Regulations have been a major obstacle to investment activities in Vietnam, and startup visas is a recent issue that has seen a lot of debate within the country’s entrepreneurs. In an interview with DEALSTREETASIA, Mai Duy Quang, a director at Topica Founder Institute and vice president of the Vietnam Software and IT Service Association (VINASA), emphasised that the issue of business visas as well as legal and regulatory challenges in Vietnam were impeding the robust growth of startups. Edited excerpts:-
What are the current hurdles that foreign investors face in Vietnam?
The major obstacle is investment procedures. It used to take six months or more to get an investment certificate. Although that has improved, it still takes months.
Also, the regulations have not been efficient in protecting small investors, resulting in startups registering their businesses in Singapore, with a more supportive legal and funding environment.
Another challenge is tougher exit regulations. It is more complicated to exit an investment than to seal a deal. The tax for equity transaction is also high.
To add to that, regulatory changes might have scared away potential investors. A typical example is the proposed Article 292 amendment under the Penal Code (which stated that services through online channels or telecommunication networks without prior permission would be illegal). Although the proposed regulation has been scrapped, investors and businesses still fear that it may potentially affect their activities in Vietnam in the future.
However, on the brighter side, the government has heard the voice of the startup community, having had a lot of discussions about how to deliver support to them. That was also a reason why Article 292 was removed.
What should Vietnam (government) consider when revising regulations for investors?
Typically, investors set up an enterprise with license for investment activities in Vietnam rather than establish a fund. This is because we do not have specific provisions in the law for VC funds, and it is often very costly and time-consuming to set up a fund in Vietnam.
There are also regulations for setting up investment funds under the Law on Investment. However, regulations for investment activities in startups should be more encouraging. For example, the financial income tax on making exits should be lowered, or the length of licence approval should be shortened.
In your view, how should Vietnam regulate startup visas?
Vietnam needs to attract overseas talent to help its startups grow. We are weak in new industries like data mining and artificial intelligence, therefore we’d better import those talent from abroad. But what needs to change is a longer term for business visa.
Talent import is important for any sectors, but it is critical to startups, because they need to have the speed and new skill set in development. I hope it would get easier for startups to hire foreign talent with easier visa formalities. Singapore and Israel are two typical models in visa liberalisation.
How about investments in 2016 so far?
There are a lot of encouraging signs in investment activities in 2016. Deal flow is getting better with increase in both bigger size (million USD) and smaller/angel investment transactions.
A few years ago, it was uncommon to see foreign investors coming to Vietnam to learn the scene several times in a month. That is what’s happening now.
Angel investment networks have been formed and have become quite active. And this is a very enthusiastic development.
It is not an easy job to raise a seed round of some hundred thousand dollars, because you would need some traction to do so. As most of Vietnamese startups are in the early stage, it is more positive to have angel investors to help grow their ideas.
In addition, more foreign accelerators have flocked to Vietnam to incubate and invest in local startups.
Do you think Vietnam needs more later stage or early stage investors?
There are dozens of later stage funds in the region for Vietnamese startups to reach to. I don’t think there is a lack of investors for the series B round onward for Vietnam. But we have not seen a lot of these deals happen in Vietnam simply because we do not have enough startups that have reached that level.
Most of the deals recently are in seed to series A stage. A lot of startups have gone through angel investment to even series B funding, but series C funding is very limited. So the problem is how ready a startup is for this stage.
It also depends on the maturity of the market. VNG Corporation (the country’s first to declare unicorn status) was established in 2004 and it took 10 years for Vietnam to see that one big startup. The startup ecosystem in Vietnam started just a couple of years back. That is not a long-enough time to have really big startups. Later stage funding is subject to the development of the entire ecosystem.
What is your vision for the next five years?
I think there will be more startups valued at $100 million onward within the next three years and promisingly some unicorns in five years. This is largely due to the improvement in legislation, more mature founders and increasing investment activities. Vietnamese startups have a strong tech background. A boost in terms of policy and business guidance as well as talent import will lead to robust growth.
Human resource is a key element in building startups. Attracting talent from overseas will help Vietnam build world-class products.
There will also be a closer tie between established firms and startups. Big companies in Vietnam have started to lend support for startups, because in turn, startups provide these companies with the tool to be more flexible and sustainable. The partnership, investment in or acquisition of startups are beneficial for corporates. As technology drives innovation, companies which stay out of the equation will lag behind.