Vietnamese startups not enthused by stock exchange proposal

Vietnamese startups are far from enthused by the government’s proposal of setting up of a separate stock exchange for such enterprises.

The National Financial Supervisory Commission (NFSC) and the State Securities Commission had earlier this month said that they were planning to establish an equity trading platform for startups within the next couple of years, on the lines of the Korean New Exchange. In fact, a memorandum of understanding between the NFSC and the Korean Financial Service Commission has also been reached to this effect.

However, Vietnamese startups – whose average valuation has stayed below $10 million – are too small in size to meet the rigour and requirements of listing at this stage, according to a startup founder and angel investor, who requested anonymity.

A request for comments from State Securities Commission of Vietnam remained unanswered at the time of publishing this article.

Also read: Vietnam mulls setting up a stock exchange for startups

Local startups are not ready for such a big change, Chu Duc Hoang, founder-cum-CEO of healthcare app Zinmed, told Vietnamese language newswires VnExpress. “The valuation of startups is very difficult to execute, especially in a young market like Vietnam. It is hard to have a transparent stock exchange if the valuation is not clear,” he reportedly said.

In some series A investment rounds in Vietnamese startups, venture capital investors often pay $1 million to $2 million for a 20 per cent stake. The valuation of the companies at the seed stage is much lower. For example, the Vietnam Silicon Valley Accelerator invests $10,000-20,000 in exchange for 5 to 10 per cent in a startup.

Also read: Vietnam Silicon Valley, a tough name to live up to for the govt-backed accelerator

Besides, a majority of investment deals are undisclosed as startups in Vietnam prefer to be “off the grid”.

Apart from low startup valuations, what is also lacking in Vietnam is adequate number of accredited investors and enough interested buyers participating in the stock market.

Local angel investors are also urging the regulators to come out with norms for accredited investors as they prepare to launch a homegrown angel network.

Meanwhile, Cao Quy Vu Anh, CEO of Fundstart, a crowdfunding platform launched on May 30, opines that there is no need to build another new exchange. Instead, Vietnam should look at the possibility of customising current regulations to include startups that are large enough, into the existing stock exchange network, he suggested.

“We should not treat startups as different from the other existing businesses. Startup or SMEs share the same elements, the same market, and both try to gain the favor of their target segment,” he said.

Start with crowdfunding

Given the smaller capital requirements of Vietnamese startups, crowdfunding seems like a more viable channel of fundraising.

The crowdfunding model has been recently adopted in Vietnam with the launch of several platforms such as FIRSTSTEP, Betado and Fundstart.

While projects listed on FIRSTSTEP and Betado are mostly social and art projects, Fundstart has attracted three startup since its launch.

Crowdfunding activities have, globally, funneled $34 billion into startups, with the number going up from $2.7 billion in 2012.

In Vietnam, policy-makers are said to be studying the model to come up with a policy framework

Also read: Exclusive: Vietnam government mulls crowdfunding policy framework

The local understanding of crowdfunding has improved over time, said Vu Anh.

“If you have access to other investment sources such as venture capital or angel investors, go for it. It’s better to have one small group of investors than a few thousands. But if you lack such connection, have a crazily innovative idea and still want to push it to fruition, crowdfunding might be your best friend,” he told DEALSTREETASIA.

Young startups in Vietnam lack funding, or at least a means to access to funding, Vu Anh said.

Apart from access to finance, crowdfunding could also prove to be a test-pad for ideas from startups, he added.