Venture capital funds promote innovation.

Kinhtedothi - Article 36 of the 2024 Capital City Law allows Hanoi to pilot the establishment of a venture capital fund using state budget funds, which has a positive impact and opens up many new opportunities for promoting innovation.

Supporting and promoting innovation.

Hanoi currently leads the country in the local innovation index. Effective technological ideas and solutions originate not only from university research labs but also from many young startups, including over 1,000 innovative startups operating in Hanoi, accounting for over 26% of the national total.

However, the number of domestic and foreign investment funds for innovative startups in Vietnam is very small, and most do not invest in the early stages or make small investments. On average, only about 10 Vietnamese startups receive investment from these funds each year. Meanwhile, the capital needs of startups are enormous.

A corner of Hanoi. Photo: Pham Hung

Therefore, to provide capital – the resources that successfully nurture innovative ideas – the 2024 Capital City Law has allowed Hanoi to pilot the establishment of a venture capital fund using state budget funds. This will be an opportunity for innovative scientific and technological products and solutions from the capital city to move from the laboratory to practice more quickly and effectively.

According to Article 36 of the 2024 Capital City Law on venture capital investment using state budget: Hanoi City is allowed to pilot the establishment of a venture capital fund using state budget to invest capital in high-tech enterprises, science and technology enterprises, and innovative startups in key science and technology sectors of the Capital City to support and promote innovation and commercialization of science and technology products.

The venture capital fund is allocated charter capital from the city budget and is entitled to receive funding and raise other legal capital sources in accordance with the law. The management and use of the venture capital fund's capital are carried out according to market principles, accepting potential risks, ensuring transparency, efficiency, and preventing loss and waste of capital.

The People's Committee of Ho Chi Minh City is developing a plan to establish a Venture Capital Fund for submission to the City People's Council for approval. This plan clearly defines the Fund's organizational structure and operation; its operating period; the amount of charter capital support from the city budget; investment methods, partners, and recipients of investment capital; and mechanisms for assessing and controlling risks, as well as the responsibilities of agencies, organizations, and individuals in managing and operating the city's Venture Capital Fund.

The City People's Council approves the project, regulates the organizational mechanism and operation of the Venture Capital Fund, and specifies the responsibilities for inspection, supervision, and reporting of implementation results. The City People's Committee decides on the establishment of the Fund and issues the charter and investment regulations of the Venture Capital Fund.

Establishing a clear and transparent legal framework.

According to Thach Le Anh, founder of Vietnam Silicon Valley Investment Fund and an expert in innovative startups and venture capital, venture capital is a form of investment in innovative startups, technology companies, or businesses with explosive growth potential, but also faces significant risks. It's a popular fundraising method for innovative businesses and projects, and can help drive rapid economic growth if successful. However, due to the high risk, venture capital typically requires investment funds and investors to have extensive knowledge and training in venture capital, as well as a broad understanding and vision in this field.

 

"Technologically advanced countries all have venture capital funds, and Hanoi can refer to the experience of some countries to specifically regulate this issue during the process of drafting guiding documents for the implementation of the 2024 Capital City Law" - Pham Tuan Hiep, Director of BK Fund, Hanoi University of Technology .

The defining characteristic of the venture capital model is investing in people—individuals who are daring, willing to take risks, embrace change, experiment with new things, and accept failure in order to achieve breakthrough success. Investing in people and their activities aims to explore and evaluate the market, test products, and potentially even new technologies... Essentially, this is an expense that doesn't necessarily guarantee revenue or profit.

With its advantage of 100 million people and rapidly growing GDP, Vietnam has become a large consumer market for businesses to target. The challenge lies in finding effective methods to retain tax revenue and protect valuable assets such as billion-dollar startup companies.

Sharing insights on several venture capital investment models, such as the state-led venture capital fund model, Master Thach Le Anh stated that in this model, the venture capital fund is primarily managed and financed by the State. The government plays a key role in managing the fund, from selecting investment projects to monitoring implementation progress. However, this model requires high management capacity and must ensure transparency, avoiding scattered or ineffective investments.

With the public-private partnership (PPP) model, this is a common model where the government and private investors jointly contribute capital to establish a venture capital fund. The government can use its budget to contribute a portion of the initial capital, building confidence among private investors. A prime example is Singapore, where the government has established technology investment funds with both public and private participation, thereby fostering the strong development of the startup ecosystem.

According to Master Thach Le Anh, if Vietnam in general and Hanoi in particular want to focus on developing startups as an economic leverage, they need to participate in investment to stimulate growth in both the quantity and quality of startups, especially in the early stages. At the same time, this will attract the private sector to invest in startups. This will attract not only startups and private investors in Vietnam but also in the region and around the world.

