Attracting Foreign Angel Investment forStartup Development in Vietnam

Dang Thanh Dat1, Nguyen Thi Kim Anh2

1 Dang Thanh Dat, Phd candidate, University of Economics and Business - Vietnam National University, Hanoi
2 Assoc. Prof, University of Economics and Business - Vietnam National University, Hanoi

ベトナムにも3000以上の新興企業があるが、その大半はまだ萌芽期にあり、海外からの資金を必要としている。投資家を引きつけるには何が必要かを精査し、政府に具体的な施策を提言する。

Abstract

Angel investment funding plays an important role for startups, as stepping between the seed stage (verifying andconfirming the feasibility of products) and the established phase but requires large amounts of capital for rapid
growth (early stage). Angel investor is the factor that fills the capital gap for startups and also brings many benefits
to startups including collaboration, management knowledge and mentorship for startup.
With a growing startup ecosystem, Vietnam currently witness more than 3,000 active startups, of which over
90% are still in the seed stage. The attraction of foreign angel investment therefore is necessary to help startups
grow and scale-up.
Our research is based on the theory of institutional and policy to attract angel investment, in-depth interviews
with 5 foreign angel investors in Vietnam, combined with learning experiences in attracting investment from foreign
angel investors into startups in 3 countries in ASEAN that have more developed startup ecosystem than Vietnam, inorder to give advices for Vietnamese Government in attracting foreign angel investment.
Keywords

Angel investor, Foreign investment, Startups, Vietnam

1. Introduction

Vietnam is a country in Southeast Asia and has oneof the region’s fastest-growing economies. The total
land area of Vietnam is 329,569 square kilometers,
administratively divided into 64 provinces and municipalities. It has a total population of about 97,3 million.
GDP in Vietnam averaged 68.78 USD billion from 1985
until 2017, reaching an all-time high of 261.9 USD billion in 2019.
Vietnam’s startup scene can be traced back to 2004,
when venture capital fund IDG Ventures Vietnam wasestablished, pouring more than US$100 million into themarket. The fund invested in over 40 companies in tech,
media, telecoms and consumer sectors across Vietnam.
Since then, the startup era has evolved in three waves:
The first wave (2004-2007); the second wave (2007-2010); and the third wave (2011 to the present day) [1].
Vietnam has seen phenomenal growth in the number ofstartups during this third wave, growing from 400 in2012 to nearly 1,800 in 2015, and more than 3,000 in2017 up to 2021, so that Vietnam has the third-highest
rate for startups in Southeast Asia.
Since 2016 (the ‘Year of Startups’ for Vietnam), theGovernment of Vietnam has paid attention to perfecting
the legal corridor for startups, issued many policies tosupport startups from the seed stage. Many experts
assess that Vietnam’s startup ecosystem is increasingly
improving and currently Vietnam’s startup is going into
the second phase of the development which is the globalization stage. This recent, vibrant startup scene in
Vietnam has not only fostered a new class of local entrepreneurs but also attracted a growing number of087

Dang Thanh Dat, et al.

foreigners who want to tap into the country’s emerging
growth potential in Vietnam.
The amount of capital invested in Vietnamese startups has increased 3 times in the 2016-2018 period, from205 million USD to nearly 900 million USD (TFI, 2019)[2], In 2019, the total investment capital in Vietnamesestartups reached above 800 million USD. In 2020, due
to the influence of Covid-19, the total value of investments in Vietnamese startups decreased, reaching only
290 million USD.

Figure: Investment deals in startups in Vietnam 2016-2020
Source: TFI (2019) and author’s synthesis

The majority of investments in Vietnamese startups
are from venture capital and foreign angel investors.
The investment value of domestic funds and investors in
Vietnam accounted for a negligible proportion. However,
we do not have accurate data on foreign angel investment in Vietnam because there are no national statistics
on this indicator in Vietnam.
Institutional and policy theory explains the influenceof political, economic, and social systems on organizational behavior and economic outcomes. According to
Scott (1995) [3], institutions consist of three groups:
normative rules, laws and culture. In particular, thegroup of laws will affect the ability to enforce contracts
established between investors and startup founders.
Theory of institutional and policy is useful when studying in an underdeveloped institutional environment. In
particular, institutional weakness in developing countries forces investors to adapt their behavior to the business environment.
Because of the suitability of institutional and policy
theory with the reality of Vietnam’s startup ecosystem,088

we use this theory to do in-depth interviews with 5 foreign angel investors in Vietnam, combined with learning experiences in attracting foreign angel investment
into startups in some countries in ASEAN that havemore developed startup ecosystem than Vietnam, inorder to give advice for Vietnamese Government in
attracting foreign angel investment.

