Hanoi prepares to establish a Venture Capital Fund: A lever to promote innovation

With no profit target, the fund is expected to be a "seed capital" to open up social capital flows, attract private investment, and contribute to the development of the innovation ecosystem, digital transformation, and economic knowledge of the capital.

Workers work at the VinFast automobile factory. *Photo: Vingroup*

Filling the investment gap

Although considered the leading center for scientific research, training and innovation in the country, Hanoi is still facing many challenges in forming and developing an innovation ecosystem. Capital, especially early-stage venture capital, for startups, especially innovative businesses in the high-tech sector, is still seriously lacking. Private funds investment are often afraid of high risks, low success rates, and small market size, while technology startups require a long-term roadmap and systematic investment.

Member of the Standing Committee of the City Party Committee, Permanent Vice Chairman of the Hanoi People's Committee Le Hong Son frankly pointed out: "We are lacking tools to fill the investment gap in high-risk areas, where private funds are not ready to participate. The establishment of the City Venture Capital Fund is a necessary step to lead and activate social capital flows and unleash innovation resources."

Currently, some domestic venture capital funds such as IDG Ventures Vietnam, ThinkZone or VinVentures (belonging to Vingroup) have contributed to supporting startups in Vietnam; however, most of these are private funds, with the main goal of profit. This model can hardly cover the key areas that the city wants to prioritize such as: Artificial Intelligence, semiconductors, biomedical technology, smart transportation, environment, education or smart cities.

According to the draft establishment project, Hanoi Venture Investment Fund will be formed with initial charter capital (expected to be 2,000 - 2,500 billion VND) from the city budget (accounting for no more than 49%), operating under the "seed capital" model to attract more resources from private investors, domestic and foreign investment funds. Unlike private funds operating for profit, the core goal of this fund is to create positive social impacts: Providing strategic capital and non-financial support (training, consulting, international connections) to help innovative startups develop science and technology products, increase competitiveness and sustainable development for Hanoi.

Standing Vice Chairman of the City People's Committee Le Hong Son affirmed: "The State does not collect profits, but is used to continue investing or establish new funds in each priority area. The State does not directly manage the fund but will hire a professional unit with the capacity to operate it. Investment decisions are discussed and decided by investors together, ensuring transparency and efficiency."

Flexible model

According to the draft project, the fund model is built in the direction of “fund of funds”, meaning that the city's fund will invest in different specialized funds (for example, technology fund, health fund, education fund, etc.) instead of investing directly in each enterprise. This helps reduce risks, increase specialization and effectively mobilize social resources.

The notable difference between the Hanoi Venture Fund and existing funds is the State's leading role in strategic orientation, rather than intervening in specific investment activities. The city will identify priority areas, organize the selection of investors and professional fund management units, ensure transparency, openness and flexibility according to market mechanisms.

Many leading experts recommend that there should be accompanying incentive policies such as exemption from capital transfer tax, exemption from personal income tax for reinvesting investors, support for recapitalization mechanisms, secondary liquidity, etc. These are issues that have been successfully applied in many countries such as Israel, Singapore or Korea and are being studied to be integrated into the regulations on the fund's operating mechanism.

Director of IDG Capital Vietnam Blockchain Investment Fund Tran Viet Duc - one of the founders of IDG Ventures Vietnam, said: "Venture investment accepts very high risks, can lose up to 60% of capital, so it is necessary to design a reasonable mechanism for the State's seed capital. Instead of spreading capital, it is necessary to focus on investing in funds specialized to increase the investment efficiency coefficient, thus attracting private investors to join in."

ThinkZone Ventures CEO Bui Thanh Do also affirmed: "We hope that Hanoi will have a mechanism to encourage reinvestment and tax incentives. With the size of the city's fund, it is completely possible to create momentum for private investors to participate, especially in the context that many funds are considering transferring capital to localities with more attractive policies."

From the perspective of technology enterprises, representatives of Viettel, FPT Software and Google Vietnam all highly appreciated Hanoi's initiative, and at the same time proposed that the city should narrow down the investment field, focusing on challenging urban issues such as digital infrastructure, green cities, smart transportation... thereby helping startups solve practical problems and have the opportunity to access large markets right on the spot.

The establishment of the Venture Capital Fund not only has financial significance, but also demonstrates innovative thinking in policy management, shifting from “giving - granting” to “leading - public-private partnership”. This will be an important policy tool in developing the innovation ecosystem and digital transformation that Hanoi is pursuing. If operated effectively, the fund will be a model, contributing to unleashing the potential for creative startups, attracting social financial resources into the fields of science and technology, creating a breakthrough for the development of a knowledge-based economy and smart cities in the near future.

Source: https://hanoimoi.vn/ha-noi-chuan-bi-thanh-lap-quy-dau-tu-mao-hiem-don-bay-thuc-day-doi-moi-sang-tao-708230.html