Therefore, the most important requirement is to establish a clear and transparent legal framework for the use of state budget funds in venture capital. Legal regulations should include provisions such as investment procedures, participation conditions, project selection criteria, and monitoring mechanisms. This legal framework will not only ensure that venture capital funds operate for their intended purpose but also build confidence among private investors. Combining state budget and private capital will strengthen the financial capacity of investment funds while sharing risks among stakeholders.

Furthermore, mobilizing capital from the private sector is crucial to ensuring the effectiveness of venture capital funds. Public-private partnership (PPP) models can be applied to combine funding from the state budget and private capital, thereby creating greater financial strength and minimizing risks for both parties.

Furthermore, managing venture capital funds is a field that demands high professional skills and a deep understanding of the technology market. Therefore, developing fund management capacity is extremely important. Hanoi needs to create conditions for financial, technology, and startup experts to participate in fund management, while ensuring that investment decisions are made based on scientific analysis and long-term strategies.

International cooperation is a crucial solution for learning from experience and attracting investment from foreign venture capital funds. Hanoi can establish cooperation programs with international organizations to leverage financial resources and knowledge from international partners.

"Implementing a venture capital mechanism using state budget funds will bring many important benefits to Hanoi and the national economy, helping to promote entrepreneurship and innovation; enhance national competitiveness; create jobs and improve the quality of labor; promote sustainable development and improve the quality of life," emphasized Master Thach Le Anh.

Opening new avenues for Hanoi.

According to Associate Professor Dr. Nguyen Tuan Anh - Chairman of the University Council of Hanoi Capital University, venture capital funds utilizing state budgets are a special form of investment, in which a portion of the fund's capital is contributed from the state budget. Venture capital funds utilizing state budgets play an extremely important role in promoting innovation, creativity, and economic development, especially for start-up businesses. When combined with capital from the state budget, the effectiveness of these funds is further enhanced.

Many developed countries have recognized the importance of venture capital funds in promoting innovation, creativity, and economic growth. Therefore, many countries have enacted policies to actively support the development of venture capital funds, especially those funded by the state budget.

Vietnam has recognized the crucial role of venture capital funds in promoting innovation and economic development. The Vietnamese government has made significant efforts in enacting policies to support the development of venture capital funds, especially those using state budget funds.

Accordingly, several documents from the Politburo and the Prime Minister contain regulations on venture capital funds and innovative startups. Most recently, the establishment of a venture capital fund using state budget funds in the 2024 Capital City Law marks an important step in promoting innovation and socio-economic development in Hanoi in particular, and the whole country in general.

In recent years, Vietnam's ranking on global innovation indices has steadily improved. The 2024 Global Innovation Index report shows that Vietnam is ranked 44th out of 133 countries and economies, an increase of two places compared to 2023. In 2024, Hanoi also ranked first nationwide in the innovation index.

Associate Professor Dr. Nguyen Tuan Anh stated that the venture capital fund using state budget funds, as stipulated in Article 36 of the 2024 Capital City Law, has opened a new direction for Hanoi in promoting innovation and economic development. This is by allowing the city to pilot the establishment of a venture capital fund using state budget funds. In addition, the fund can cooperate with domestic and foreign investment funds to strengthen resources and expand its network; a reserve fund is needed to respond to potential risks; and an effective management information system is required to monitor and manage investment projects.

The inclusion of regulations on venture capital investment using public funds in the 2024 Capital City Law is a significant step forward, creating positive impacts and opening up many new opportunities for promoting innovation in Hanoi, such as: creating a stable source of capital; promoting innovation; building a startup ecosystem; strengthening Hanoi's position; developing industry; developing new products and services; creating jobs; attracting foreign investment; disseminating successful models and encouraging other localities to learn from and apply them; contributing to the economy and enhancing Vietnam's competitiveness in the international arena.

Venture capital always comes with high risks. Therefore, effective risk management mechanisms are necessary. This is why training and attracting talent are crucial. State management agencies, startup support organizations, and investors need to cooperate closely to create a favorable environment for startups.

"Building a successful venture capital fund requires the efforts of many parties, including the city government, investors, experts, and startups. With a suitable organizational structure and effective operations, the venture capital fund will play a crucial role in promoting the development of the startup ecosystem in Hanoi," emphasized Associate Professor Dr. Nguyen Tuan Anh.

 

"Venture capital funds are a very important entity that promotes development in any economy, from the micro to the macro level, from individual investors and businesses to cities and the nation. Socialization is needed to ensure the fund's capital is abundant and can be mobilized directly from the public. It is also necessary to promptly enact a Venture Capital Law to disseminate information to all Vietnamese citizens through training sessions for managers, investors, and business owners. The State should create the best legal framework to support the development of domestic and international venture capital funds in the capital in particular and in each city of Vietnam in general," - Pham Anh Cuong, Director of BestB Creative Startup Investment Fund .

Source: https://kinhtedothi.vn/luat-thu-do-2024-quy-dau-tu-mao-hiem-thuc-day-doi-moi-sang-tao.html