2. Interview with foreign angel
investors in Vietnam

We conducted in-depth interviews with 5 foreign
angel investors in Vietnam about factors of the businessenvironment that influence the angel investor’s decision
to invest in a startup, interview time from September toDecember 2019 in Hanoi city - capital of Vietnam,
where has the most startups in Vietnam.
The content of the interview focused on:(1) Evaluation of Vietnam’s institutions and policies
towards foreign angel investors investing into startups
in Vietnam?
(2) The advantages and disadvantages of the environment promote foreign angel investment?
(3) Recommend adjustments and supplements toinstitutions and policies to promote angel investment in
Vietnam from the perspective of foreign angel investors?
The interviews were recorded by the recorder andanalyzed, integrated into the interview answer sheets.
2.1. Evaluation of Vietnam’s institutions and policies
towards foreign angel investors investing in startups in Vietnam?
Since Vietnam enacted and implemented the National
Startup Project called: Supporting the national innovative startup ecosystem to 2025 (hereinafter referred toas Project 844), the number of Vietnamese startups
increased quickly. Along with that, investment sources,
funding for startups such as investment funds, angel
investors increased significantly. According to statistics,
in Vietnam, there are currently over 40 venture capital,
8 angel investment organizations, over 100 angel investors, 12 private equity, 5 grants, 22 corporate financeinvesting into a startup. The Vietnamese Government isworking hard to create an environment, establishing6th AFC Best Papers

favorable conditions for attracting investment capital forstartups, including foreign angel investment.
However, according to 5 out of 5 foreign angel investors, Vietnam does not have a clear and drastic opinion
and also policy towards attracting foreign angel investment in startup development, as shown in the three sides:
Firstly, policies related directly to attracting foreign
angel investors in Vietnam still do not exist. Currently,
Vietnam does not have a legal framework as well as a
specific policy for foreign angel investors. With the lackof a risk control framework, the foreign angel investor ishesitant to consider investing in startups, even when thestartup meets the investment criteria.
Second, in some countries in the ASEAN region,
there are tax policies to support foreign angel investors,
but in Vietnam, there is no tax reduction policy to support foreign angel investors. Startups in Vietnam getmany tax incentives, but investors are not entitled to tax
incentives at all. There is currently no law in Vietnam
that states that tax reduction for angel investors, but only
for formal investors (investment funds /private equity/
corporate finance).
Third, Vietnam has not made many breakthroughs inpromoting the formation of an angel investor network.
In Vietnam, there is only one network of domestic angel
investors called i-Angel. There is absolutely no networkof foreign angel investors. In some activities in Vietnam,
there is the presence of angel investor network in
ASEAN; however, it does not maintain the linkage toform a network of foreign angel investors in Vietnam.
 he advantages and disadvantages of the envi2.2. T
ronment promote foreign angel investment?
According to 5 out of 5 foreign angel investors,
Vietnam is a dynamic country with a stable politicalenvironment, relatively large market size and potential
for development. The startup ecosystem in Vietnam isvery vibrant with over 3,000 active startups, mainly
seed startups that need investment capital to develop.
According to 3 out of 5 foreign angel investors, inVietnam recently, the startup support programs are relatively developed, angel investment activities are stillquite new but considered as great development potential

