Nepal Not yet a Suitable Market for Conventional PE/VC

In any entrepreneurial ecosystem, founders need a robust support system. They require mentors for guidance, as well as access to legal and accounting services, startup funds and management advice. As ventures grow, they also need access to growth capital. Entrepreneurs typically create either products or services—products can be tangible goods or digital solutions, while customers may be domestic or international.

The number of entrepreneurs in Nepal is steadily increasing. While most were historically homegrown, a new trend has emerged: Nepali youths who study abroad are returning to start businesses at home, bringing global exposure and fresh perspectives.

Mentorship in Nepal’s startup ecosystem remains largely informal. Although government programs for funding and loans often mention mentorship, in practice it exists mostly on paper. Entrepreneurs need capital, but mentorship and guidance are equally vital—and yet these remain largely uncommercialized and unstructured.

On the legal front, the market has only recently seen a handful of lawyers specializing in startup-related issues. Starting a business remains challenging. Banks demand collateral, forcing many first-time founders to rely on personal and family networks for initial funding. Today’s youth are increasingly entering the product and service space, particularly digital services. Much of this work, however, is still outsourcing—handling foreign contracts and leveraging Nepal’s relatively low labor costs. What the country lacks are homegrown digital products like eSewa and Fonepay. Building such native products is expensive, and Nepal’s funding ecosystem has not yet matured to support them adequately. Even pioneers like eSewa struggled significantly in their early years before reaching scale.

Reliance on outsourcing also carries risks for the future. With the rapid rise of AI, Nepali tech entrepreneurs in outsourcing face potential disruption, underscoring the urgent need to develop indigenous digital products and strengthen support mechanisms within the ecosystem.

Nepal is not yet a suitable market for conventional PE/VC. What the country urgently needs is an SME-focused fund that provides financing in the range of Rs 3 million to Rs 30 million—covering businesses from the evolution stage to growth. Currently, a significant funding gap exists. Government schemes provide up to Rs 2.5 million. Beyond Rs 5 million, funds like Business Oxygen step in, while Dolma Impact Fund operates at a much higher ticket size, starting at Rs 100 million. This leaves a wide void for early- and growth-stage businesses, making it especially difficult for startups to scale.

Another overlooked opportunity lies in public procurement. If startups were given access to government contracts, it would create much-needed market space. For instance, Nepali drone companies have the capacity to deliver goods to rural and hard-to-reach areas, yet they are rarely considered in public supply chains.

Entrepreneurship in Nepal has gained momentum in recent years, with more role models emerging and public awareness increasing. However, the journey remains incredibly challenging. The ecosystem still lacks strong support mechanisms, making it difficult for young people to pursue entrepreneurship as a career.

A comparison illustrates the gap. In the United States, a writer may receive an advance to focus solely on writing without worrying about survival. In Nepal, entrepreneurs must constantly struggle to sustain themselves while building their ventures. Without systemic support, many innovative ideas are lost before they can grow.

Freelancing has also emerged as an attractive alternative for young Nepalis. With access to foreign clients and a steady income via online platforms, many youths prefer freelancing over entrepreneurship. Compared with the risks and uncertainties of building a startup, freelancing seems safer and more rewarding in the short term.

Nepal was not yet ready for PE/VC. Expecting these funds to flourish without a pipeline is like expecting kindergarten children to attend university without preparation. PE/VC could have invested in already established small businesses, helping them grow, but they failed to create a viable pipeline. The ecosystem for venture capital has not yet been properly built.

A glaring financing gap exists between Rs 2.6 million and Rs 30 million. If a young entrepreneur needs, say, Rs 20 million, they often have no choice but to turn to friends and family. This funding vacuum is one of the main reasons why startups fail at early stages.

On the regulatory front, Securities Board of Nepal (SEBON) recognizes PE/VC funds but does not regulate angel investors. By definition, angel investors provide funding directly to private companies, yet in Nepal they remain informal and unregulated. SEBON officials argue that regulation is necessary only when companies go public, but if PE/VC, which also does not go public, is regulated, angel investors should similarly fall under a formal framework.

Currently, angel investors must register as shareholders at the Office of Company Registrar (OCR) when they invest. This creates unnecessary burdens and risks. For example, if an angel invests Rs 1 million, their liability should be capped at that amount. However, under current rules, if a promoter fails to pay VAT or other taxes, the angel investor can also be penalized. This regulatory gap discourages genuine angel investors, making it extremely difficult for them to operate in Nepal.

This opinion article was originally published in September 2025 issue of New Business Age Magazine.