Startup Support: A Decade of Waiting

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Startup Support: A Decade of Waiting

The government introduces policies aimed at supporting startups every year. However, it took nearly a decade for the government to implement subsidised loans for potential startup ventures. This year, the government announced an ambitious plan to set up a Rs 1 billion startup fund.

 NewBiz Report

About a decade ago, the term ‘startup’ started gaining traction in Nepal as companies like eSewa, Foodmandu and Sastodeal made significant strides with limited capital. Despite their modest funding, their innovative ideas disrupted the market and inspired many, especially young entrepreneurs, eager to pursue their own ventures. However, one major hurdle persisted: access to capital.

To address this issue, the government, through the budget for fiscal year 2014/15, announced its intention to finance entrepreneurs with promising ideas. Unfortunately, this initiative did not come to fruition. Over the past decade, while discussions about supporting startups continued, they rarely translated into concrete assistance for either established or new ventures.

Stakeholders have criticised the government for its sluggishness and delays which have hindered support for even a single startup. They pointed out that successful companies like eSewa and Foodmandu managed to navigate market challenges through innovative ideas and backing of venture capitalists and private equity.

Recently, the government has unveiled even more ambitious plans for startups. Presenting the budget for fiscal year 2024/25 in Parliament last month, Finance Minister Barsha Man Pun proposed establishing the Nepal Startup Board and launching a startup fund of Rs 1 billion. These initiatives aim to boost youth participation in entrepreneurship and foster innovation. However, experts view this plan as overly ambitious and unlikely to materialise in the near future.

Every year, startups in Nepal face disappointment as the government makes promises it fails to keep. Each annual budget includes ambitious plans that remain unfulfilled.

Subsidised Loans, Finally

After a decade since the initial announcement, the government is finally ready to implement its startup support policy. Recently, the Industrial Enterprise Development Institute (IEDI) released a list of 183 startups eligible for loans totaling Rs 194 million. These loans will be provided at a subsidised annual interest rate of three percent to help these businesses expand.

Despite this progress, Binay Devkota, CEO of Clock b Business Innovations, expresses concerns about the long-term sustainability of these provisions. "Can the government sustain support for startups throughout the year?" he questioned. "Consistency in programs is crucial to maintaining trust in the government." 

Nevertheless, he acknowledges the importance of this initiative, especially at a time when many startups feel overlooked.

Umesh Kumar Gupta, Executive Director of the IEDI, Institute, says amounts ranging from Rs 500,000 to Rs 2.5 million will be provided to the selected startup ventures. "Most projects have been allocated between Rs 1.5 million and Rs 1.7 million, with five projects receiving Rs 2.5 million," he explained. 

The disbursement of these loans, facilitated through Rastriya Banijya Bank Ltd, is likely within the current fiscal year.

Experts say that while private investors have been the primary catalyst for the growth of startups in Nepal, they also agree that the government has made some efforts to create a more supportive environment for startups.

False Promises

Every year, startups in Nepal face disappointment as the government makes promises it fails to keep. Each annual budget includes ambitious plans that remain unfulfilled. The government often neglects these initiatives throughout the year, only to reintroduce them or propose even grander schemes in subsequent budgets.

Eight years ago, in its budget for fiscal year 2015/16, the government announced a Rs 500 million fund to support startups and innovators. In the 2019/20 budget, a cash subsidy of up to Rs 5 million was proposed for promising new businesses. This failed to materialise as its implementation procedures stalled and no progress was made. Then, in the 2020/21 budget, the government established a Rs 500 million startup fund to provide loans at 2% interest rate, aimed at supporting innovative entrepreneurs affected by the COVID pandemic.

Likewise, the 2021/22 budget allocated Rs 1 billion to support startups, offering firms up to Rs 2.5 million in seed capital at 1% interest rate without requiring collateral. Unfortunately, this initiative also remained unimplemented. This year, the same promise is being reiterated. In the latest budget announcement, the finance minister outlined plans to establish the Nepal Startup Board and initiate a Rs 1 billion startup fund to promote youth engagement in entrepreneurship.

Startups Policy is Finally here

After a decade of lobbying and policy dialogues by startups, the government has finally introduced the National Startups Policy, 2023. The policy aims at supporting investment in startup companies. This policy includes detailed strategies to provide incentives, enhance investment, streamline policy and legal regulations and ensure business security.

The policy envisions incentives related to the registration and renewal of enterprises, as well as registration of industrial properties. "Support and concessions will be extended to entrepreneurs for seed funding, human resource development, consultancy and technical assistance, concessional loans, and cash incentives on exports," the policy states. Additionally, the government plans to exempt income tax for up to 10 years from the date of their establishment. 

To support startups, the policy includes provisions for banks and financial institutions (BFIs) to offer loans at concessional interest rates. The startup policy requires BFIs to allocate a specific percentage of their loan portfolio to startup enterprises. However, the government has not yet enforced this requirement for BFIs.

Challenges in Implementation

Kavi Raj Joshi, the founder and managing director of NEXT Ventures Corp, says that while the government has shown an intention to support startups through various policies, it often neglects consultation with actual stakeholders. "The government seems to have lost its focus on startups, as it hasn't even studied startup policies from neighbouring countries like India," he added. 

Joshi acknowledges that the introduction of policies and new directions for startups is a positive move, but calls for a clear vision for effective execution.

The main reason, according to Joshi, is the government's lack of a concrete support strategy for startups, which is eroding its credibility, especially among the youth. "A significant portion of the population, particularly those aged 20-35, are either running startups or aspiring to do so," he explained. "When the government repeatedly fails to meet its commitments to this group, it erodes their trust and has lasting negative impacts."