if the Government has appropriate policies to attract theparticipation of angel investors, especially foreign angel
investors.
According to 4 out of 5 foreign angel investors, theVietnamese Government attaches great importance tobuilding a startup nation, considering start-up as one of
the breakthrough solutions for Vietnam’s growth model
innovation. Therefore, the Government of Vietnam is
gradually creating and promoting elements of the startup
ecosystem to gradually form and develop, including
moves to attract investment capital, including foreign
angel investment in startup development.
However, 5 out of 5 foreign angel investors share thesame perception that the environment to promote angel
investment in Vietnam still has some major limitations.
- The biggest limitation is that Vietnam does not havea legal framework for foreign angel investors.
- Vietnam has a large number of startups but thequality is generally not high. Most startups are notbreakthroughs, but mainly transform ideas from othermarkets and apply them to the Vietnamese market. The
number of startups targeting the ASEAN market and theglobal market accounts for a very small proportion, thus
creating little attraction to foreign angel investors.
In addition, 3 out of 5 foreign angel investors said
that there is a limitation in interaction and accessbetween foreign angel investors and Vietnamese startups due to the foreign language skills of many
Vietnamese startups still bad. The language barrier
loses the startup’s opportunity to attract foreign investment, demonstrating a lack of willingness to compete ininternational markets.
2.3. Recommend adjustments and supplements toinstitutions and policies to promote angel investment in Vietnam?
5 out of 5 foreign angel investors share the same recommendation, suggesting that the Government ofVietnam should focus on:1) Complete the legal framework for foreign angel
investment to protect foreign investors from the risks ofcapital investment for startup development in Vietnam.
2) Promoting the startup ecosystem in Vietnam to089

Dang Thanh Dat, et al.

develop with the nucleus is startups, not only increasing
in quantity but also increasing in quality with new innovative ideas, breakthroughs, towards the regional andinternational market.
In addition, 2 out of 5 foreign angel investors also
said that the Vietnamese state needs to promote channels so that foreign angel investors can easily exit bytransferring capital, share, merger and acquisition, IPO,
etc… thereby creating liquidity for foreign angel
investors.

3. Experience in promoting a businessenvironment that attracts foreign
angel investment

In Southeast Asia, some countries such as Singapore,
Thailand and Malaysia have relatively active angel
investment activities, in which governments have issued
many policies to promote angel investment. Therefore,
we study the experiences of these countries as reference
for Vietnam.
3.1. Attracting foreign angel investment into startups
in Singapore
Singapore is a country with a population density offewer than 6 million people, but has more than 3,300
active startups [4] and is considered the largest startup
ecosystem in Asia, a startup hub in South East Asia withmore than 400 official angel investors, 143 Incubators
and Accelerator, over 50 Co-working spaces operating[4]. Almost popular venture capital funds in the world
have offices in Singapore, aiming to invest in startups
based in Singapore.
Startup support programs in Singapore is not only
creating incentives to encourage young people in
Singapore to start a business, but also attract talent,
especially in the technology sector around the world tocome to Singapore to start-up. Most programs focus on
direct or indirect financial support from the government
to startups [5]. Survey results in Singapore ranked thestartup support policy as one of the first conditions to
attract any investor to the Singapore market. In addition
to issuing startup support policies, the Singapore
Government also has a number of support programs and090

incentive policies to attract angel investment in Singapore.
(1) The Government of Singapore has an investment
support policy for angel investors, under which angel
investors only have to invest half instead of the entire
investment capital for startups and the other half will befunded under the SEEDS Capital implemented by the
Economic Development Board (EDB) since 2000, thentransferred to the Standards, Productivity and Innovation
Board (SPRING) since 2008 [6]. In 2018, the Singapore
Government merged SPRING and International
Enterprise Singapore into Enterprise Singapore with thefocus of supporting Singapore enterprises - from startups, small and medium enterprises, to large corporations in Singapore, promote technology innovation,
inventions, supporting enterprises to build development
policies to reach the international market. Currently,
there are about 500 investors and more than 40
Incubators and Accelerator, Venture Capital join the
SEEDS Capital program of Enterprise Singapore [7].
(2) In 2010, the Singapore Government issued a tax
deduction policy for angel investors called Angel
Investors Tax Deduction Scheme (AITD) with a 10-year
implementation period (until 2020). Under this policy,
an approved angel investor who invests at least S$
100,000 into Singapore-based startup will receive a tax
reduction, depending on the amount of investment but
maximum reduction of S$ 250,000 per year. To be eligible for this offer, angel investors must be recognized byEnterprise Singapore [8].
(3) The Singapore Government makes it possible forangel investors in Singapore to link together and set-up
angel investor networks. In 2001, the Business Angel
Network of Southeast Asia (BANSEA) was establishedin Singapore by a group of angel investors, expanding
its connections to investment groups in Thailand,
Malaysia, Vietnam and Indonesia. BANSEA offers avision of developing a professional angel investmentcommunity in Singapore through knowledge sharing,
investment cooperation among investors as well as
increasing connections between investors and startups.
BANSEA is responsible for promoting the startup
system in which the angel investor provides capital into
startups, which then themselves go on to become angel6th AFC Best Papers

