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Interview: Current Status of Vietnam Startup Ecosystem

Interview: Current Status of Vietnam Startup Ecosystem

“I do not expect Vietnam to have Bill Gates, Steve Jobs or Mark Zuckerberg because these people are exceptional. However, I believe it is possible for Vietnam to be home for leading startups in the region…”, said Mr. Trinh Minh Giang, Chairman of the Startup working group in Vietnam Private Sector Forum (VPSF).

Never has the phrase of “start-up” been mentioned as much as in recent times. The government leaders repeatedly affirm the role of start-ups in the development of our country, especially in the process of increased integration.

To become a startup nation, the “cradle” of entrepreneurs, what should Vietnam do to realize this goal? On the occasion of the Vietnam Entrepreneurs’ Day, BizLIVE E-Magazine had an interview with Mr. Trinh Minh Giang, CEO of Venture Management Consulting Group (VMCG), Chairman of the Startup working group in Vietnam Private Sector Forum (VPSF) on this issue.

Mr. Trinh Minh Giang - Chairman of the Startup working group in Vietnam Private Sector Forum (VPSF)
Mr. Trinh Minh Giang – Chairman of the Startup working group in Vietnam Private Sector Forum (VPSF)

Without proper legal framework, the opportunity of start-ups will be missed.

As a man who devoted to supporting startup projects, what do you think about the current policy mechanisms related to supporting start-ups?

As we all see in recent times, leaders from the government, ministries and localities paid great attention to supporting and developing startup community.

The Prime Minister and Deputy Prime Ministers repeatedly emphasized the key role of start-ups. Ministry of Planning and Investment as well as Ministry of Science and Technology, in the meantime, made great attempt to support start-ups.

The localities also took actions to support start-ups by establishing incubators. Leaders of People’s Committee of Hanoi held a direct discussion with startup entrepreneur and innovative startup community on the city’s policies, visions and support.

All these aforementioned truly help in inspiring and encouraging startup entrepreneurs. However, it remains true that policy mechanisms to support startup entrepreneurship are available, but not enough.

The National Assembly approved the Law on Support for Small- and Medium-sized Enterprises (SMEs), with a number of contents to support startup entrepreneurship. However, it is not until 2018 that there will be a guiding decree, which makes it possible for the policy support under the new law to take effect.

One of the contents that startup enterprises take an interest in is the regulation of the innovative startup fund which is essentially the venture capital fund. If decree is issued, there will be an official legal framework for the investment in innovative startup enterprises.

Currently, there is only a legal framework for the model of stock investment management companies. The legal framework for fund management companies investing in unlisted companies or innovative startups is not available. When the decree is issued, there will be a legal framework for the establishment of fund management companies.

We do not know yet how the policy works when it takes effect. But at least when there is a legal framework, we can define what an innovative start-up company is and what types of company can invest in these innovative startups.

Therefore, we expect that the guiding decree will come into effect on 1st January 2018. At the boom of startup entrepreneurship, if there is no legal framework, the opportunity for startups will be missed.

The second point I would like to highlight is a lack of policies to protect investors. In foreign countries, there are investment forms such as convertible loans and convertible bonds, which allow investors to lend money and convert it into shares when the time is right.

However, there are currently no specific guidelines in Vietnam for new startups to issue bonds or to issue such loans. Furthermore, there is also no mechanism to allow banks to support innovative startups.

There is another impediment to policy related to working spaces for startups. These working spaces currently have to operate under the mechanism of a real estate, which requires the legal capital of VND 20 billion (approx. USD 880,000).

Such a large amount of capital limits many working spaces to operate, which needs the review and support from the government.

THE NEED TO STIMULATE “ANGEL” INVESTMENT CULTURE

In addition to policy, are there any difficulties in raising funds for start-ups?

It is not easy to raise domestic funds for start-ups, given the fact that there are mainly foreign investment funds. In Vietnam, investment culture, especially “angel” investment (which is investment in the early stage of startups) is not available.

Currently, most businesses prefer self-funding or investing in their relatives or companies. Without the culture of “angel” investment, they feel risky and hesitate when investing in young companies such as startups.

