A draft legal framework to streamline capital flows for innovative startups

By An Nhien - Oct 05, 2017 | 07:15 AM GMT+7

TheLEADERThe Ministry of Planning and Investment (MPI) is drafting a decree on investment in innovative startups in order to create a legal framework for investment as well as incentive policies.

A draft legal framework to streamline capital flows for innovative startups
In the past 3 years, there have been only a few dozens of Vietnamese startups receiving investment capital annually.

According to the MPI, when the information technology develops rapidly, industrial revolutions and innovative startups are the main forces of the innovation ecosystem.

Innovative startups are not the same as traditional trading companies, because of their high level of technology and creativity. Therefore, starting a business is associated with risks, but produces great economic value.

The capital is always a prerequisite for any startups. In Vietnam, the number of domestic and foreign investment funds for innovative startups tend to increase. Foreign funds such as CyberAgent, 500 Startups, Golden Gate Ventures have now opened representative offices or had partners in Vietnam. Among local funds, FPT Venture is currently the most active company in investing in innovative startups.

On average, in the past three years, only a few dozen Vietnamese enterprises have received investment capital from established domestic and foreign investment funds annually.

In reality, Vietnamese startups mostly mobilize capital from investors usually investing in startups, including individuals who have not set up their own businesses and just developed products and services. These investments are not large, ranging from US$5,000 to US$50,000 through the form of co-founding, capital contribution, purchase of shares in startups, and investors acting as a shareholders and capital contributors in accordance with the Law on Enterprises.Therefore, the establishment of a legal corridor and incentive policies for startups is very necessary.

The draft decree issued by MPI aims at identifying the legal status of startups and investment funds for startups which has not been regulated or clearly defined by the laws of Vietnam. It also identifies investors as innovative startups and innovative startup funds for them to benefit from incentives for corporate income tax in accordance with Clause 3, Article 18 of the Law on Support for Small-and Medium-sized Enterprises.