Back to early 2015, the overnight success of Flappy Bird[1] inspired a new wave of startups in Vietnam who obviously wished to repeat the creator’s fortune. However, they soon become disillusioned when having to confront local regulatory barriers. Take a game like Flappy Bird as an example, because the game is deemed to be ‘addictive’, its script must be first approved by a Vietnamese State body(ies). In such case, the reviewing process with unclear approval criteria could take months.

Together with other factors, this inconvenient truth sparked a fierce debate within startup community on how to avoid such risks at the outset. All eventually end up in a simple question: should they choose Vietnam or Singapore to start their business?[2]

That is also the most-asked question I have received in all seminars on startups and VC funding.

Don’t get me wrong! Starting a business in Singapore does not mean Vietnamese founders seek to make money there. Rather, the pro-Singapore route founders establish a company in Singapore (SingCo) just to invest back in Vietnam. The Investment can be either a greenfield investment or an M&A deal. In many cases, the SingCo would buy the Vietnamese companies previously formed by the founders and therefore acquire entire business of the latter. If the SingCo just provides cross-border services (e.g. – online games or other content services, etc.), it does not even need any commercial presence in Vietnam.

On the contrary, those who opposed the ‘Singapore route’ think startups should stay and face short-term difficulties in Vietnam rather than seeking to go around the laws.[3]

Now, for most startups including those who opposed, to start a company in Singapore is not ‘a matter of whether but when’.

Why is the ‘Singapore route’ still a good choice?

Because:

  • The licensing process for business entrance for startups and exit for investors is quick, simple and straight forward;
It normally takes a few days to establish a corporate entity in Singapore with a minimum SG$1 as paid-up equity. In Vietnam, the licensing process for foreign investment may* take a month or more depending on, inter alia, business lines of the target or the new entity (* I said ‘may’ because sometime, the licensing process is surprisingly quick (i.e. – days or weeks)).
  • In case of cross-border services, the SingCo may easily circumvent strict restrictions imposed by the Government of Vietnam;
Many domestic service providers keep complaining about an unfair competition between them and the foreign opponents. For example, VNPayTV, a local pay TV association, used to request the Government of Vietnam to temporarily ‘stop’ offshore providers such as Netflix or Amazon from streaming contents in Vietnam. According to them, while their own programs and contents are heavily regulated and censored, no such imposition is placed on those of offshore OTT service providers.
  • With minimum statutory intervention, parties’ freedom of contract is fully respected and enforceable;
A typical M&A deal would involve many contractual documents (voting agreements, shareholders’ agreement, etc.). However, it remains to be seen how such agreements would be enforced in Vietnam especially vis-à-vis a bona fide third party. As another example, a lack of flexibility on preferred share types under Vietnamese law may frustrate a typical VC funding arrangement.
  • Foreign invested startups appear to be less vulnerable to ‘bullying’ by Vietnam’s administrative bodies;[4]
  • It is more convenient and efficient to use a Singapore-based entity for business expansion at either regional or even global scale; and
  • Founders are requested by VCs/investors to create the SingCo.

Further discussion on investment via Singapore can be found here

***

[1] A mobile game that went viral in 2014 before its creator, Nguyen Ha Dong, removed it from key mobile app stores.

[2] This is also a question that I often receive in startup-related events.

[3] In most cases, the SingCo is founded by Vietnamese individuals without compulsory registration with Vietnamese authorities.

[4] https://tuoitrenews.vn/business/40466/frequent-inspections-tire-vietnamese-business-owners

LEAVE A REPLY

Please enter your comment!
Please enter your name here