FOREIGN TRADE UNIVERSITY

FACULTY OF BUSINESS ADMINISTRATION

……. o0o……..

ACADEMIC REPORT

ACTUAL STATE OF AND RECOMMENDATION FOR THE

DEVELOPMENT OF VENTURE CAPITAL FUNDS IN
VIETNAM

Instructor : Dr. Tang Thi Thanh Thuy

Course : Financial Management

Class : KETE307(GD1-HK2-2223).1

Group : 10

Group members :
1. Nguyễn Thanh Hằng 2112250032
2. Trịnh Thị Tiểu Mai 2112250058
3. Trần Tố Quyên 2112250080
4. Dương Ngọc Diễm Thu 2112250090
5. Nguyễn Anh Thư 2113250046
6. Vũ Lê Ngọc Trâm 2112250099

Hanoi, March 2023

 TABLE OF CONTENTS
TABLE OF CONTENTS ..............................................................................................2

LIST OF FIGURES .......................................................................................................3

LIST OF TABLES .........................................................................................................3

INTRODUCTION .........................................................................................................4

CHAPTER 1: THEORETICAL OVERVIEW ...........................................................5

1.1. Definition of venture capital funds .................................................................5

1.2. Venture capital fund structure .......................................................................5

1.2.1. General Partners (GPs) ..........................................................................5

1.2.2. Limited Partners (LPs) ...........................................................................6

1.2.3. Invested companies .................................................................................6

1.3. Stages of venture capital financing .................................................................7

1.3.1. Stage 1: Seed Stage .................................................................................8

1.3.2. Stage 2: Startup Stage .............................................................................8

1.3.3. Stage 3: Early Stage ................................................................................8

1.3.4. Stage 4: Expansion Stage .......................................................................9

1.3.5. Stage 5: Mezzanine Stage .......................................................................9

CHAPTER 2: ACTUAL STATE OF VENTURE CAPITAL FUNDS IN

VIETNAM ....................................................................................................................10

2.1. Activities of venture capital funds in Vietnam ............................................10

2.1.1. The development process ......................................................................10

2.1.2. Some outstanding venture capital funds ..............................................14

2.2. Opportunities and challenges to develop in Vietnam .................................17

2.2.1. Opportunities .........................................................................................17

2.2.2. Challenges .............................................................................................19

CHAPTER 3: RECOMMENDATIONS ...................................................................21

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 3.1. Governmental supports....................................................................................21

3.2. Venture capital funds .......................................................................................21

3.3. International cooperations and partnerships ................................................24

CONCLUSION ............................................................................................................26

REFERENCES ............................................................................................................27

APPENDICES ..............................................................................................................30

LIST OF FIGURES
Figure 1: Venture Capital Fund Structure .................................................................6
Figure 2: Vietnam Tech Investment Report H1 2019 ..............................................11
Figure 3: Vietnam Tech Investment Report H1 2019 ..............................................12
Figure 4: Vietnam Innovation & Tech Investment Report 2021 ............................12
Figure 5: Vietnam Innovation & Tech Investment Report 2020 of DO Ventures 14
Figure 6: Investors Continued Flocking To Vietnam ..............................................19
Figure 7: Global Funding Monthly Averages By Half Year ...................................20

LIST OF TABLES
Table 1: The assessment of individual contribution.................................................30

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 INTRODUCTION
Venture capital industry have proven its necessity as an important source of funding for
start-ups and emerging businesses, motivation for innovation and one of the key
contributors to the sustainable economic growth, as they provide startups with the
necessary capital to develop products, scale up and expand their businesses, offer
expertise, resources, networks, and mentorship to help startups accumulate more
experience and turn their ideas into reality. In many countries, there is a close link
between the growth of the venture capital industry and the development of a vibrant
start-up ecosystem, which encourages entrepreneurship and innovation.

Vietnam, characterised by the rapidly growing economy, young, dynamic and tech-
savvy population and high internet accessibility, is providing a fertile ground for the
development of new businesses and industries to thrive, especially the innovative
startups in the technology sector. In recent years, the Vietnamese startup ecosystem
shows signs of promise and fast growth. Simultaneously, the emphasis on promoting
social entrepreneurship also requires the development of the venture capital industry as
an irreversible trend. In recent years. Vietnam’s government has shown active support
towards the development of venture capital funds, reflected in the improvement of legal
framework, tax incentives and the openness to the international investors. However, the
venture capital industry in Vietnam is still relatively young, the amount of venture
capital investment in Vietnam remains relatively low compared to other countries in the
region and requires more support and investment to fully reach its potential.

