Legal corridor - The 'backbone' of the creative startup ecosystem

Challenging startup policy environment

The legal framework plays a key role in facilitating startups’ access to capital and markets and protecting the interests of businesses and investors. A clear legal framework not only helps reduce risks but also encourages innovation, attracts foreign investment and promotes sustainable development of the startup ecosystem. In Vietnam, the government has made important strides in building a startup support mechanism. However, the implementation process still reveals many shortcomings, especially when policies have not kept up with practical challenges and the constant fluctuations of the startup environment.

One of the important policies, the Project to Support the National Innovative Startup Ecosystem by 2025 (Project 844) was issued in 2016, aiming to support 2,000 startup projects and 600 enterprises. One of the highlights of this project is the National Startup Portal, which provides documents and connects investors and businesses. In addition, the project also sponsors many events and startup competitions to promote the spirit of innovation in the startup community. Notably, the implementation of Project 844 in reality still faces many challenges. Support programs are often concentrated in Hanoi and Ho Chi Minh City, while other localities do not have full access to these resources. The lack of connection between management agencies, investment funds and businesses also reduces the effectiveness of the policy. In addition, the procedures to access support from the project are still quite complicated, making it difficult for many startups to benefit from these policies.

At the same time, with the goal of building a generation of dynamic young entrepreneurs, Decision 1665/QD-TTg in 2017 approved the Project “Supporting students to start businesses until 2025”, focusing on encouraging students to start businesses. Some universities have established business incubation centers, providing workspaces, mentoring programs and capital raising support for student startup groups. However, startup training programs at many universities are still theoretical and lack practicality. Students learn a lot about business models but have little access to the real market, limiting their ability to implement projects after graduation. In addition, the connection between universities and businesses is not really strong, leading to a lack of long-term support for student startups.

The strategy for science and technology development to 2030 aims to build national innovation centers in Hanoi, Ho Chi Minh City and Da Nang to support research and technology application in production and business. This is considered an important step to create a foundation for the Vietnamese startup ecosystem to develop in the long term. However, the progress of implementing these centers is still slow, causing many concerns about the ability to realize the strategy. The lack of mechanisms to attract talent, technology and investment capital to these centers is also a major barrier. In addition, startups in high-tech fields such as AI, blockchain or fintech still face difficulties in accessing financial incentives, tax policies and legal support to develop products.

In addition, the Law on Support for Small and Medium Enterprises was issued in 2017 to provide tax incentives, loans and consultancy for startups. Specifically, innovative startups can enjoy exemptions and reductions in corporate income tax during the initial period of operation, access preferential loans from enterprise development funds and receive support in training and legal consultancy. However, the support application process is still complicated and lacks synchronization between management agencies. Many businesses report that they have difficulty accessing financial support funds due to complicated application requirements and long review times. In addition, tax incentives are not attractive enough to create a competitive advantage compared to other countries in the region such as Singapore or Indonesia, which have more flexible tax policies and simpler procedures.

In fact, startups in the fields of financial technology (fintech), e-commerce, blockchain or artificial intelligence (AI) all face difficulties in obtaining licenses, complying with regulations or accessing investment capital. A typical example is fintech businesses providing payment services. Despite their great potential for development, many startups in this field still face difficulties in obtaining operating licenses from the State Bank. The lack of a clear legal framework makes it difficult for them to raise capital and expand the market.

Removing barriers with legal tools

From international experience, many countries have developed tight and effective policies to support startups. For example, Singapore applies preferential taxes and venture capital funds to encourage startups, while the US implements the JOBS Act, making it easier for startups to raise capital from the community. This shows that the legal corridor plays an important role in promoting the creative startup ecosystem, creating conditions for startups to develop sustainably and attract investment. A clear legal framework helps reduce risks, ensure transparency and support businesses to access capital more easily.

The legal corridor plays an important role in promoting the innovative startup ecosystem. (Photo: vietnamhoinhap.vn)

In Vietnam, improving policies not only overcomes current shortcomings and limitations to help innovative businesses develop sustainably, but also strengthens investor confidence, promotes the digital economy and enhances national competitiveness. Specifically, one of the major barriers to startups in Vietnam is the lack of clarity in legal regulations for new business models. To overcome this, the new policy framework needs to be flexible and suitable for rapid changes in technology.

To address the barriers of complex administrative procedures, the Government has implemented an online licensing system, helping businesses register, submit documents and carry out administrative procedures more quickly and transparently. With simplified procedures, startups will be able to focus on product development and scale-up without having to spend too much time on complex administrative processes. Businesses also proposed additional special incentives for startups, such as exemption of corporate income tax in the early stages or financial support through public investment funds.

A key factor for startups to develop is the ability to raise capital, especially in the early stages. However, many businesses in Vietnam still have difficulty accessing financial resources due to regulations on share ownership and restrictions on foreign investors. Attracting more capital into the startup ecosystem is a very real and important need, requiring policies to encourage investment in creative startups, such as providing preferential loans through the National Innovation Fund, or having a mechanism to allow businesses to easily access venture capital funds from abroad. Notably, policies also need to build a mechanism to protect investors' rights, helping them feel secure when investing in new businesses.

Not only relying on government policies, the participation of large corporations, universities and research organizations also plays an important role in building a startup ecosystem. The connection between the public and private sectors will create more opportunities for startups, from human resource training, product research and development (R&D) to international market expansion. Incentive mechanisms from the government can motivate large corporations to invest in startups through funding programs, establishing business incubators or joint investment funds. Along with that is the mechanism to replicate programs, advisory networks, connecting startups with experts and successful entrepreneurs to share experiences and support in the process of raising capital and managing businesses.

When resources are closely combined between the State, enterprises and the private sector, the startup ecosystem has a solid foundation to develop more strongly, create more innovations and make positive contributions to the economy.

Dieu Bao