Should the Vietnamese government invest in start-ups?

By July 20, 2016 | 02:13 am PT

A target of one million startups by 2020 is going to need some serious funding.

Vietnam recently launched an ambitious plan to transform the country from an offshore manufacturing hub for foreign companies into a major player in the global digital economy.

In doing so, the government has adjusted business policies to pivot around small and medium-sized companies and encouraged the start-up boom.

There is no question that one of the challenges facing start-ups is to find the capital they need to get their ideas off the ground.

There have been mixed opinions about whether or not the Vietnamese government should turn itself into a venture capitalist to support early-stage start-ups.

Some experts don’t think that putting the government in charge of deciding which business ideas get funding and which don’t is a good idea.

The Becamex Technology Innovation Center (TIC) in Binh Duong Province, just north of the country’s commercial hub Ho Chi Minh City, was launched in 2012.

The center was expected to become a startup incubation center for 2025 entrepreneurs.

State-run Becamex IDC Corp. which is a provincial investment and development enterprise patterned on Singapore’s Temasek Holdings and one of Vietnam’s leading industrial park developers with a strong footprint in the southern province of Binh Duong, committed $100,000 for each start-up per year.

However, the flip side of the project was that it took from six months to one year for a fledgling start-up to get through Becamex’s business loan process.

Start-ups couldn't afford to wait that long, so they either found funds from other sources or died trying, start-up expert Do Hoai Nam told the government’s online newspaper.

Nam said start-up companies need funds to roll out their ideas as quickly as possible. The seed capital offered by the government will come with “tough” requirements or cumbersome paperwork and a lengthy wait.

The fact that it’s hard to properly value idea-stage companies makes the idea of the government acting as a venture capitalist more half-baked.

Some, however, have cited successful lessons from Singapore and Malaysia to stress the important role the government plays in motivating and encouraging idea-stage companies.

Last month, Singapore’s start-up scene received a boost after the government said it will provide $30 million in funding for four large local enterprises to match their investments in fledgling local companies.

Nguyen Hong Truong, vice chairman of IDG Ventures Vietnam, argued that institutions like the stock market and commercial banks are either not designed to financially support idea-stage companies or have insufficient resources to do so.

Although there are banks that focus on small and medium-sized companies, they are not able to offer financing to early-stage companies that often don’t have a track record of reliable annual revenue or a good credit history.

That's why the government should step in and finance fledgling start-ups, said Truong.

Moreover, if the government provides funding, it will also have full control over where the money goes. Through this process, the government can give priority to start-ups involved in core technologies or environmental solutions.

Statistics show that over the past 10 years, Vietnamese start-ups have received some $150 million, and in the next 10 years, the investment will increase to $200-$300 million, said Truong, adding that the government can afford to set aside this amount.

He said that stream-lining loan procedures to make it easier for fledgling start-ups should be a top priority for the government.

Industry experts added that the government should relax the criteria small and medium-sized companies must meet to qualify for loans.

In addition to easier access to capital, policymakers must also create a transparent and fair business environment, which can only be developed through administrative reform to cut cumbersome paperwork for businesses.

The Ministry of Planning and Investment has drafted a legal framework to support small businesses that is scheduled to be up for the national legislature’s approval this month.

If the lawmakers sign on, it is estimated that 550,000 small and medium-sized enterprises will stand to benefit from these policy initiatives.

> No old wine in a new bottle: Vietnam's business law revolution

> Vietnam cuts through red tape in bid to unleash business spirit