The aforementioned factors are the reasons why we choose the topic “Actual state and
solutions for the development of venture capital funds in Vietnam”. This report aims to
provide an overview about the current state of venture capital funds in Vietnam and
elaborate the opportunities and challenges that the venture capital industry in Vietnam
is facing before mentioning some suggestions for improvement.

We would like to express our gratitude to our lecturer for providing us with the
opportunity to explore this practical topic. The knowledge and insights gained from the
Financial Management course that you provide us have been valuable throughout the
preparation of this report.

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 CHAPTER 1: THEORETICAL OVERVIEW
1.1. Definition of venture capital funds
Venture capital (VC) funds are pooled investment funds that manage the money
of investors who seek private equity stakes in startups and small - to medium -
sized enterprises with strong growth potential. These investments are generally
characterized as very high-risk/high-return opportunities. In the past, venture
capital investments were only accessible to professional venture capitalists, but
now accredited investors have a greater ability to take part in venture capital
investments. Still, VC funds remain largely out of reach to ordinary investors.
Venture capital is a type of equity financing that gives entrepreneurial or other
small companies the ability to raise funding before they have begun operations
or started earning revenues or profits. Venture capital funds are private equity
investment vehicles that seek to invest in firms that have high-risk/high-return
profiles, based on a company's size, assets, and stage of product development.
Venture capital funds differ fundamentally from mutual funds and hedge funds
in that they focus on a very specific type of early-stage investment. All firms that
receive venture capital investments have high-growth potential, are risky, and
have a long investment horizon. Venture capital funds take a more active role in
their investments by providing guidance and often holding a board seat. VC funds
therefore play an active and hands-on role in the management and operations of
the companies in their portfolio.

1.2. Venture capital fund structure

1.2.1. General Partners (GPs)
Typically, the GP of a venture capital fund is a legal entity established and run
by people employed by the VC firm. In any limited partnership, the GP manages
the partnership.

As a result, the GP has unlimited liability for the partnership’s business

operations. In other words, the GP assumes full responsibility for any business
debts or legal liabilities.

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1.2.2. Limited Partners (LPs)
With a venture capital fund, an LP is the investor who supplies the capital. These
LPs can be individuals or legal entities. Often, LPs are institutional investors,
such as pension funds, college endowments, trusts, insurance companies, health
care systems, family offices, and sovereign wealth funds. Sometimes, venture
capital firms also make investments into outside venture funds as LPs.

Figure 1: Venture Capital Fund Structure

LPs have limited liability in the partnership because they don’t take part in
directing its business operations and remain passive investors. When a limited
partnership has debts or legal liabilities, the amount that LPs are responsible for
is typically limited to their investment stakes in the partnership, and does not
extend to their assets outside the partnership. (The GP, on the other hand, would
be on the hook for the full amount.)

1.2.3. Invested companies

There are the actual startups and investments that a venture fund is making. For
a startup to be deemed venture - worthy they generally have to operate in a large
market, have promising economics, and the ability to create a massive return for
their investors (and their LPs).

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 Venture capital investments are considered either seed capital, early-stage
capital, or expansion-stage financing depending on the maturity of the business
at the time of the investment. However, regardless of the investment stage, all
venture capital funds operate in much the same way.

Like all pooled investment funds, venture capital funds must raise money from
outside investors prior to making any investments of their own. A prospectus is
given to potential investors of the fund who then commit money to that fund. All
potential investors who make a commitment are called by the fund's operators
and individual investment amounts are finalized.

From there, the venture capital fund seeks private equity investments that have
the potential of generating large positive returns for its investors. This normally
means the fund's manager or managers review hundreds of business plans in
search of potentially high-growth companies. The fund managers make
investment decisions based on the prospectus' mandates and the expectations of
the fund's investors. After an investment is made, the fund charges an annual
management fee, usually around 2% of assets under management (AUM), but
some funds may not charge a fee except as a percentage of returns earned. The
management fees help pay for the salaries and expenses of the general partner.
Sometimes, fees for large funds may only be charged on invested capital or
decline after a certain number of years.

