Difficulties in getting capital hinders startup sector

Nguyen Manh Dung, director of CyberAgent in Vietnam and Thailand, said that 80% of the global investments went to Indonesia and Singapore. Some Vietnamese startups have successfully called for tens of millions of dollars, but no company has called for hundreds of millions of dollars.

In principle, the capital flows from big to small markets, from the US to Japan, China, India and then to Southeast Asia. Indonesia is the largest market in Southeast Asia with GDP 4.5 times higher than Vietnam’s, followed by Thailand.

Dung commented that other regional countries such as Indonesia, Malaysia and Thailand have better capital mobilization policies than Vietnam.

High risks, complicated procedures and sub-licenses, which take a long time to disburse for one deal, all make investors hesitate to inject money into Vietnamese startups.

“It takes one week to fulfill procedures and get disbursement in Singapore and one month in Thailand. In Vietnam, you will have to spend from eight months to one year on the procedures,” Dung said.

“PM Nguyen Xuan Phuc has instructed to remove 2,000 sub-licenses, but thousands of other sub-licenses still exist,” he said.

An e-commerce startup, for example, if calling for foreign capital, would have to ask for permission from the Ministry of Information and Communications, Ministry of Industry and Trade (MOIT) and the Ministry of Culture, Sports & Tourism. In the case of Grab and Uber, they have to ask for a license from MOIT as well.

Also according to Dung, the difficulties in getting investment capital back are another important reason that keeps foreign investors away from Vietnamese startups.

“Investors, or the owners, want to sell the product after several years to make profit. However, in Vietnam, it is difficult to divest.

Foreign investors would rather invest in Indonesia, Malaysia or Singapore than Vietnam because of the higher possibility of taking back the investment capital and making a profit.

Agreeing with Dung, Do Hoai Nam, co-founder of Up Co-working Space, said there are not many capital withdrawal choices for investors because the M&A system remains imperfect. 

Meanwhile, launching an IPO can be difficult. Only large, long-standing and successful companies have made IPOs recently, including VP Bank. Even the most successful technology startups dare not schedule an IPO. Selling companies to other investors is the main choice.

Foreign investors also complain that tax policies are not clear enough. They do not know what kinds of tax they must pay – capital transfer tax (20%) or securities trading tax (0.1%).