Can you tell us the current status of Private Equity/Venture Capital industry in Nepal?
PE/VC is not a completely new term in Nepal. Even though the government has recently formalized it, the investors with a large fund has been investing under the PE/VC model. Back in 2012/2013, a few companies have started investing in an informal way. Some Nepali private companies come together planning to raise fund within the team and started investing on businesses. Dolma Impact Fund enter the market with a large investment in 2013/14. It deployed Rs 2 billion in investment at a time while private investment companies were investing just around Rs 200 million rupees. Soon after Dolma, Business Oxygen enter the market with Rs 1 billion in investment by mobilizing the investments of IFC and the then DFID. Other small companies have entered the market even with a small fund.
How PE/VC can benefit business companies?
Generally, there are only two options of investment in Nepal. One is to invest utilizing own saving and the other one is to take loan from bank. Not all entrepreneurs can have huge saving to start business on their own. Moreover, the banking process in Nepal is also not that easy for loan. Thus, PE/VC can be a third option in the investment market. Creation of capital is always a challenge in a developing country like Nepal. Domestic capital alone cannot sustain the economic growth. So, there should be big foreign investment to meet the investment gap. And PE/VC could be one option. I must say, the government has introduced the rules on PE/VC at a right time.
How business companies can have access to PE/VC companies?
Recently we are practicing three models of approach in PE/VC. The very first approach is businesses or companies directly contact PE/VC seeking the fund. Second way is through the incubation centers promoted by colleges and other organizations. People can contact PE/VC through such centers as well. Lastly, we, the fund managers, ourselves look out for such business ideas where we can invest on.
In Nepal, most of PEVC-type funds are drawn from development financial institutions. How do you see their engagement?
DFIs always look for impact on investment. They want to invest on such sectors that is not just profitable but also can bring some positive impacts in the society. DFIs mostly focused on social impact, such as agriculture, climate change. And it looks more into the impact than financial returns. It provides expertise along with investment. The cost of such capital tends to remain low as they charge moderate interest rate. Other private investors may look for higher returns or the cost of foreign capital could go high for markets like Nepal which does not have any sovereign rating.
What are the challenges of PE/VC in Nepal?
As the industry is growing on its own pace, there are inherent challenges that we have to overcome. One of them is compliance. Most of the Nepali businesses or companies are weak on legal or financial compliance. It is non-existent many businesses coming through venture capital. Another trend that we see in businesses that a person takes multiple responsibilities or doing multitask instead of having right person at right place. Likewise, another big challenge is quick money. We look for quick money instead of taking time and producing quality products. Another big problem in this industry is the valuation of a business or company.
How is the return of PE/VC in Nepali market?
Talking about return, not every company can give good returns. Sometimes we may get good return within a year and sometimes small business might take a long period to provide the return. We have seen there are a lot of investors exiting the company with good return. As the market is in the initial stage, we still need to wait and see the return potential.