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As mentioned in previous Insights there has been much talk of startups and financial backing and also the encouragement of innovation and innovative technologies.
This is now being translated into action with the submission to the Government of a draft Law supporting small and medium sized enterprises. The draft Law provides for the establishment of innovative startup investment funds. The funds will be allowed to invest in the capital of new businesses or to acquire shares in startups requiring additional capital. It also appears that they will also be able to provide debt finance. One limitation is that the fund’s investment should not exceed 50% of the capital of the enterprise. The draft Law also allows local authorities in the provinces where the funds are established to invest up to 30% of the funds capital.
The Government has yet to detail rules or regulations around the establishment and organisation of the funds and the transfer of capital and profit to local and foreign investors. The new Law is being drafted and promoted by the Ministry of Planning and Investment.
The concept is to have funds operating as Venture Capital Investors to spur the growth of startups and the innovative and entrepreneurial culture of Vietnamese people.
Vietnam has more than 100,000 new businesses established annually with approx. 70-80,000 closing or suspending operations. However these are registered businesses, whilst there are many more being established as family businesses or sole proprietorships.
This is a major step forward but what young business owners need to learn is the need for proper business planning, transparency and governance which is still sadly lacking in many quarters.