“It is now time to see startups as the driving force of innovation,” according to Vietnam’s deputy minister of investment Dang Huy Dong.
While it is true that startups globally are churning out innovative ideas and market-disrupting concepts, the real picture of the startup universe is often not all that rosy and is fraught with challenges.
A successful entrepreneurial ecosystem thrives on ideas, talent potential, supporting state policies, infrastructure, access to funds, mentoring, community building and so on.
From the government level, Vietnam has tied up with the Finland government through the Innovation Partnership Programme (IPP), which chose the local incubator HATCH! as its partner in delivering the Finnish expertise in technology and starting up an ecosystem for innovation.
Through the annual HATCH! FAIR, co-hosted by the two, community builders and foreign experts discussed issues linked with government support and angel investment, believed as the fundamental factors to help startups grow to the next level.
Let’s take a look at the factors that will act as enablers to the Vietnamese startup landscape.
How the government can help
In Vietnamese legisations, currently, there is no “startup” definition though some companies in the science and technology field do enjoy tax exemptions of up to zero per cent.
While the local government, most recently through the meeting between deputy PM Vu Duc Dam and several entrepreneurs, is planning to create tax policies for the IT and software sector, and to draw up the national startup ecosystem project, a spate of tech startups in Vietnam are claiming they have to incorporate the companies overseas to take advantage of the policies in other countries, such as Singapore.
Startups generally agree that registering their businesses overseas will allow them greater access to funds.
According to Hoang Minh Duc, legal advisor at Duane Morris, the perception to have a perfect legal framework is impossible. However, the business environment in Vietnam has improved over the past decade. While he did not deny the fact that startups are facing the hardship in applying for licenses for some specific areas, he said tax was not a major concern. “Tax will be a problem when you generate profit. But for startups, what you should concentrate on is investing in developing your products to make profit in the future.”
“Instead of complaining, just do your business,” Duc advocated.
Somehow the sovereign management is strongly connected to investment, as the majority of Vietnamese startups that have got funded are incorporated in foreign countries. Dinh Viet Hung, CEO of web design startup Joomlart and an angel investor whose average size of investment is around $50,000, said that venture capital firms are becoming increasingly keen on the Vietnamese market, but they want to see some relaxations in regulation.
Angel investors are building networks
Angel investors in Vietnam are primarily founders of successful startups, while in other parts of the world, they come from various backgrounds. And while foreign angels are more hands off from the business of investees, angel investors in the Southeast Asian country are seen as mentors to the younger startups.
As an angel investor in Vietnam, Steve Landman – serial entrepreneur and managing partner at Lotus Impact – said: “I think we should stop teaching companies to look for investments, we should teach them to do business.”
Hung added that the success rate of exit in Vietnam is very modest, with only a few exits probably reaching 2-3x (or two to three times the investment made) return. However, there are still a number of segments that will create good startups, such as healthcare, media, agriculture, fintech and restaurants.
In the end, what is the factor that investors really look for in a startup? The team.
But one of the issues in Vietnam is that startup founders do not have enough experience. “One of the criteria that I look for is whether they are willing to learn. Entrepreneurs in the US, for example, they know everything. And even as they know everything, they are still willing to learn,” Landman noted.
In an effort to navigate in helping minimize the drawbacks of local startups, initiatives present in the country such as HATCH! and Tigers@Mekong have launched their angel networks, aiming to train investors looking at opportunities in Vietnam and to connect investors with investees.
“We have not had strong angel networks. Right now, the best impact we are giving to startups are mentorship and helping them ready for the next round of financing,” said Hung.
Although a higher percentage of investments by angel investors might not succeed, the failure creates cases from which both investors and startups can learn and, as a network, become a stronger community, according to Landman.
Related story: Vietnam’s startup ecosystem attracting fresh VC interest
“The logic behind angel networks is calling investors to share the risks and expertise, help each other manage the portfolio. It is just a question of time when we see more impact from the networks,” said Csaba Bundik, vice chairman of the Central and Eastern European Chamber of Commerce in Vietnam and strategic advisor for HATCH!.
Chances to replicate some global models
With the cooperation of the Finnish government and more engagement of overseas investors in the country, Vietnam is poised to absorb global venture experiences faster than ever before.
The country has made a leap towards creating a business community and connecting resources. Vietnam is also looking to leave behind the advantage of cheap labour cost to boost the knowledge-based economy, said Bundik.
HATCH! is best suited to help deliver IPP’s expertise and technique to the Vietnamese stakeholders.
“The programme will finish in 2017, and someone has to take over their knowledge and to keep it alive,” Bundik added.
As part of the partnership, a Vietnamese delegation is coming to SLUSH, an event for European and Asian startups, in Helsinki in November.
The reputation of SLUSH is linked to the reputation of Finland, and Finland is one of the best countries in terms of innovation management, said Bundik. Meanwhile, Vietnam hosted the national-scale startup event Techfest for the first time in May 2015, along with learning from Israeli experts and sending local startups to competitions in Israel.