The draft, which is now being raised for public comments, would regulate the establishment, management and operation of venture capital funds for start-ups in Vietnam.
The draft circular said that venture capital into start-ups was defined by investors contributing funds in a start-up or by buying stakes to launch the business or increasing equity when the business had not earned a pre-tax profit.
It would take only three days to launch a venture capital fund in Vietnam, according to the draft circular.
In addition, the operation of a venture capital fund would not apply regulations on the equity investment fund. A venture capital fund could raise additional capital from existing members or new members but would not be allowed to borrow money for investments.
The draft circular was raised amidst conditions that the wave of start-ups in Vietnam were in their infancy with several successful examples which managed to raise money from foreign venture capitalists. However, a majority of Vietnamese start-ups were still struggling to find funding.
The draft would trigger a wave of venture capital funds, especially from the private sector, in start-ups, according to the ministry’s Agency for Enterprise Development (AED).
The AED said that while success stories of Apple, Facebook and Uber were proving that start-ups were changing the world and creating huge economic values, Vietnam saw start-up as a new driver for growth which relied on innovations rather than by undermining natural resources, labour and capital.
“Capital is a pre-requisite for the success of any start-up business,” the AED said, and added that raising capital for start-ups was critical, while borrowing money from banks was an impossibility for start-ups which had not earned profits.
However, the AED said that the presence of venture capital funds was modest in the country. Foreign funds like CyberAgent, 500 Startups, and Golden Gate Ventures had just opened offices in Vietnam while local banks were not interested in funding small projects and start-ups.
FPT Venture appeared the most active among domestic funds in investing in start-ups, providing funding for some 10 start-ups each year.
“The demand for capital to launch a start-up is still large,” the AED said.
According to the AED, Vietnamese start-up companies mainly got funding from angel investors who invested in the early stage of a business start-up, often with a sum of between US$5,000 and US$50,000 in exchange for equity ownership interest following the laws on Enterprise and Investment.
Facts showed that many angel investors wanted to start a fund for start-ups but the requirements for the foundation of an investment fund following the Law on Securities were very strict. In addition, an equity investment fund and venture capital fund were different, the AED said. The former invested in firms with revenues, profits or those listed on the stock exchange, while the latter provided seed funding in the early-stage of start-up firms with perceived long-term growth potential.
So, the securities law could not be applied to venture capital, the AED said.
“It is necessary to develop a legal framework for venture capitalists to promote funding for start-ups that did not have access to capital markets,” the AED said.
At a conference on improving national competitiveness, Nguyen Quoc Toan, Deputy Head of the Party Central Committee’s Economic Commission, said that funds for start-up businesses should be developed to promote innovations and help develop a start-up nation.
Deputy Prime Minister Vu Duc Dam said at the National Start-Up workshop held on March 30 that the Vietnamese Government was willing to invest and join hands with private investors to support the national start-up community.