Spurring more funds into startups

November 02, 2017 | 08:00
Industry insiders are scrutinising a Ministry of Planning and Investment draft to the decree regulating investment into innovative startups that has recently been publicised to elicit comments from the public.
On the verge of an exciting new investment fund sector, investors and startups alike are questioning the rules, Photo: Dung Minh

According to Truong Ly Hoang Phi, director of the Ho Chi Minh City Business Startup Support Centre, the decree has recognised the difference between innovative startup investment funds and securities investment funds, so new regulations could help inspire reform and an innovative spirit.

As of now, regulations only exist on the operation of securities investment funds based on the Law on Securities Business, paired with stringent associated mandates such as the one requiring that each public securities investment fund has to have at least 100 investors and a total value of sold fund certificates above the VND50 billion ($2.2 million) threshold.

Some investors have already established firms that invest in innovative startups. But the regulations covering investment into startups are still not in place.

Meanwhile, financial investments such as securities and investment into micro-financial institutions as well as non-bank financial institutions are specified as conditional business fields entitled to specific licensing procedures.

“Capital is being put into innovative startups by investors, but in different forms as the investors are keen on this kind of investment. If legalised, investment into innovative startups will become a new investment trend luring new investment sources,” Phi said.

Do Tu Anh, deputy director of the Supporting Centre for Youth Startups (part of the Vietnam Youth Union), said, “Investment into innovative startups must be taken as adventurous investment, with the possibility for failure bigger than that for success, so investors need to be secure in the legal aspects.”

Representing the draft decree’s compiling board, Bui Thu Thuy, deputy director of the Ministry of Planning and Investment’s Business Development Department, said, “Investment into innovative startups does exist. Our principle in penning the decree is not to hinder what is doing well. Instead, we find it necessary to push up new capital sources. But to the compiling board, this is a new issue.”

In a recent workshop seeking comments to the draft decree regulating investment into innovative startups, Thuy had listed a series of issues in need of further consultation.

For instance, the compiling board is considering whether or not there should be a regulation that innovative startup funds must only carry out innovative investments, or they can diversify their holdings to include other forms of investment.

Another question on the table is the quantity of startups that an innovative startup fund can manage. Can they invest in multiple or just one company?

Cao Dang Vinh, an expert from the Ministry of Justice, thinks the regulations should carry an ‘open spirit’. “As this is a new investment form, we need to stimulate investor engagement. Adjustments may come later when new issues arise in practice,” Vinh said.

He also added that one should neither limit operational scope of innovative investment firms nor put a cap on the number of funds under management of innovative startup fund management companies.

Huynh Kim Tuoc, director of Saigon Innovation Hub, stressed the authenticity of innovative startup investment.

“In fact, innovative startup projects do not want big investment from funds to preserve their startup nature. Most negotiated investments stand below 20 per cent of firms’ chartered capital only,” Tuoc said. “It is now more essential to have in place a regulatory framework helping to open the door to innovative investment. The practice will answer how to troubleshoot the remaining issues.”

By By Khanh An

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