Untying the knot of accessing investment capital for Vietnamese startups

DNHN - The lifecycle of a startup is often shaped by funding rounds. Each funding round not only provides the necessary resources for the next stage of development but also serves as a milestone to assess the success and potential of the business.

Over the past decade, the startup landscape in Vietnam has made significant strides with the explosion of numerous new startups and substantial investment capital. During the 2014 - 2023 period, over 4.6 billion USD was poured into Vietnamese startups through 835 investment deals. These impressive numbers not only reflect the strong interest from both domestic and international investors but also highlight the potential and attractiveness of Vietnam's startup market.

However, this vibrant picture is showing signs of slowing down. The Vietnam Technology and Innovation Investment Report 2024 shows that in 2023, only 529 million USD of investment capital flowed into startups, a 17% decrease compared to 2022.

The lifecycle of a startup is often shaped by funding rounds. Each funding round not only provides the necessary resources for the next stage of development but also serves as a milestone to assess the success and potential of the business. However, raising capital is becoming increasingly difficult, and many startups are facing the risk of bankruptcy when they can no longer receive financial support.

Mr. Phạm Anh Cường, Director of BestB Capital Investment Fund, in the forum "Promoting Economic Growth  Model Innovation in Vietnam" recently organized, provided in-depth analyses of the current situation of startups. He pointed out that although there are many startups in operation, the failure rate remains significant. Specifically, Mr. Cường highlighted 9 main reasons leading to the collapse of startups, most notably the depletion of finances or inability to raise new capital (accounting for 38%). In addition to financial issues, lack of market demand (35%), exceeding the management capacity of the business (20%), and wrong business models (19%) are also important factors leading to failure. These mistakes often stem from a lack of experience, risky strategic decisions, and sometimes overconfidence in their ideas, overlooking necessary market research.

Other reasons include changes in regulations/laws (18%); pricing/cost issues (15%); team problems (14%); product misuse (10%); and poor product quality (8%).

Evaluating the current startup and innovation landscape in Vietnam, Mr. Cường noted that the rate of new business entries in Vietnam is currently higher than most countries in the Organization for Economic Co-operation and Development (OECD). However, in recent years, this rate has somewhat stabilized, while the rate of businesses surviving and developing sustainably has increased. This indicates a positive trend: startups are increasingly focusing on sustainability and long-term development rather than chasing short-term goals.

Mr. Cường also emphasized that the lack of capital is an obstacle for early-stage startups, especially those based on knowledge and patents.

According to Mr. Cường, investors play an important role in providing initial capital when the business model has not yet been professionalized.  

From his own startup experience and the investment appraisal process of startups, Mr. Cường stated that although capital is considered the lifeblood of startups, it does not mean that having abundant capital will guarantee success. On the contrary, businesses need to know how to manage and effectively use the invested capital.

In an interview with Business and Integration Magazine, Mr. Cường shared that to secure abundant capital, startups need to be well-equipped with capital-raising skills. "Dividing funding rounds and raising just enough capital as agreed with investors is a wise strategy. This not only helps startups avoid the risk of capital waste but also maintains the motivation to generate revenue. In principle, if you raise excess capital, two things could happen: first, it's easy to use the money improperly, and second, it could create a sense of success and overconfidence, leading to a loss of the necessary drive and fighting spirit," remarked the Director of BestB Capital.

Additionally, to gain the trust of investors, startups must pay particular attention to transparency and accuracy in financial figures. Investors often assess the commitment of startups through their capital-raising profiles and their ability to present, argue logically, and persuade. "A startup that understands its business model and has a clear strategic mindset will easily impress and gain the trust of investors," Mr. Cường shared.

In an increasingly competitive environment, Mr. Cường advised that young startups could take advantage of support from intermediary organizations. These organizations not only help young businesses complete their capital-raising profiles but also train them in investor persuasion skills, thereby enhancing their chances of success in raising capital. This is especially important as investors are becoming more cautious and demanding in terms of professionalism and the development potential of startup projects.

In an additional conversation with reporters, Mr. Cường further noted that besides capital issues, young startups should strive to acquire comprehensive business knowledge. Furthermore, they should understand the market; if they choose a particular business model, they must clearly understand its advantages and challenges to formulate a suitable long-term strategy.

In the future, according to Mr. Cường, Vietnamese startups need to focus on sustainable development. Issues related to green transition and digital transformation are always in the sights of individual investors and investment funds. After the COVID-19 pandemic, the world has realized the importance of moving towards a sustainable future, where products not only provide convenience for people but also contribute to protecting the environment and maintaining the ecological balance of the planet.

Starting up in Vietnam, although full of potential, still presents many challenges. The development of startups depends not only on capital but also on business acumen, market adaptability, and long-term strategic vision. With the support of investors and intermediary organizations, along with embracing sustainable development trends, Vietnamese startups can overcome current difficulties and achieve future success.

Bao Bao