The recent announcement of the government to provide seed fund to innovative startups appears promising. However, stakeholders are doubtful about its implementation.
--BY NIKEETA GAUTAM
After much delay, the government finally endorsed ‘Innovative Start-up Capital Grant Guidelines, 2020’ last month. This is the first time the government has ventured into financing startups that have been primarily led by the private sector.
As per the guidelines brought by the Ministry of Finance, the government will provide grants to inventors, entrepreneurs, business persons and institutions that have innovative ideas and cannot raise capital by themselves. The capital, not exceeding Rs 5 million will be provided to the selected ideas.
The endorsement of the guidelines has invited mixed reaction from the stakeholderswho say the government’strack record on promoting entrepreneurship has been dismal. Successive governments initiated programmes such as youth self-employment, SME funding and women entrepreneurship development but almost all courted controversy, primarily due to lack of transparency and accountability.
The work procedure says that funding will be provided to innovative ideas related to tourism, IT, health service, technology development and job creation. Experts, however, have doubts regarding the monitoring mechanism of the government as the committee formed for the fund does not have expertise in startups.
The committee for the execution of the initiation will consist of members from the National Planning Commission (NPC) and representatives from Ministry of Finance, Ministry of Industry, Commerce and Supplies, and Ministry of Science, Education and Technology. As per theguidelines, the announcement for the call for candidates will also be published on the website of NPC.
“How can this entity, which has the responsibility of the country’s development planning, oversee execution of startup funding?” questions Narottam Aryal, president of King’s College that runs an incubation centre for budding entrepreneurs. And monitoring is the most challenging aspect of all. The government will need a separate mechanism to monitor startups, Aryal adds.
Government Should Not be a Player
Opaque dispersion of funds has led to distrust among stakeholders, leading to failure of many such programmes. The significance of the pre-investment activity, post-investment activity and holistic support are high for such campaigns. Looking at the back-to-back failures of the government’s startup schemes, entrepreneurs observe that collaboration with private business accelerators would be more effective. Experts criticise the government’s role as a player in the ecosystem. “Government should be on board and play the role of umpire,” Ashutosh Tiwari, co-founder of Entrepreneurs for Nepal and managing director of Safal Partners.
According to him, they should give the responsibility of the management to private companies and give half of the required capital for training entrepreneurs. “This will give fuel to the accelerators,” he says.
“Any entrepreneur need to invest some seed capital first while starting venture. Only then they will have commitment towards their ideas,” says Siddhant Raj Pandey, chairman and CEO of Business Oxygen (BO2), a private equity fund. He thinks rather than distributing cash to start business ventures, youths who aspire to be entrepreneurs should be mentored on working on pitch book, attracting investors and growing their management skills. “The mentorship cost is high, so this should be government’s priority,” says Pandey. Aryal agrees with Pandey. “The government has to provide funds but give the responsibility of execution to startup incubators, educational institutions or accelerators who are experienced and have expertise in this area. This is the system in every country,” says Aryal. “It is risky to invest in startups. That is why Venture Capital has been entering the market,” he adds.
No Conceptual Clarity
Private sector players in the startup ecosystem say that the government hasn’t done the necessary homework required to understand the concept. They urge the government to form a comprehensive policy and also include experienced private sector entities while bringing in any such initiatives to implement it eff ectively. Tiwari says that startups begin from scratch but their vision is big. “Startups have high risk and high reward,” Tiwari adds “And it is not necessary that all startups have to become successful enterprises in the future. But a few successful ones can create massive wealth equal to all failed startups,” says Tiwari. Also, it is viewed that a lack of comprehensive startup policy has been hindering the proper execution of schemes. “The government is announcing schemes without having knowledge of the concept and the process. It should recognise that and work rigorously on bringing policy,” says Aryal. According to him, due to the lack of conceptual clarity about the word ‘startups’, several government initiations and campaigns are going in vain. Advocate SemantaDahal, a partner at Abhinawa Law Chambers, opines that an ‘inventor’ is the wrong term for startup funding. He says as invention cannot be done without signifi cant research, the word ‘inventors’ must be removed. According to Aryal, the criteria must include innovation, tech-driven and scalability, so that the companies meet the defi nition of a startup. Dahal, however, says that ‘innovative’ is a diffi cult criterion in terms of Nepal. “If we see the number of startups, even the popular startups now, we don’t fi nd them innovative. This term is very stringent,” says Dahal.
Kavi Raj Joshi, founder and managing director at NEXT Venture Corp, a business accelerator, says that it is good to make an action plan before announcement and implementation. Joshi welcomes the announcement. “Business accelerators and incubators are not giving grants. So, if the government provides grants, it will be very good for businesses that have to engage in research and development (R&D),” says Joshi. Experts view that giving grants to businesses is not healthy. “Rather than grants, it will be eff ective to do handholding, mentorship, tax exemption and give a rebate for raw materials,” says Aryal, adding that grant model is not for entrepreneurship. Joshi nevertheless is sceptical regarding the government’s intent. “I hope this will not be just another popular scheme of the government,” he mentions. Bhusan Shah, CEO of Nepal Agribusiness Innovation Centre (NABIC) says that the government should maintain transparency while giving out the grants. “We have been hearing through newspapers that genuine entrepreneurs don’t get access to the fund,” Shah adds. “It is important to be transparent about the criteria, clarity relating to eligibility and announcement and selection process. If we just give money and settle, it is like pouring water on sand.” “Every update on the process of the announcement, selection, engagement and all the progress should be updated online,” mentions Tiwari, adding that this will disclose every process and assure the taxpayers that their funds are being utilised properly. The startup ecosystem has been growing rapidly over the past few years. Traditional business houses start their businesses with huge capital and expertise. The model is diff erent for startups as most of them start with what they have. As the startup vibe is rapidly spreading in the country, there are lots of people coming up with innovative ideas. Some ideas fail, and some aren’t well executed. Aryal says that the government must invest in startups which are in the growth phase. “Anyone can bring good ideas. So, it is worthless to invest in ideas,” he says, adding, “The entrepreneurs should have achieved a market attraction or at least produced a prototype.” Another important point which discourages people from starting a business is the compliances. Easing the compliances can also bring positive changes to improve the startup scene in Nepal. “The government should do fl exible handholding to ease the business compliance,” suggests Dahal.