Legal regulations on startup investment funds in vietnam

What exactly is a startup investment fund? How is it regulated by law? In this article, NPLAW provides essential information on the establishment, management, and operation of startup investment funds in Vietnam under current regulations.

What exactly is a startup investment fund? How is it regulated by law? In this article, NPLAW provides essential information on the establishment, management, and operation of startup investment funds in Vietnam under current regulations.

I. Definition of a startup investment fund

Clause 2, Article 2 of Decree 38/2018/ND-CP provides that: An startup investment fund is a fund formed from contributions of private investors to implement investments in innovative startups.

II. Legal framework for the operation of startup investment funds

Under Decree No. 38/2018/NĐ-CP, the main provisions include:

A startup investment fund does not have legal personality and may be established by up to 30 investors contributing capital based on the fund’s charter. An innovation startup investment fund is not allowed to contribute capital to another innovation startup investment fund.

The contributed capital may consist of Vietnamese Dong, gold, land use rights, and other assets that can be valued in Vietnamese Dong. Investors are not allowed to use borrowed funds to contribute capital to establish an innovation startup investment fund.

The investment portfolio and activities of an innovation startup investment fund include: depositing money in commercial banks in accordance with the law; and investing no more than 50% of the charter capital in innovative small and medium-sized enterprises after receiving investment.

All contributed capital and assets of the investors in the fund must be accounted for separately from the company managing the fund. Investors who contribute capital to establish the fund may agree on the authority to decide the investment portfolio, and this agreement must be specified in the fund’s charter and in the contract with the fund management company (if any).

An innovation startup investment fund may be managed under one of the following models: Investors’ general meeting and the fund management company; Investors’ general meeting, the fund’s representative board or the fund director, and the fund management company; Investors’ general meeting, the fund’s representative board, the fund director, and the fund management company.

The fund’s investors may establish or hire a company to act as the fund management company. The fund management company is responsible for carrying out the procedures to establish the fund and notifying the addition of fund management activities in accordance with the enterprise registration law when managing the innovation startup investment fund.

Unless otherwise provided in the fund’s charter, the fund management company is responsible for reporting to the fund’s representative board and the fund director on a quarterly basis the following information: Information about the fund’s investment portfolio, including the amounts invested in each innovative small and medium-sized enterprise; information about planned investments and expected divestments (if any); management costs, performance fees (if any) paid to the fund management company, the fund’s representative board, the fund director, and other service fees specified in the fund’s charter incurred during the reporting period; and other information as requested by the fund’s representative board or the fund director.

The transfer of shares by founding shareholders in the fund management company must be carried out in accordance with the provisions of the Enterprise Law.

III. Required documents for establishing startup investment funds

To establish an innovative start-up investment fund, investors shall prepare a dossier comprising the documents stipulated in Clause 1, Article 11 of Decree No. 38/2018/ND-CP, as follows:

Notification on the establishment of the innovative start-up investment fund;
Charter of the fund;
Contract for hiring a fund management company (if any);
Bank confirmation of the contributed capital amount;
Certified copies of the ID card, passport, or citizen identification card for investors who are individuals; or the establishment decision, Enterprise Registration Certificate, or other equivalent documents for investors who are organizations;
Minutes of meeting and decision of the General Meeting of Shareholders or the Board of Directors, or decision of the Members' Council or the owner, in accordance with the Charter of the capital-contributing organization, regarding the capital contribution to the fund and the appointment of an authorized representative for the capital share, accompanied by the personal file of this individual.

IV. Procedures for establishing startup investment funds

To establish an innovation startup investment fund, investors shall carry out procedures in accordance with the guidance of Article 11 of Decree 38/2018/ND-CP as follows:

Step 1: Submit the dossier

Within 5 working days from the date the innovation startup investment fund is established, the fund management company must submit the above-mentioned dossier regarding the establishment of the fund to the business registration authority where the company has its head office, before the fund begins its operations.

Step 2: Processing the dossier

The business registration authority shall be responsible for reviewing the validity of the notification and accompanying documents within 15 working days from the date of receipt of the notification.
If the notification and accompanying documents are valid, the business registration authority shall send a written document to the fund management company regarding the valid establishment of the fund.
In cases where the notification and accompanying documents are invalid as stipulated in this Decree, the business registration authority shall send a written notice to the fund management company, clearly stating the reasons and requirements for amendment or supplementation (if any).

Step 3: Information disclosure

Within 05 working days from the date of the valid fund establishment notification, the fund management company shall disclose information about the establishment of the innovative start-up investment fund on the company's website or electronic information portal (hereinafter collectively referred to as the electronic information portal).
The company shall send a copy of the fund establishment notification to the Ministry of Planning and Investment for disclosure on the National Portal for Small and Medium-sized Enterprise Support. The fund may only commence operations after the fund's information is disclosed on the National Portal for Small and Medium-sized Enterprise Support.

V. Questions on startup investment funds

5.1. How can a startup investment fund increase its charter capital?

Pursuant to Article 12 of Decree No. 38/2018/ND-CP, which stipulates the increase and decrease of capital contributions of an innovative start-up investment fund as follows:

The increase or decrease of capital contributions of an innovative start-up investment fund must comply with the following regulations: The fund's Charter stipulates the increase or decrease of the fund's capital contribution; The increase or decrease of the fund's capital contribution has been approved by the Fund's General Meeting of Investors.
An innovative start-up investment fund may increase capital by mobilizing additional capital from existing investors, or by mobilizing capital from new investors. In this case, the number of investors in the fund must still comply with the provisions of Article 5 of this Decree.

According to the above regulation, an innovative start-up investment fund increases capital by mobilizing additional capital from existing investors, or by mobilizing capital from new investors.

5.2. What is the process for notifying a capital increase?

Under Clauses 4 and 5 of Article 12:

Within 07 days after completing the capital increase, the management company must notify the business registration authority.
The authority will review the notification within 15 working days.
Upon approval, the management company must disclose the updated information publicly and notify the Ministry of Planning and Investment for publication.
The fund is responsible for the accuracy of its disclosures, while the business registration authority is responsible only for verifying procedural compliance.

VI. Legal consultancy for startup investment funds

If you require professional support in legal consultation, document preparation, or representation in dealings with state agencies, NPLAW offers comprehensive services including: