Experts pointing out mistakes when startups raise capital

Experts pointing out mistakes when startups raise capital

At the seminar "Venture capital attraction for innovative start-ups", which has taken place recently in Ho Chi Minh City, the guests all agreed that disease control and positive economic growth is the factor that attracts investment in Vietnam. Large corporations and venture funds have confidence in the potential of Vietnam's innovative startup ecosystem and expect it to become a major investment market in the region and the world. The report by Do Ventures in 2020 also shows that Vietnamese startups have risen to the third position in Southeast Asia, only after Singapore and Indonesia.

Experts attending the seminar. Photo: Initiative for Startup Ecosystem in Vietnam - 844 Program.

According to Nguyen Xuan Dong, co-founder of Ecomobi, startups should be ready to welcome the investment wave in the coming time. However, they should not call for capital at all costs. “They must define clearly the goal of raising capital, not calling capital according to the movement. Do not call capital for fun or just because the business competing with us is calling for capital", Mr. Dong commented.

The legislation is also an issue that startups should keep in mind when raising capital. "At present, there are not too many startups in Vietnam interested in the issue of law, sometimes causing post-investment problems and time-consuming investment process", Mr. Bui Thanh Do, Thinkzone Ventures director, and co-founder said. He also said that startups often did not really take the contract terms seriously, leading to investment deals that are often unfairly beneficial to investors.

Take a coffee business model in Hanoi that used to attract $ 5 million as an example, Mr. Do shared. The startup capital had to mobilize from many different sources, and due to the late capital-raising time, this chain of stores is forced to lower prices and accept terms that are beneficial to investors. When the business goes wrong, these terms are activated, causing the founder's stake to decrease and he has to leave the CEO position.

It is necessary that the startup understands the nature of the contract terms, from which it has a certain direction to handle potential problems. However, not all startups can afford the cost of hiring a lawyer to accompany them in the fundraising deals.

Mr. Hoang Minh Duc, the senior lawyer at Duane Morris outlined that "Startups need to actively research online, and also take advantage of professional seminars to exchange information and receive advice from lawyers".

On the investor side, Ms. Hoang Thi Kim Dung, Chief Representative of Japanese investment fund Genesia Ventures in Vietnam, and Mr. Nguyen Hoang Viet, Investment Director at VIGroup pointed out the basic differences between domestic and foreign funds. Accordingly, the foreign fund has a network of partners in many different countries, which can greatly assist startups in expanding business activities to other markets. Meanwhile, domestic funds often have an in-depth understanding of the Vietnamese innovative startup ecosystem and have a team of staff ready to assist startups in legal matters, accounting, and finance.

Vietnam currently has nearly 100 active venture capital funds, of which about 20 are domestic funds. Each investment fund has different tastes, networks, and strengths, so startups need to learn carefully and group potential investors according to their development orientation and goals. The support of venture capital funds depends greatly on the present resources of the fund in the Vietnamese market.

Startups need to have a thorough understanding of the investors who will participate in their next fundraising round. Since each investor has several startups in his portfolio, startups invested by the same investor need to have a close connection with each other, towards forming small communities for regular information exchange. 

"The most important thing when raising money is to be prepared. But be careful not to spend all of your time talking to investors. One of the big mistakes startups often encounter is that they do not achieve KPIs. as in the fundraising notes, so they are not evaluated highly in this matter, leading to the failure in capital raising process", Mr. Nguyen Xuan Dong shared.