investors to other startups [19]. In addition to BANSEA,
Singapore also has many other angel investor networks
with support from the Singapore Government.
In general, to promote angel investment in startups,
Singapore has 3 main groups of policies: 1) Administrative
policy with the assignment of a specialized unit to support startups, including the task of attracting angel
investment under the guidelines of the Government; 2)
Tax reduction policy for angel investors to encourage
investment; 3) Facilitate the angel investment network
to operate in a professional manner, in accordance withnational regulations.
3.2. Attracting foreign angel investment into startups
in Thailand
Thailand is a market with many opportunities forstartups in Southeast Asia. It is the second-largest economy in the region and has a number of friendly policies
for investors [9]. Over the years, the Thailand startup
ecosystem has grown relatively strong with more than
600 active startups (Thai population of nearly 70 million), the number of official angel investors has increased
from 2 (2012 to 30 (2015) and 50 (2018), especially 57%
of which are foreign angel investors. In 2012 in Thailand,
only 2 startups received investment capital, by 2015
there were 27 startups invested and by 2018 there were
102 startups invested.
Table: Data on investment in startups in Thailand
Type
Number of Venture Capital Funds
Number of Angel Investors
Number of Accelerator
Number of startups that received
investments in the year

2012
1
2
1
2

2015
56
30
5
27

2018
110
50
  > 8
102

Source: Startup Ecosystem Thailand [10]In Thailand, venture capital and angel investment are
the two main sources of investment capital supporting
startups. The Thailand Government had a number ofactivities to attract foreign angel investment.
(1) National Science and Technology Development
Agency (NSTDA) under the Government cooperates

with The World Business Angels Investment Forum(WBAF) to create a community of angel investors for
Thailand startups.
(2) In 2018, the Thailand Government enacted a tax
incentive law for angel investors to invest in startup in
Thailand. The angel investor must be recognized by
Thailand National Science and Technology Development
Agency (NSTDA) [11]. Under the tax incentives law, theangel investor can receive a personal income tax reduction of up to 100,000 Thai Baht (THB) per year. Angel
investors need to meet some binding conditions such as
investing in some priority areas, holding the startup’s
shares for at least 2 consecutive years from the time ofinvestment to receive preferential tax policies.
(3) Thailand is a latecomer in the process of industrialization with key industries including agriculture,
automobiles, services, and finance. However, in recent
years, the Thailand Government has implemented a new
economic strategy with policies to promote SMEs toinvest in technological innovation, while creating amore favorable environment to attract investors, including angel investment into startups, especially startups
related to technological innovation so that Thailand candevelop into technology hubs. Therefore, the Thailand
Government encourages startups to focus mainly ontechnology-related fields, especially high-tech. From thegovernment’s priority policy, angel investors investingin startups in Thailand from practical will help theThailand economy develop stronger technology. The
startup fields that have attracted the most investment
capital in Thailand in recent years are e-commerce,
logistics, fintech, payment, food and beverage.
In general, Thailand has implemented a number ofpolicies to promote angel investment in startups: 1)
Administrative policy with the assignment of a specialized unit to support startups, including the mission
attracting investment with angel under the guidelines of
the Government; 2) Tax incentives for angel investors toencourage investment. 3) The policy of selecting priority fields to attract angel investment.

091

Dang Thanh Dat, et al.

 ttracting foreign angel investment into startups
3.3. Ain Malaysia
In Malaysia, Malaysian Government agencies aredesignated to support startups until they grow andbecome large companies. However, the majority ofstartups in Malaysia choose to associate with a university or institute to receive research grants from theGovernment. According to a study in 2015 of 28 technology startups in Malaysia [12], 31% of startups arefinanced through state-owned financial investment
firms, followed by Government grants (27%), while
only 3% received investment from angel investors.
There figure shows that the participation of angel investors is still low in Malaysia, while public funds still
dominate in domestic investment funds. However,Malaysia has policies and solutions to promote angel
investment into Thailand startups.
(1) The idea of an agency representing private investors was first initiated by the Malaysian Government in2010 in an attempt to settle startup funding by raising
capital. In 2012, at the Asian Business Angels Forum,
Cradle Fund Sdn Bhd (an agency of the Ministry of
Finance) announced the establishment of the Malaysian
Business Angels Network (MBAN) with the vision to
become the official voice of the Malaysian angel investment community, to become a powerful angel investment fund and a place to exchange and share knowledge
for domestic, regional and international angel investors.
MBAN is authorized by Malaysia’s Ministry of Financeto recognize angel investors for the Angel Investor Tax
Incentive Program and other related programs within
the scope of the Ministry of Finance. MBAN is also
responsible for endorsing angel investors and angel
investor clubs, building awareness and training for angel
investors, and monitoring angel investment figures in
Malaysia. MBAN is an entity that functions as a commercial organization controlling links between domestic and foreign angel investors.
By the end of 2018, MBAN has recognized 240 angel
investors, including investors in 10 major angel investor
clubs in Malaysia and other investors both at home andabroad. From 2015 to 2018, MBAN has invested capitalin 65 startups among nearly 350 startups pitching [13].

