thereby increasing the applicability and practicality of scientific works. This is very important while Viet Nam still lacks effective connection mechanisms between research institutes - universities – enterprises

In addition, these funds also support strategies, management consulting, market expansion, recruitment of suitable personnel and completion of business models. This is the catalyst that helps scientific research groups become real start-ups.

Venture capital funds often have a large international network, can bring Vietnamese start-ups to the region and the world through technology partners and investment funds in the following rounds or support programs from many countries around the world; this is the way for domestic inventions and scientific research to not be "buried" but have the opportunity to develop practically on a large scale.

When venture capital funds participate in policy forums, they provide practical perspectives and contribute to perfecting the legal corridor, helping to improve standards and professionalise the creative startup ecosystem.

Pham Tuan Hiep, Director of Innovation Projects of Bach Khoa Holdings, said that venture capital funds are smart money flow, potential startups should proactively seek these money flows and must demonstrate their profitability, growth potential in products, technology and markets for mutually beneficial cooperation.

At present, Viet Nam has not issued a specific law on venture capital activities, as result funds must flexibly apply different regulations, which some conflict each other or be ambiguous. Support mechanisms on tax incentives and preferential policies for venture capital funds or tech start-ups remain very limited compared to other countries in the region, such as Singapore or the Republic of Korea. Consequently, many funds choose to register abroad, making it more difficult to manage capital flows and to promote the domestic start-up ecosystem.

The number of start-ups in Viet Nam is increasing, the number of truly capable businesses with standout technologies and feasible business models remains limited. Many business founders lack essential skills in corporate governance and financial management, or an open mindset to collaborate with investors. In several cases, business founders do not consider investors as long-term strategic partners, which leads to conflicts during post-investment operations.

According to Thach Le Anh, founder of the Viet Nam Silicon Valley (VSV) venture capital fund, foreign investors bringing capital into Viet Nam tend to be more “selective”. They seek opportunities in start-ups that seize trends in high-tech and knowledge-intensive production, rather than focusing on low-cost goods manufacturing, trading, or exporting as is currently common.

Viet Nam is a long-term potential market that requires patient strategies, and one that venture capital investors should consider establishing a foothold in now in order to stay ahead of waves of innovation in the future.

To attract capital from both domestic and international investors for Vietnamese start-ups, the state must accompany during the supervision of new business models and technological applications to help investors feel more confident.

The corporate governance model will be a critical factor, alongside the business model itself, in enabling start-ups to successfully raise capital and with the accompanying of venture capital funds. This represents the organic development of the venture capital market, where funds rely on the support of founders to facilitate successful exits, rather than waiting for start-ups to grow into highly profitable enterprises capable of paying dividends.

It is necessary to enact a separate law on venture capital investment or to develop a special legal framework that allows funds to operate more flexibly, rather than subjecting them to the constraints of traditional financial fund models.

It is also vital to enhance transparency, protect both investors and start-ups, and establish flexible and effective mechanisms for dispute resolution to safeguard the interests of both parties in the case of legal risks.

Improving the data system and transparent information of the market, start-ups, and capital calling deals, thereby supporting the appraisal process and investment connection.

Legal recognition and protection should also be granted to flexible investment types such as convertible bonds—a widely used temporary form of early-stage investment of start-ups. Instead of direct investment to get immediate shares, investors lend money to start-ups, with the loan later converting into shares in the future.

In reality, venture capital funds have made important contributions to the development of Viet Nam’s start-up ecosystem. Supporting start-up growth not only creates opportunities for founders but also generates thousands of jobs, thereby promoting innovation and sustainable growth.

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