1.3. Stages of venture capital financing

Venture capital is one source of financing for startups and is an important source
of funding for startups that do not have access to other capital or the ability to
generate sufficient operating cash flows through revenue from launch. Venture
capital is offered with the expectation of generating a return on investment,
typically through an exit event such as an initial public offering (IPO) or
acquisition of the company. Smaller ventures sometimes will first rely on family
funding, loans from friends, personal bank loans, or crowd funding. Larger
projects or more experienced entrepreneurs may turn to “angel” investors or
venture capital companies that specialize in financing new ventures. There are
five common stages of venture capital financing:
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1.3.1. Stage 1: Seed Stage
The seed stage is when a startup approaches an angel investor or a venture capital
firm to seek funding for their idea or prototype. At this stage, the startup may
not have a commercially available product yet and is instead focused on
convincing the potential investors why their ideas are worthy of venture capital
support. The entrepreneur must convince the investors why the ultimate product
or service will be viable and successful in the market. The potential investor will
then investigate the technical aspects of the product or service, and the economic
feasibility of the idea. Seed-stage financing is usually modest in comparison to
later stage financing. An initial seed investment round made by a venture capital
firm typically ranges from $250,000 to $1 million. The financing may go
towards product development, market research, and/or building a management
team.

1.3.2. Stage 2: Startup Stage

If the idea or product appears to warrant further investigation or investment, the
new company will advance to the startup stage. Startups typically have a sample
product available at this stage but will need funding for further product
development. Additionally, a management team will be formed, and a business
plan prepared. The startup will also use funding to conduct initial market
research on the product. The venture capital firm wants to see results of market
research in order to determine whether the market size is big enough and if there
are enough consumers to buy the product. Investors also want to create a realistic
forecast of the investment needed to push the venture into the next stage. Venture
capital funding at this stage might also include spending money on acquiring
additional management personnel, fine-tuning the product, or conducting
additional research.

1.3.3. Stage 3: Early Stage

This stage is also known as the first stage or second stage capital. Though called
“first stage,” this stage usually only comes after the seed and startup stages. At
this stage, the product or service has been developed and is being sold in the
market. This is the first opportunity the investors have to see how the product

8
 fairs with its competitors in the market. Funding received at this stage will often
go towards manufacturing, sales and additional marketing. The amount invested
here can be significantly higher than prior stages. At this stage, the company
could also be moving toward profitability, depending on its share of the
marketplace. If the startup and its product can hold their own against the
competition, the venture capital firm will probably give a green light for the next
stage.

1.3.4. Stage 4: Expansion Stage

The fourth stage also called second stage or third stage capital. At this stage, the
startup should be growing, the product selling, and the company taking in
significant revenue. The goal of funding at this stage is to scale the business and
expand market share. The venture capital funding could be used to invest in
overseas manufacturing facilities, start a new marketing campaign, or take steps
to reduce production and other costs. The funding should help enable expansion
into additional markets, such as other cities or countries, and also increase
diversification and differentiation of product lines. The venture capital firm will
then evaluate if the management team has made the expected cost reductions and
how the startup fares against the competitors.

1.3.5. Stage 5: Mezzanine Stage

Bridge or pre-IPO stage are also the other names for the fifth stage. This is
commonly the last stage of the venture capital financing process. The primary
goal of this stage is for the startup to go public so that investors can exit the
venture and make a profit. Funds received at this stage are generally used for
activities such as merging with or acquiring other companies, taking measures to
eliminate competitors or keep new competitors from the market, or financing the
steps involved with an IPO.

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 CHAPTER 2: ACTUAL STATE OF VENTURE CAPITAL
FUNDS IN VIETNAM
2.1. Activities of venture capital funds in Vietnam
2.1.1. The development process
The late 1990s witnessed the seed stage of the venture capital industry in Vietnam
in response to the demand for investment of startup companies, as the
accessibility to bank loans posed numerous obstacles and many small enterprises
having insufficient assets faced difficulties securing loans. However, in this
period, searching for sources of capital was a challenging task for startups due to
the private investment sector being relatively new and not clearly regulated by
laws.

The early stage started in the 2000s, when the market-based economy model
began to be widely adopted and implemented in Vietnam, accelerating the
development of venture capital industry to facilitate the increasing capital needs
of startups. Mekong Capital, IDG Ventures Vietnam, VIISA and other
representative names took shape and invested in a diverse range of fields, namely
real estate, consumer goods, technology, services and other areas. It is also
notable that the Vietnamese government began to consider promoting venture
capital funds as an indicator of long-term economic growth and developed
policies to encourage their establishment, regulate venture capital activities and
created government-backed funds to boost entrepreneurship. The government’s
support was one of the prominent reasons why this period saw the substantial
increases in the number of venture capital funds and the foreign funds entering
the Vietnamese market, albeit with numerous limitations that investing in startups
in Vietnam had to face due to lack of experience. Starting from the mid-2000s,
the Vietnamese venture capital market began to gain momentum, driven by a
growing interest in technology startups and the increasing availability of funds.
However, this boom was followed by a slowdown in the late 2000s due to the
global financial crisis, the lack of clear regulations for venture capital activities,
the immaturity of the startup ecosystem, the lack of exits for investors and other
factors. The business environment also had disadvantageous factors such as
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discrimination against the private economic sector, inadequate legal framework
for venture capital and intellectual property protection and other factors.

In the growth stage, which began in the early 2010s to present, venture capital
funds in Vietnam have continued to experience strong growth. Along with the
significantly rising number of startups (as of 2019, Vietnam had about 3,000
innovative startup companies according to the Ministry of Science and
Technology), venture capital funds are also expanding in terms of both quantity
and quality with the increasing participation of new entrants and domestic
investors.

Figure 2: Vietnam Tech Investment Report H1 2019

According to Cento Ventures, the amount of invested capital and the number of
technology deals done have grown six-fold from the first half of 2017 to 2019,
and in 2019, venture capital investments of the Technology sector in Vietnam
reached million before jumping to a new peak of $1.442 million in 2021. The
report also revealed that the number of venture capital firms investing in Vietnam
increased from 16 in 2013 to 88 in 2019. Additionally, there has been a rise in
the number of angel investors and crowdfunding platforms, which has further
fueled the growth of the startup ecosystem.

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 Figure 3: Vietnam Tech Investment Report H1 2019

Figure 4: Vietnam Innovation & Tech Investment Report 2021

One of the incentives behind this surge was the Vietnamese government’s
support to encourage the social startup ecosystem, especially the innovative ones,
and to promote the venture capital market, including tax incentives, preferential
loans, and the implementation of a legal framework, has opened up more
opportunities for private investment activities to attract investment capital from
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both domestic and international investors. For example, in 2013, the government
introduced the Law on Investment, which allowed the establishment of venture
capital funds with legal status. This law provided a legal framework for the
operation of venture capital funds and facilitated the entry of more investors into
the Vietnamese market. The project "Supporting the national innovative startup
ecosystem until 2025" also emphasized the importance of building a sustainable
venture capital market as a foundation to promote the application of innovative
technology in enterprises in particular, and the growth of the overall economy in
general. In addition, the Investment Law and the Enterprise Law (2016), have
been more transparent and open to international investors in terms of market
entry, investment procedures, forms of investment and investment incentives and
dispute resolution. In 2018, the government issued Decree 38/2018/ND-CP –
Innovative Startup Investments, which provided guidelines for the investment
and management of venture capital funds in Vietnam. The government also
launched the National Innovation Center (NIC) in 2019 to support research and
development and attract foreign investment, connect startups with investors and
industry partners to facilitate collaboration and growth. In 2022, NIC’s
contribution included proposing new policies to support innovation activities
(Resolution 38/2018/ND-CP on venture capital funds). In addition, the
continuous technology advances and the emergence of new economic sectors are
also remarkable contributors.

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 Figure 5: Vietnam Innovation & Tech Investment Report 2020 of DO Ventures
On the other hand, there are still notable challenges that venture capital funds in
Vietnam are facing, including limited expertise and human resources, the lack of
angel investors and crowdfunding activities, the difficulties in finding and
evaluating potential startups, as well as the fierce competition from other
opponents. However, while the industry is still relatively young and currently
records a rapid growth, there is still room for improvement, growth and maturity.

2.1.2. Some outstanding venture capital funds

2.1.2.1. Mekong Capital
Since the inception in 2001, Mekong Capital has been one of the largest private
equity firms that specializes in consumer-driven businesses across various
sectors, including retail, consumer goods, healthcare, financial services and other
fields. They are also the pioneers in implementing the Ontological approach to
private equity (a self-based and situation-based methodology where the business
operates in the realm of being and the knowledge roles as “a map, not the
territory”). The Vision Driven Investing model Mekong Capital developed from
2009 also originated from this Ontological philosophy. Throughout their
development process, their investment portfolio records numerous notable cases,
involving Mobile World, one of the market leaders in Vietnamese mobile phone

14
 sector; Pharmacity, one of the first cutting-edge retail pharmacy chains in
Vietnam and other outstanding names.

In 2007, Mekong Capital first invested 3.5 million dollars in Mobile World. In
2018, Mekong Capital reported that after 10 years and a half, MEF II's investment
achieved a return on investment (ROI) of 57 times and an internal rate of return
(IRR) of 61.1% on a cumulative basis, becoming one of the most successful
investments in the history of private equity investing in Asia. Mekong Capital
helped Mobile World to improve its supply chain, logistics, inventory
management and expand its store network, develop new products and services
such as its grocery store chain and online marketplace. During the time of IPO,
Mobile World had added over 200 retail outlets, a remarkable growth from a
modest 5 in 2006.

2.1.2.2. IDG Ventures Vietnam

Established in 2004, IDG Ventures Vietnam (IDGVV) is the first technology
venture capital firm in Vietnam as well as a founding member of the Vietnam
Private Equity and Venture Capital Association (VPEA). IDGVV aims to provide
not only funding but also strategic guidance and operational support to its
portfolio companies to help them achieve their full potential. They have invested
in more than 40 companies across various sectors, including digital media,
technology, software and telecom. Some of the notable companies in IDGVV's
portfolio include VNG Corporation, Tiki.vn, and Yeah1 Network.

One of the outstanding investment cases of IDG Ventures Vietnam is its

investment in VNG Corporation, one of the leading digital content and online
gaming companies in Vietnam. IDG Ventures Vietnam first invested in VNG in
2007 and continued to support the company through multiple rounds of funding.
VNG Corporation has since grown to become a major player in the Vietnamese
technology market, with a range of popular digital content and online gaming
products, including Zing (a social media and entertainment platform that used to
attract millions of active users in Vietnam), CrossFire (one of the most successful
first-person shooter games in Asia). IDG Ventures Vietnam's investment in VNG
has been highly successful with the company achieving strong development and
15
 profitability. In 2014, VNG Corporation became the first Vietnamese tech
company to list on the NASDAQ stock exchange, with a valuation of over $1
billion.

2.1.2.3. 500 Startups Vietnam

500 Startups Vietnam (500 Global) is a venture capital firm and startup
accelerator that prioritizes seed-stage investments in Vietnam's emerging startup
ecosystem, especially the promising Vietnam-connected startups with an
emphasis on technology companies. Their investment philosophy targets
companies characterised by a strong team with complementary skills, a clear and
differentiated business model, and a large addressable market. Since its launch in
2010, 500 Startups Vietnam has invested in more than 40 Vietnamese startups
particularly in the areas of e-commerce, fintech, healthcare and edtech with some
notable names, including Tiki, one of the leading e-commerce platforms in
Vietnam, and Appota, a mobile content platform.

One of the outstanding investment cases of 500 Startups Vietnam is Tiki, one of
Vietnam's largest e-commerce platforms offering a wide range of products and
services, including books, electronics, fashion, beauty products, and others. The
company raised $54 million in its Series C funding round in 2017, which was led
by JD.com and participated by VNG Corporation and CyberAgent Ventures.
With the help of this funding, Tiki expanded its operations and improved its
services, logistics and delivery capabilities, continued to grow and expand its
market share in Vietnam's highly competitive e-commerce space.

2.1.2.4. VinaCapital Ventures:

Founded in 2018, VinaCapital Ventures is a subsidiary of VinaCapital, one of the
leading investment management and real estate development firms in Vietnam.
They show a strong focus on early-stage investments in Vietnam's technology
sector, with a highlight on businesses with high growth potential to become
market leaders in their respective fields. They prioritize companies that have a
strong team, a proven product or service and a scalable business model. The fund
has invested in a range of startups in sectors such as e-commerce, fintech, and
software. Their investment portfolio involves some outstanding names: Tiki (the
16
 Vietnamese e-commerce platform), Smartly (the Singapore fintech startup) , and
the Vietnamese software enterprise Base.vn.

One notable case that VinaCapital Ventures invested is Base.vn in 2019 as part
of the company's Series A funding round. Founded in 2016, Base.vn is a
Vietnamese enterprise software company that offers cloud-based solutions for
HR management, accounting, and customer relationship management and has
become one of the leading enterprise software providers in Vietnam. With
VinaCapital Ventures' investment, Base.vn was able to expand its operations and
product offerings. The company has since launched new solutions, such as its
BasePay platform, which provides online payment and transaction management
services to businesses. Base.vn has also expanded its customer base to include a
diverse range of industries, including manufacturing, hospitality, and logistics.

Besides the aforementioned successful investment cases for venture capital funds
in Vietnam, there have also been some notable failures. Vatgia.com was an e-
commerce platform that aimed to connect buyers and sellers in Vietnam and
received a significant amount of funds from various investors, including
CyberAgent Ventures, IDG Ventures Vietnam, and SoftBank Ventures Asia.
However, with the exponential growth of strong competitors (Shopee, Tiki,
Lazada), Vatgia failed to gain traction in the competitive e-commerce market in
Vietnam.

To conclude, the above-mentioned names have had significant achievements by

pursuing different investment philosophies and targeting different models. Their
growth has contributed to the growth of the Vietnamese startup ecosystem, and
helped to establish Vietnam as a hub for innovative entrepreneurship in Southeast
Asia.

