Investment in Vietnamese startups via Singapore: Why?

In early 2015, the rapid success of Flappy Bird inspired a surge of Vietnamese startups aiming to replicate its creator’s achievements. However, they soon encountered local regulatory challenges. For instance, games like Flappy Bird, considered ‘addictive,’ require script approval from Vietnamese authorities—a process with ambiguous criteria that can extend over several months.

This reality ignited a vigorous debate within the startup community about mitigating such risks from the outset, culminating in a fundamental question: should entrepreneurs establish their businesses in Vietnam or Singapore?

This question frequently arises in seminars on startups and venture capital funding.

It’s important to clarify that establishing a business in Singapore doesn’t imply that Vietnamese founders intend to generate revenue there. Instead, proponents of the ‘Singapore route’ set up a Singaporean company (SingCo) to reinvest in Vietnam. This investment can manifest as a greenfield venture or through mergers and acquisitions. Often, SingCo acquires Vietnamese companies previously established by the founders, thereby consolidating their operations. If SingCo offers cross-border services—such as online games or other content—it may not require a physical presence in Vietnam.

Conversely, critics of the ‘Singapore route’ argue that startups should confront short-term challenges in Vietnam rather than circumvent local laws.

Currently, for most startups, including previous skeptics, establishing a company in Singapore is less a question of ‘if’ and more of ‘when.’

Why is the ‘Singapore route’ advantageous?

• Investor Preference: Founders are often encouraged by venture capitalists and investors to establish SingCo. This is the most important reason.
• Streamlined Licensing: The processes for business entry for startups and exit for investors are swift and straightforward. Establishing a corporate entity in Singapore typically takes a few days with a minimum paid-up capital of SG$1. In contrast, Vietnam’s licensing for foreign investment may take a month or longer, depending on factors like the business lines of the target or new entity.
• Navigating Restrictions: For cross-border services, SingCo can more easily bypass stringent regulations imposed by the Vietnamese government. Domestic service providers often express concerns about unfair competition with foreign counterparts. For example, VNPayTV, a local pay TV association, has requested that the Vietnamese government temporarily halt offshore providers like Netflix and Amazon from streaming content in Vietnam, citing heavy regulation and censorship of local programs, which offshore OTT service providers do not face.
• Contractual Freedom: With minimal statutory intervention, contractual freedom is fully respected and enforceable. Typical M&A deals involve various contractual documents (e.g., voting agreements, shareholders’ agreements). However, enforcing such agreements in Vietnam, especially against bona fide third parties, remains uncertain. Additionally, limited flexibility regarding preferred share types under Vietnamese law can complicate standard VC funding arrangements.
• Reduced Administrative Burden: Foreign-invested startups are generally less susceptible to ‘bullying’ by Vietnamese administrative bodies.
• Facilitated Expansion: Utilizing a Singapore-based entity simplifies and enhances efficiency in business expansion on a regional or global scale.

For a more in-depth discussion on investing through Singapore, please refer to this resource.

[1] Flappy Bird is a mobile game that went viral in 2014 before its creator, Nguyen Ha Dong, removed it from major app stores.

[2] This question frequently arises in startup-related events.

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

[4] Frequent inspections tire Vietnamese business owners.