Although an enabling environment for VC industry is broadening, it still has a long way to go.

The four enablers that could support venture capital, help mature our entrepreneurial landscape
and improve investors sentiments are the following:
Building a robust pipeline: Despite strong commitments to support startups in Nepal, VC
investors and other facilitators are having a hard time finding promising and innovative startups
to invest with and support. A majority of the existing early-stage startups are unable to put
together viable teams, find a solid customer base or pivot their existing business model to create
value and reach the scale required for success.
Working with the government: A lack of proper legislative provisions and draconian investment
climates related to venture capital makes investors more cautious about investing in Nepali
startups. The risk associated with a startup, compounded by regulatory risks makes it all the more
challenging for VC investors to operate. There is a dire need for the government to amend some
of the regulations that impact VC.
Improving corporate hygiene: Despite promising business models, some entrepreneurs have
failed to receive funding from external equity investors including VC fund, mainly due to
corporate governance issues, including evading taxes. VC funds, especially those backed by
foreign partners have zero tolerance for tax evasion and multiple book-keeping. Investors are
reluctant to invest in unhygienic companies as it increases their reputational and financial risk.
Corporate-financed venture funds: Taking into consideration the regulatory and economic clout
required to do business in Nepal, it would be an advantage for the emergence of the VC industry
if some big business houses or commercial banks operated their own VC funds to invest in
Nepali startups.

ENABLERS FOR THE VENTURE CAPITAL INDUSTRY IN NEPAL

While the local venture capital (VC) industry is still in its pre-fledging phase, the future
prospects in Nepal have started to brighten up. With a relatively stable economy and rapidly
growing disposable income, it should come as no surprise that the demands for investment
continue to increase. VCs are finding several sectors particularly attractive information
technology, education, healthcare, agriculture, and tourism amongst others. Investment
opportunities are also arising in more niche sectors like organic agri-business and handicrafts.
Although an enabling environment for VC industry is broadening, it still has a long way to go.
The four enablers that could support venture capital, help mature our entrepreneurial landscape
and improve investors sentiments are the following:
Building a robust pipeline: Despite strong commitments to support startups in Nepal, VC
investors and other facilitators are having a hard time finding promising and innovative startups
to invest with and support. A majority of the existing early-stage startups are unable to put
together viable teams, find a solid customer base or pivot their existing business model to create
value and reach the scale required for success. Considering the current situation, a growing
number of actors in the entrepreneurial landscape in Nepal recognize that early stage support is a
key intervention in addressing the existing deal-flow challenge and to catalyze
entrepreneurship. Early stage support could come in the form of a platform similar to Angle
Network. This network will connect early stage entrepreneurs to sector experts and potential
investors. Through this platform, entrepreneurs can leverage experts vast network, technical
acumen and advise on strategy as well as execution. Last months Udhyami Bhetghat- Krishi, a
sector focused networking event organized by Udhyami Impact Fund was such an attempt.
Working with the government: A lack of proper legislative provisions and draconian investment
climates related to venture capital makes investors more cautious about investing in Nepali
startups. The risk associated with a startup, compounded by regulatory risks makes it all the more

challenging for VC investors to operate. There is a dire need for the government to amend some
of the regulations that impact VC. Some of the regulations it needs to revisit are 1) 3 years
locked-in period for pre- IPO investors 2) Issues related to issuing shares at premium 3)
Sectorial limit and minimum threshold limit on FDI and 4) Double taxation if investment is
made in non-listed companies through a special purpose vehicle. Apart from creating an enabling
regulatory environment, the government should either start its own VC fund or else act as an
anchor investor in a domestic fund. This will improve confidence significantly among future VC
funds. The recent relaxation made in blacklisting provisions by Nepal Rastra Bank for foreign
equity investors is encouraging and sends a positive signal to attract foreign VC capital in Nepali
start-ups.
Improving corporate hygiene: Despite promising business models, some entrepreneurs have
failed to receive funding from external equity investors including VC fund, mainly due to
corporate governance issues, including evading taxes. VC funds, especially those backed by
foreign partners have zero tolerance for tax evasion and multiple book-keeping. Investors are
reluctant to invest in unhygienic companies as it increases their reputational and financial risk.
Also, the information asymmetry between the entrepreneur and investors makes it impossible for
the investor to value the performance of a company. Entrepreneurs that plan to approach eternal
equity financing need to ensure that their ventures have addressed weak corporate governance
issues. In the short term, underpaying taxes might save you a few extra rupees, but in the long
run it will have a very negative impact on your companys value. Corporate governance practices
needs to be on par with international standards, enhancing the credibility of the company.
Corporate-financed venture funds: Taking into consideration the regulatory and economic clout
required to do business in Nepal, it would be an advantage for the emergence of the VC industry
if some big business houses or commercial banks operated their own VC funds to invest in
Nepali startups. The foray of influential private sector players into VC investing could carve the
way for future standalone VCs. Additional, there could be a lot of synergy between corporations
and startups. Corporate houses can leverage startups for research and development and supply
chain integration or simply support them through their Corporate Social Responsibility (CSR)
agenda. Whereas for startups, corporations could be potential customers, intellectual capital
providers or future acquirers. Also, startups will have easy access to sector experts and advice
from quality members who have been there-done that. Chaudhary Groups announcement to
setup an impact fund to invest in social enterprises can be looked at as a baby step for Nepal Inc.
toward VC investing.