2.2. Opportunities and challenges to develop in Vietnam

2.2.1. Opportunities
It is undeniable that the form of investment through venture capital is becoming
more and more popular in Vietnam these days. In fact, the main sources of
funding for startups in Vietnam mostly come from securities investment funds,

17
individual investors, non-governmental organizations, as well as venture capital
funds. According to Topica Founder Institute, from 2016 to 2018, the amount of
venture capital and foreign capital invested in innovative start-up companies in
Vietnam increased by more than three times, from $205 million to nearly $900
million. The number of business affairs in this time period nearly doubled, from
50 deals in 2016 to 92 deals in 2018. Another source from the Journal of Echelon
- Singapore, Vietnam now has approximately 3,000 innovative startups, nearly
double the estimated figure of 1,800 businesses at the end of 2015. This also
means a positive impact on the venture capital market in Vietnam.

Considering the global context, the development of science, technology, and

innovation as well as the Fourth Industrial Revolution act as a motivator for the
increasing number of startups in Vietnam. Witnessing a rise in the number of
startups, the government sees this trend as an opportunity to boost the country’s
economy and starts to bring out policies, regulations, incentives, etc. to support
and encourage startups. This course of action has been reflected in the Global
Innovation Index (GII), from the 32nd rank out of 141 countries in 2015, Vietnam
has made it to the 44th rank out of 132 countries in 2021, holding the 1st rank in
the group of 29 countries with the same income level.

For foreign venture investors, Vietnam is a promising market as it is among the

most populous countries in the world with a market of 100 million people
considered as golden population. The rate of purchasing power, the ability to
absorb and welcome new products, especially technology, is higher than in other
countries. The Vietnam market, with the potential of the young market and the
level of information receptivity, will meet the investors’ demand. Moreover,
globalization and international economic integration can also be counted as
positive factors in the development of capital funding in Vietnam. These trends
help Vietnam approach global standards and make partnerships with other
countries. According to Vietnam Innovation & Tech Investment Report 2021 by
DO Ventures, the number of foreign investors continued flocking to Vietnam for
many years, with Singapore being the most active investor.

18
 As a result, there is no doubt that venture capital funding is growing day by day
as startups need to raise capital for their business activities.

Figure 6: Investors Continued Flocking To Vietnam

2.2.2. Challenges
The development of venture capital funding in Vietnam also faces some
challenges in its growth. These include the lack of legal corridors, the lack of
angel investors, etc. Legal corridors or policies in favor of venture capital funds
need improving in the future. The current procedures to establish member funds
were rapid but the law still lacked specific regulations on definition, policy
orientation, or preferential conditions for venture fund operation.

Another challenge, according to experts, is that the majority of domestic

corporations have never invested in a venture capital fund model before. For
them, this type of investment model is quite risky compared to investing in
stocks, bonds, or real estate. Understandably, 97-98 startups out of 100 fail to
continue their business activities. To explain the number, domestic companies
often face difficulties in accessing such venture capital due to the lack of
innovative business ideas, and weak business and financial management skills
19
which fail to attract venture capital. It is undoubtedly that most investors are still
skeptical and won’t pour their capital into it. Not only domestic venture
capitalists but the number of foreign venture investors is also decreasing. Due to
language barriers, there are many startups that are actually doing well in their
business but their founders do not know how to persuade the foreign venture
capitalists, leading these investors to question their potential and refuse to risk
their money.

Consequently, there is a huge gap between the demand and supply for venture
capital in Vietnam as the number of new enterprises continues to increase while
the amount of capital raised is very limited. The smaller the size of the Vietnam
capital market is, the less attractive it appears to big investors, including domestic
and foreign individuals. Evidently, the number of foreign investors pulling out of
Vietnam is decreasing; therefore, the amount of capital raised is also dropping.

Additionally, there has been a shift in the global capital flow. According to
Crunchbase News, in the first half of 2021, global venture capital funding broke
its previous record as more than $288 billion was invested worldwide, which
means approximately $50 billion was invested monthly. But in a recent analysis
also by Crunchbase News, total global venture capital in November 2022 was
$22 billion, down by $70 billion compared to November 2021. This is the lowest
funding month-on-month record since February 2020, which saw $18.3 billion
invested.

Figure 7: Global Funding Monthly Averages By Half Year

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 CHAPTER 3: RECOMMENDATIONS
3.1. Governmental supports
First, the overall regulatory framework for venture capital should be
promulgated. Due to the lack of a legal framework, the investors cannot have
many incentives in investing in this new kind of market. Thus, the Government
needs to make a set of legal reforms not only in the venture capital market but
also in a number of areas, such as Finance and Banking, Tax, Infrastructure,
Intellectual Property and Dispute Resolution... Furthermore, the Law had better
distinguished the concept “venture capital” and “private equity”. Based on that,
the promotion policies for those markets can work effectively. Most importantly,
the definition of “Innovative SMEs” should be explained in detail, which is the
critical point to make other incentives more effective.

