Funding plays a decisive role in determining the success or failure of a startup. One of the most common barriers in entrepreneurial activities is the ability to raise capital. Although Vietnam’s legal system has established several policies to support startups in accessing funding, multiple challenges and constraints remain. Based on an analysis of the current fundraising situation of startups, this article proposes several effective funding solutions.
According to the Journal of Economics and Forecasting, Vietnam ranks third in Southeast Asia in terms of innovative startups. The country currently hosts around 3,800 startups, some of which have been valued at billions of USD, making significant contributions to the national economy.
Prominent sectors witnessing strong startup growth include EdTech, FinTech, and even traditional industries like tourism and real estate. The rapid expansion of startups raises higher demands for all stakeholders, especially regarding investment and capital mobilization.
Startups are newly established or early-stage businesses seeking scalable business models. They aim to grow quickly and expand across markets using technology as a competitive advantage.
Most startups are considered small and medium-sized enterprises (SMEs), but they possess unique traits:
- Innovation and Disruption: Startups are driven by breakthrough ideas. They aim to launch entirely new products/services or reinvent existing ones with novel approaches.
- Rapid Growth Potential: Startups are designed for exponential growth, typically achieving over 20% growth annually for three consecutive years.
- High Risk: Startups face risks due to untested business ideas, limited market presence, inadequate funding, and lack of managerial experience.
- Technological Element: Technology is central to most startups, allowing them to innovate and compete effectively.
- Lifecycle: Unlike typical SMEs, a startup’s journey begins at the idea stage. Only after successfully prototyping does it enter formal business registration.
The State of Startup Fundraising in Vietnam
Legal Policies Supporting Startup Fundraising
Vietnam’s national development agenda, as outlined in the 12th and 13th Party Congresses, emphasized the importance of building a favorable legal environment for innovation and digital transformation. On May 18, 2016, the Prime Minister approved Decision 844/QD-TTg, which launched the National Startup Ecosystem Support Program to 2025. In 2017, the National Assembly passed the Law on Support for SMEs, including key provisions to help startups raise capital.
Key Funding Sources for Startups
Startups can access capital from various sources:
- Government-backed credit or loan guarantees
- Budget allocations for startup support
- Legal contributions from domestic and foreign entities
- Incentives such as tax and fee exemptions
Several decrees were introduced to implement these frameworks:
- Decree 34/2018/ND-CP (Credit Guarantee Fund)
- Decree 38/2018/ND-CP (Investment in Innovative Startups)
- Decree 39/2018/ND-CP (Details of SME Law)
- Decree 39/2019/ND-CP (SME Development Fund)
- Decree 80/2021/ND-CP (Guidelines for SME Support Law)
Additional laws on science, technology, tech transfer, and investment also include provisions for startup capital mobilization.
Support Mechanisms for Capital Access
- Credit Guarantees: While there’s no separate provision for startup-specific guarantees, eligible startups under priority sectors can access these via feasible business plans or credit ratings.
- Interest Rate Support: Decree 80/2021/ND-CP allows startups to receive 2% annual interest subsidies for medium- and long-term loans from commercial banks.
- Direct Lending: Startups can borrow from the SME Development Fund for projects involving intellectual property, new technologies, or innovative business models.
- Public Investment: Provinces and cities may co-invest with startup funds, covering up to 30% of the capital raised. Investments must be divested within five years.
- Startup Investment Funds: These entities provide indirect support through favorable investment environments. Funds must be contributed in cash or valuable assets. Founders cannot use loans to form these funds.
Barriers to Capital Access for Startups
Despite the promotion of startup fundraising through improved legal policies, startups in Vietnam continue to face numerous obstacles.
Challenges in Accessing State Budget Capital
To access state-funded capital support policies, startups must navigate complicated administrative procedures involving multiple approval steps and extensive documentation. These requirements have hindered the formation and development of many startups.
Barriers to Accessing Credit Capital
Startups find it challenging to use their business models or ideas as collateral for bank loans, despite legal provisions allowing intellectual property, IT, scientific, and technological assets to be pledged. These include copyrights, industrial property rights, plant variety rights, and ownership or usage rights for scientific research results or technology transfer.
Limitations of Stock Market Fundraising
Accessing capital through public stock exchanges is difficult since most startups are small or medium-sized and not yet public companies. Therefore, they typically cannot meet the listing and public company requirements necessary for this fundraising avenue.
Regulatory Restrictions
Decree 38/2018/ND-CP stipulates that startup investment funds lack legal entity status and may only be formed by up to 30 investors. Furthermore, these funds cannot invest in other similar funds. This limits the ability to pool larger capital resources and hinders community-driven capital mobilization.
Absence of Venture and Angel Investment Frameworks
Currently, there are no specific legal frameworks for venture capital funds or angel investors. In addition, administrative regulations on investment, accounting, and foreign exchange management remain unfriendly to foreign venture capital investors looking to support Vietnamese startups.
Internal Challenges Among Startups
Apart from legal and systemic issues, startups face internal hurdles such as outdated technology, low-skilled labor, and—most critically—business plan feasibility, financial capability, and lack of collateral. Most Vietnamese startups are microenterprises or informal groups of individuals with creative ideas but limited capital and financial literacy. As a result, they often cannot meet the basic criteria for loans from credit institutions.
Initial capital access is already difficult; securing follow-up funding becomes even more challenging due to the need to demonstrate proper capital utilization and financial strength.
Newly formed startups also lack operational data, making it difficult to assess their financial capacity. The actual contributed capital of members or shareholders is often not reflected in financial statements relative to registered charter capital. Therefore, startups frequently rely on personal or family savings before seeking investment from interested funds.
The Role of Venture Capital and Early-Stage Investment
In 2023, the Office of the National Program 844 (under the Ministry of Science and Technology), in collaboration with Startup Vietnam Foundation, BambuUP, and the Institute for Sustainable Development Management, conducted a survey titled “The Current State and Development of Startups in Vietnam.” The data revealed that venture capital and early-stage investment are crucial for startup development.
According to the survey:
- 45.14% of startups are in the Pre-seed stage, focusing on preparation and idea development.
- 30.56% are in the Seed stage, reflecting a shift toward implementation of ideas and product creation.
- Only 17.36% of startups have reached Series A. The significant drop from Seed to Series A highlights the difficulty of scaling and securing growth-stage funding.
Strategic Recommendations for Unlocking Startup Capital
1. Establish a Unified Legal Framework
- Develop a comprehensive Startup Law or revise the 2017 SME Support Law to include dedicated chapters for innovative startups.
- In the interim, government ministries should issue clear guidance to facilitate fund creation, simplify investment procedures, and provide tax and convertible debt incentives.
2.Amend Related Legislation
- Revise laws such as the Law on Credit Institutions, Law on Management and Use of State Capital, Civil Code, and Law on Secured Transactions.
- Allow for credit scoring and recognition of intangible assets (e.g., software, patents, copyrights) as collateral.
- Permit greater risk tolerance and eliminate capital preservation requirements in startup investment funds.
3.Strengthen Startup Capabilities
- Encourage startups to improve their financial literacy, business planning, and project development.
- Proactively seek investment, understand lending processes, and prepare adequately to qualify for funding.
- Enhance internal governance to ensure efficient capital utilization and effective business operations.
Source: National Agency for Science and Technology Information and Statistics
