Legal framework needed to boost startup development

Friday, 2018-05-11 16:04:14
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Startup promotion events such as Techfest Vietnam should be held regularly to improve the startup culture in the country. (Photo: NDO)
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NDO – Startups require support from capital sources and in gaining access to markets in order to boost their rapid growth, however, a favourable legal framework for startup activities, and to attract investors and investment funds to Vietnam, remains absent.

In developed countries around the world, there are special incentives to promote startups, which have helped form a series of new startup models, support funds, intermediaries and brokers that support startups to improve their product value and bring added value to the economy.

The most successful startups have quickly become the leading technology companies in the world, such as Google, Facebook and Viber. The aforementioned enterprises apply new and effective technological trading methods on the world’s scientific and technical market, generating transaction’s worth several hundred fold over traditional deals. Take Viber, one of the most popular mobile apps for communications, as an example, it was sold for around US$900 million; or OneBox, which offers Internet-based fax solutions, which was sold for US$850 million.

In Vietnam, the startup movement has become more active and developed in recent years, with the rapid increase of incubators and facilities that boost startup support activities. Only five of the most successful capital calls have a total value of over US$50 million, including Momo US$28 million, F88 US$10 million, Got It! over US$9 million, US$3 million, Toong US$1 million. The latest is Foody, a social networking site related to cuisine that has sold over 82% of its shares for more than US$64 million.

Minister of Science and Technology Chu Ngoc Anh stated that more than 900 startup projects and 300 startup groups have been connected to the community and investment funds. In addition, over 40 venture capital funds have been operating in Vietnam, typically IDG Ventures, CyberAgent Ventures, Gobi Partners and 500 Startups. Currently, there are 24 incubators, ten business promotion organisations and many startup support networks that have been formed, including the Small and Medium Enterprise Support Network and the Initiative for Vietnamese Startup Counseling programme.

Startups should be provided with sufficient legal corridors to develop in Vietnam.

The Ministry of Science and Technology (MOST) has been in charge of implementing a new business promotion model from the US under a technological commercialisation programme following the Silicon Valley model in Vietnam. In addition, there is also the Vietnam-Finland Innovation Partnership Programme that fully supports startups and the components of the startup ecosystem. The aforementioned programmes have provided training and capital for dozens of enterprises, and startup trainers, as well as organising supportive activities for startups.

However, there are still inadequacies, as most startups are spontaneous, lack of links and are not strong enough to make Vietnamese businesses on a par with technology enterprises in the international arena.

Experts argued that, in terms of policies, startups are not yet defined in legal documents, while the characteristics of startups and investment for startup businesses have not been reflected in the regulations on taxes, finance and investment. Vietnam currently has no regulations on the establishment of venture capital funds which creates difficulties for investors. Therefore, up to now, no venture capital fund has been set up in Vietnam, while the percentage of Vietnamese businesses setting up offices abroad is increasing.

If there isn’t a favourable regulatory environment or specific regulations for the startup sector, it will be difficult to develop startups and to create a startup ecosystem in Vietnam. The factual situation also shows that there is no strong link between policy and the community’s activities to promote startups and create a startup culture.

Head of the MOST’s Department of Market Development and Science and Technology Enterprise Pham Hong Quat suggested that startups need time and support from many sectors in order to develop. Universities and research institutes play an important role in providing founders, research results with high commercialised values, and innovative business ideas. Incubators and business promotion organisations are also important for startup training, while infrastructure is also necessary for testing and making sample products.

Furthermore, startup events should be held to connect and improve the startup culture. The State should build a legal environment conducive to startup activities and investment. All of the above elements should be linked to become a national startup ecosystem, through which startups would have sufficient legal corridors to develop in Vietnam.