Second, government should promote more Vietnamese Venture Capital funds

instead of overseas venture capital investment in domestic companies. To
promote this establishment, local Venture Capital tax rates need to be
competitive. However, until now, there is no explicit guidance on specific tax
incentives and separate accounting systems of a Venture Capital Fund. Thus, on
the investor tax incentive side, first, it needs to offer a discounted tax rate to
Venture Capital funds domiciled in Vietnam of zero (tax exempt for 5 years) to
10% (make Venture Capital a strategic industry). In addition, a tax deduction for
Venture Capitalists is also recommended. The overall risk of their investment in
the early-stage would be lowered through their tax payment savings. The tax
deduction for Venture Capital investors could be piloted for five years.
Depending upon its ability to increase the amount of capital available to domestic
Venture Capital funds it could then be discontinued or extended for another set
period of time.

3.2. Venture capital funds

In addition to government support, venture capital funds also need several
measures to attract capital, build strong ecosystems and have appropriate
investment policies.

First, venture capital funds need to have measures to attract investment capital.
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Venture capital funds in Vietnam are often established in the form of joint stock
companies or limited liability companies with a few shareholders, in order to
unify goals and make decisions more easily. The capital of these funds can come
from many sources, such as the state budget, individuals, large corporations,
brands, public investment funds or other financial institutions, etc.

Besides the state budget, in order to encourage stakeholders to increase their

investment and funding for venture capital funds, funds need to enable and
promote different mechanisms from which stakeholders can learn, exchange and
share information with each other. One of the most important measures is that
funds need to actively open up information channels and be financially
transparent. Businesses are not open to funds in general and venture capital funds
in particular if they do not have broad access to information about these funds.
Up to now, most businesses are still operating in the absence of information in
all areas. They have to rely on commercial intermediaries to get market
information and pay very high fees for information services. To improve this
situation and to respond to the requirements of the global information age, it is
necessary to expand information channels so that businesses can get the
necessary information. This also means opening of information channels to all
audiences equally, not just for one object at all.

Second, venture capital funds need to build a strong ecosystem.

With the current speed of scientific and technical development, there is no

shortage of innovative, high-tech and potential products. The important thing is
how it is introduced and connected with investors. Therefore, venture capital
funds should create networks and opportunities for startups to connect with
investors through organizing networking seminars, establishing groups to share
information, organizing innovation and start-up competitions, etc. Not only will
this help funds to find potential projects, but also inspire and exchange
experiences with young people who want to start a business, thereby promoting
the growing startup community. In addition, funds can also search for potential
businesses or projects through cooperation with channels such as high-tech parks,
business incubators, universities, research institutes, business associations, etc.
22
Besides the financial support, funds can also provide non-financial support such
as helping businesses to improve their management systems and business models,
providing mentorships and consultants, building brand reputation, researching
the market, giving professional training for startups and other investors, etc.
Since then, funds can both enhance their influence and bring more value to the
society.

Third, venture capital funds need to evaluate and select projects carefully based
on specific financial indicators and criteria.

The performance of venture capital funds depends on the success of their

investment projects. A good project will bring high returns to businesses, venture
capitalists and fund managers. Therefore, choosing a good project or a potential
business plays a very important role. Once a number of potential projects or
businesses have been discovered, venture capital fund managers need to base on
certain criteria to decide on the selection of suitable and effective investment
projects. Therefore, it is necessary to carefully consider the financial indicators
of businesses and develop appropriate evaluation criteria such as: being reputable
in the market, having a clear idea about the product, having a clear business plan
and transparent financial statements, having an effective business management
team, etc.

Fourth, venture capital funds should fund in stages and directly participate in the
development of the business.

After the project evaluation process is completed and an investment decision is

reached, venture capital funds should not sponsor a project or business once as
the whole, but instead, divide it into several rounds. In the first stage, funds
should finance a part, then if the investment is found to bring the results as
intended or committed, the funds will continue to invest in the next stage.

In order to limit risks, venture capital funds need to control the business receiving
the funding by directly participating in the management of the business in the
whole process and assisting in making business development decisions.

23
 Simultaneously, through the shares they own, venture capital funds can monitor
the investments and cash flow of the business.