In the previous fiscal year, the government pledged to foster a startup ecosystem in Nepal to stimulate innovation and entrepreneurship. Plans included setting up an incubation centre in Kathmandu to transform entrepreneurial ideas into viable businesses. Additionally, the government aimed to attract venture capital and private equity investments into the startup sector, while encouraging foreign investment through specialised companies focused on innovation and entrepreneurship. A budget of Rs 1.25 billion was allocated to support these efforts. However, these plans failed to materialise. 

The government's approach to supporting startups, however, appears inconsistent and confused. It fluctuates between offering grants, discussing loans, proposing subsidised loans, and even suggesting loans without collateral.

Instability and Lack of Vision

According to Devkota of Clock b Business Innovations, the main reason behind policy uncertainties is unstable government in Nepal. "Nepal lacks a stable government, and this instability results in each new administration introducing its own policies while neglecting those of its predecessor," he explained. Devkota emphasises the need for the government to prioritise the establishment of a strong and stable ecosystem for startups. He believes that consistent policies and long-term planning are crucial for fostering a vibrant startup ecosystem in the country.

Joshi says the government is primarily focusing on providing loans and funds to startups instead of creating a robust startup ecosystem. "While this is beneficial, Nepal has not worked on establishing a conducive startup ecosystem. For example, the government should make it easier for international funds to come into Nepal, facilitate the inflow of foreign currency and simplify the process for startups to obtain loans," he added.

Private Sector as the Driving Force

Startup stakeholders argue that the success of startups in Nepal is largely attributable to the support from angel investors and private equity funds rather than government initiatives. These private entities have played a crucial role in sustaining and enabling disruptive startups to thrive in the market.

During the early to mid-2010s, when the startup ecosystem in Nepal was burgeoning, incubators and private equity funds were very active. Their backing, combined with the dedication of entrepreneurs, enabled some startups to achieve remarkable success.

Experts say that while private investors have been the primary catalyst for the growth of startups in Nepal, they also agree that the government has made some efforts to create a more supportive environment for startups. Initially, Nepal's policy landscape was not very startup-friendly. For example, ridesharing services were not legally recognised at first. However, due to continuous advocacy from startups and public pressure, the government eventually enacted regulations to legalise and govern these services.

Devkota believes that the concept of startups would have already vanished from Nepal if it were not for the support of private equity firms, development finance institutions (DFIs), incubators and accelerators in sustaining the startup ecosystem. "The successful startups achieved their status through their struggles and efforts, and they were pushed and supported by various stakeholders. Although this alone was not the reason behind their success, it certainly helped them reach new heights," Devkota explained.

Way Forward

In the last fiscal year, the government introduced a policy allowing IT companies that provide services abroad to invest 10% of their profits overseas. “This policy encourages companies to expand and establish themselves in foreign markets. However, I don't believe the government has put the necessary measures in place to implement this provision,” said Devkota.

The government's approach to supporting startups, however, appears inconsistent and confused. It fluctuates between offering grants, discussing loans, proposing subsidised loans, and even suggesting loans without collateral. Stakeholders say it is really confusing. 

“The government must be serious and develop a concrete plan - whether it is grants, loans or a mix of both. It needs to work consistently on implementing these plans. Startups can only thrive when policies are stable,” Devkota added.

Another issue is that the government's focus is predominantly on providing loans and financial support to startups rather than developing a robust startup ecosystem. “While financial support is beneficial, Nepal lacks a conducive environment for startups. For example, the government should focus on easing the process for international funds to invest in Nepal, including simplifying the inflow of foreign currency,” Joshi explained.

Joshi believes that Nepal cannot build a strong startup ecosystem if it relies solely on donor-funded projects. “The startup ecosystem needs more than just donor funds; the government must actively foster a supportive environment. Another major issue is that startups struggle to secure funds in their initial stages. Investors usually step in only after startups have overcome significant hurdles and can bear more risks," Joshi said. "Currently, there are limited platforms for young entrepreneurs to pitch their ideas,” he said, emphasising the need for more opportunities for emerging entrepreneurs to present their concepts. 

Startups will thrive only if policies are stable

Ensuring sustained support for startups throughout the year is essential for maintaining trust in the government. Nepal's lack of a stable government often results in each new administration introducing its own policies while neglecting those of its predecessor. Therefore, it is imperative for the government to prioritise establishing a robust and stable ecosystem for startups. Consistent policies and long-term planning are critical for nurturing a vibrant startup environment in the country.

The success of startups is often attributed to their resilience and the support they receive from various stakeholders. While this support alone does not guarantee success, it plays a pivotal role in enabling startups to achieve significant milestones. The government must adopt a serious approach and develop a concrete strategy, whether through grants, loans or a combination of both. It is crucial to consistently implement these initiatives. Only with stable policies can startups truly thrive and contribute meaningfully to the economy. 

Policies are introduced without consulting actual stakeholders

The government often introduces policies to promote startups without consulting actual startup stakeholders. There appears to be a lack of focus on startups as evidenced by its failure to study successful startup policies in neighbouring countries like India. While drafting policies and setting new directions for startups are positive steps, effective execution requires a clear and cohesive vision.

One of the primary reasons behind failure of startup policies in Nepal is the absence of a coherent support strategy of the government. This deficiency erodes the government's credibility, particularly among the youth aged 20-35, many of whom are actively involved in startups or are aspiring entrepreneurs. When the government repeatedly fails to deliver on its promises to this demographic, it undermines their trust, leading to lasting negative consequences. Furthermore, instead of fostering a robust startup ecosystem, the government predominantly focuses on disbursing loans and funds to startups. While financial support is beneficial, Nepal has yet to cultivate an environment truly conducive to startups. For instance, the government should streamline procedures to facilitate the inflow of international funds into Nepal, ease foreign currency transactions, and simplify the loan application process for startups. 

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