092(2) In 2013, the Malaysian Government announced
Angel Tax Incentive (ATI) in the national budget with
tax incentives set for a reduction up to RM 500,000 per
year. ATI is managed by the Angel Tax Incentive Office(ATIO), a unit of the Cradle Fund. To be eligible for thisoffer, the angel investor must be accredited by MBAN
and endorsed by Malaysia’s Ministry of Finance. After
two years since the investment, the angel investor can
submit personal income tax through the tax-cut implementation agency named Lemgaba Hasil Dalam Negeri(LHDN) [14,15].
In general, to promote angel investment into startups, Malaysia has 2 main groups of policies: 1) Tax
incentives for angel investors to encourage investment;2) Support and facilitate angel investment network to
act as an affiliate commercial organization between
domestic and foreign angel investors to invest into startups in the country.

4. Suggestions

Through surveying the current situation of foreign
angel investment into startups in Vietnam and learning
about policies to attract foreign angel investment instartups in some countries in ASEAN, we can draw
some suggestions to attract foreign angel investment
into startups in Vietnam as follows:- Angel investment activities are high-risk activities
but are really necessary for the development of the startups, so, according to the experience of other countries
as well as practice in Vietnam, in the coming time, it isnecessary to add regulations, forming a legal framework to protect investors as well as issuing policies on
personal income tax deductions for investments of angel
investors; consider allowing capital reciprocal between
state funds (small and medium enterprise support funds,
creative startups support fund)..
- Creates a mechanism to encourage the establishment of a network of angel investors, operating under
the supervision of the state to gather domestic and foreign investors with capital and experience to invest,
accompany, tutorials for startups. Establishing an angel
investment network also helps angel investors to linkfinancial, professional and information resources to6th AFC Best Papers

invest in startups effectively.
- Assign an agency under the Government to presideover the implementation of solutions given by theGovernment to promote angel investment into startups.
The agency plays some roles such as recognizing angel
investors, enforcing investment support policies forangel investors, monitoring the operations of angel
investment networks and angel investors, organizing
events to connect and build a community of angel investors, etc- Issue preferential policies for angel investors wheninvesting in startups with the aim of attracting potential
investors to invest. Policies that should be implemented
are incentives, personal income tax reductions for angel
investor investments, reciprocal capital, and co-invest
for startups.
- In Vietnam, there is currently no legal documentthat specifically defines an angel investor, there is nolegal framework to protect the interests of angel investors, so investors are not encouraged the angels to participate in the investment. In the near future, the conceptof angel investors should be legalized to officially recognize the important subjects of the startup’s development and aim to specify the interests of angel investors
to encourage angel investment activities like nations
have done successfully.
- Policies to attract and support angel investors needa development process, while Vietnam is in the firststep, completing the legal basis that requires implementation of a roadmap. In the short term, government
agencies need support to raise awareness, provide information, support the development and implementation of
investment contracts and improve the quality of investment network, guide investment, share experiences.

5. Conclusion

Experience from some countries in the ASEAN
region as analyzed above shows that for startups toform, survive and develop, it is necessary to have appropriate policies and legal frameworks. Along with building and maintaining an open, transparent and stablebusiness environment, having the right institutional andpolicy for startups to attract investment including

foreign angel investment is one of the factors that helps
startups grow.
For a country with a newly formed and developing
startup ecosystem like Vietnam, the role of the state isimportant in promoting foreign angel investment, inwhich the Government needs to do more policies andsolutions to promote the development of foreign angel
investment activities and attract foreign angel investors
to invest into startups in Vietnam.
This article is under the research of Vietnam
National University, Hanoi; code: QG. 18 23.

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