3.3. International cooperations and partnerships

With Vietnam’s current economy, the development of the venture capital market
in general and the venture capital fund models in particular is necessary to
realizing the cause of industrialization and modernization of the land. Country in
the context that the Vietnamese economy, especially the private sector, requires
huge capital. However, capital supply in Vietnam is still limited, the size of the
capital market is small compared to the region. There is a large gap between the
supply and demand for venture capital in Vietnam, necessitating the formation
and development of the venture capital market, as well as mechanisms and
policies that contribute to the development of venture capital firms. Therefore,
attracting overseas venture capital funds to invest in Vietnam is critical.

According to Bain & Company’s recent survey, nearly 90 percent of investors

said the hottest Southeast Asian market outside of Singapore in 2018-2019 is
Vietnam and Indonesia. With this advantageous situation, Vietnam needs more
strategic policies to develop venture capital funds significantly. In which,
international cooperation and partnerships can play a crucial role in attracting
foreign venture capital investment to the country. Here are some potential
initiatives that could be undertaken to promote such partnerships:

First, strengthening relationships with foreign venture capital firms: Private

sector players and government organizations in a country seeking foreign venture
capital investment should pay attention to developing and strengthening the
relationships with foreign venture capital firms. This could involve attending
industry conferences and meetups, and partnering with local organizations that
work with venture capital firms, organizing meetings and events to connect with
these firms and highlight the country's startup ecosystem.

Second, promoting the establishment of international venture capital funds:

International venture capital funds could be established to invest in startups in
the country seeking foreign venture capital investment. Such funds, which could

24
be led by a mix of local and international players, could provide valuable funding
and assistance to startups as they grow.

Third, creating startup exchange programs: Startup exchange programs could be

established to encourage cross-border collaboration between startups and
investors. These programs could provide startups with opportunities to learn from
international investors and gain exposure to new markets, while also enabling
investors to gain access to promising startups in the country seeking foreign
venture capital investment.

Fourth, increasing access to information to promote the country's image:

Vietnam can provide more information about the startup ecosystem to foreign
venture capital firms. This can include information about the types of startups
that are most successful in Vietnam, the regulatory landscape, and any cultural
nuances that could impact doing business in the country. Vietnam can also
highlight its vibrant startup ecosystem, showcasing its talented entrepreneurs and
the innovative ideas they're working on. This can include hosting startup events
and hackathons, and creating a network of incubators and accelerators. Private
sector players and government organizations in the country seeking foreign
venture capital investment could collaborate to promote the country's strengths
and opportunities to potential investors. This could include emphasizing the
country's favorable economic conditions, supportive regulatory environment, and
skilled workforce.

Lastly, facilitating partnerships between startups and multinational corporations:

Multinational corporations could be encouraged to partner with startups in
Vietnam, which are seeking foreign venture capital investment. Particularly, one
of the major challenges facing the startup community in Vietnam is the lack of
funding; therefore, partnerships could provide startups with access to valuable
resources and expertise, while also enabling multinational corporations to gain
access to new technologies and business models.

25
 CONCLUSION
Through the report, it has clarified the characteristics and operation mechanism of the
venture capital fund model, as well as the influence of the venture capital fund model in
Vietnam. The report synthesizes the experience of developing venture capital funds
while also proposing some measures to encourage the creation of a venture capital
development environment in Vietnam.

Overview of countries around the world, it is clear that the venture capital industry in
general, and venture capital in particular, has affirmed its role and position in the
development of the economy. Investment recovery manifests itself differently in each
country, depending on the characteristics of the political, economic, and legal
environments, among other things. Although the formation and development of venture
capital funds in Vietnam is no exception to that general rule, we also cannot apply
foreign experiences mechanically, but we must have considerations and choices to suit
the specific and general situation of Vietnam. In order for this type of investment to
bring into full play the priority given to the financial market, to the process of scientific
and technological innovation and above all to the national economy, our enterprises and
the State need to have truthfully determined great effort. First of all, is the formation of
the initial legal framework for this type, then research and promulgate policies to
encourage venture investment to develop. Vietnamese businesses also need a change in
management structure, company size to be suitable and especially to nurture business
ideas to create attraction for venture capitalists. Venture capitalists also oppose the
requirement of taking a long time and making great efforts of the Government and
businesses to match the development of the economy.

26
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 APPENDICES
Table 1: The assessment of individual contribution
NO. FULL NAME STUDENT ID CONTRIBUTION
1 Nguyễn Thanh Hằng 2112250032 16.66%
2 Trịnh Thị Tiểu Mai 2112250058 16.66%
3 Trần Tố Quyên 2112250080 16.66%
4 Dương Ngọc Diễm Thu 2112250090 16.66%
5 Nguyễn Anh Thư 2113250046 16.66%
6 Vũ Lê Ngọc Trâm 2112250099 16.66%

30