Therefore, there should be a mechanism to ensure the safety for the investors. Without a legal framework to gather professional investment organizations, investors do not dare to invest. It is not only the culture issue but also related to assessment capacity. If you are not a professional investor, it is very difficult to assess the potential of a startup.

On the other hand, the role of investors in the early stage for startups is very important. Without this stage, it is very difficult for them to access larger sources of capital in the future.

Our mission is to develop a network of angel investors for start-ups in Vietnam. In order to do so, it is imperial to change the culture, or create the angel investment culture. There are many people who have money but do not invest because of the unavailability of investment culture and the lack of knowledge on innovative startups.

Capital is a critical issue for startups. So, do you think it is difficult to build the culture of “angel” investment?

I think it’s hard but not too hard. When I joined the startup ecosystem, I was just a mentor. But as a mentor, if there is a good project, the “appetite” for investment will arise. Therefore, the problem is how to attract entrepreneurs to become mentors. In order to do so, organizing startup networking events is very necessary.

We created a wave of entrepreneurship, and now we need to create a wave of investment. We are currently building a network of Vietnamese angel investors following the model of the US and some other countries.

THE HEAVY BURDEN OF BUSINESS COSTS

What do you think about the business environment in Vietnam today? Are there favorable conditions to develop startups?

There has been a change in the government’s perception of using social resources to formulate better policies. In the past, it is impossible that private businesses discuss policy with the Government and ministries, but now things are different. The role of private businesses is much more important. That is a very favorable condition.

Another advantage is that technology-related infrastructures are surpassing the unprecedented limits, for example, transmission, storage, data management, and the right to use the previous technology results.

Previously, it is very difficult for start-ups to the testing because of the lack of infrastructure. Now, at a fraction of the cost, everyone can use this infrastructure as well as the service system and artificial intelligence of large technology companies.

However, there is a problem mentioned a lot when it comes to the business environment of Vietnam today which is the burden of cost. According to the World Bank’s assessment, Vietnam’s tax rates are among the leading in the region. That is not to mention high transportation fees and banking interest rates.

It is hard to do business with such low margins. This is a difficulty for not just startups, but also for big companies. The policy is aimed at reducing costs for businesses, but there is still more to be done to support entrepreneurs to establish a company as well as to make a profit to reinvest.

Funding and policy support – Which one is more important when it comes to supporting a startup?

There are many points of view on this issue. Some believe that we should only assist startup supporting organizations. A few think that we should focus on the legal framework to develop startups. Others believe more money and capital are needed for startups. According to international experience, we should do all in a harmonious, balanced way.

The role of startups in each country is enormous. Without an innovative startup, it is unlikely that there will be sudden growth patterns.

Selling noodles and coffee is not considered as an innovative startup?

You did mention and clearly define innovative startup. There was the view that “selling phở and coffee is not considered as an innovative startup” do you agree?

Currently, there are two concepts; one is innovative startup while the other is traditional startup. Starting a business based on technology or a disruptive business growth model seems to be an innovative startup.

Traditional startup does not put much emphasis on disruptive growth. If you just establish some cafés and stick with them, then it is traditional startup. After a few years you set up a chain from a few to a dozen cafés, it can be come an innovative startup with a disruptive business model. Or if you develop a software or a platform that can be used multiple times by multiple users, then it is innovative startup.

You are very familiar with the startup ecosystem. In your point of view, what factors determine the success of a startup?

There are people who live in hardship so they try to rise up and start a successful business. Some are really good at technology so they can develop valuable softwares. For others, available capital as well as a business mind help them succeed, etc.. Generally speaking, the startup community is extremely diverse, but there is one thing in common among them, it is the persistence.

There is a theory of “10 thousand hours,” which means that you need 10,000 hours of practice to succeed. As for a famous singer, they must have sung a lot in bars and tearooms before.

I do not expect Vietnam to have Bill Gates, Steve Jobs or Mark Zuckerberg because these people are exceptional. However, I believe it is possible for Vietnam to be home of leading startups in the region. Vietnamese people are not inferior in terms of intelligence and are also trained in a challenging environment. So they can rise up to make a breakthrough.

Thank you for this conversation!

 

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