The New Era of Business Innovation
- From hiring taxis and motorbikes for rides, many Nepal are now acclimatized to the convenience offered by ride-sharing applications. The introduction of Tootle and now Pathao has completely changed the way people hire rides in cities.
- The urban populace of Nepal increasingly prefers digital payments over cash payments. Thanks to mobile wallet services like eSewa, Fonepay, and Khalti, Nepal is on its way to gradually becoming a cashless society.
- E-commerce platforms such as Daraz and Sastodeal have revolutionized the shopping habits of Nepalis by offering convenience to consumers to buy a wide range of goods including daily essential items.
- Foodmandu, a food delivery service has not only transformed the eating habits of Kathmanduites but also encouraged other players like Bhojdeals and Foodmario.
- Hamrobazar has transformed the classified marketplace in Nepal by offering a digital platform where individuals can easily buy and sell goods and services without the involvement of a third party.
- Hamropatro, a popular calendar app has become a leading news aggregator in Nepal. Hamropatro has provided a platform to numerous small news media outlets to reach a wider audience.
the HRM
These are a few success stories of entrepreneurship and innovation that Nepal has witnessed in the last decade. One thing is common among the businesses, they all brought disruption in the market, carved new paths in doing business, and made the lives of their customers easier. What makes their journey a standout is none of the companies were set up by big businesspersons but by enthusiastic innovators and dreamers coming from the Nepali middle class.
The decade of 2010-20 saw the country going through a protracted political transition before the promulgation of the new constitution in 2015 and the country transforming into a federal democratic republic. While the dreams of economic development and prosperity as claimed by political parties failed to realize, Nepal underwent a silent revolution during the past decade that is changing the entrepreneurial landscape of the country.
The evolution and growth of the Nepali startup scene is just over two decades old. However, within this period, the Nepali startup movement has democratized entrepreneurship, as access to capital, networks, and knowledge has become more attainable for aspiring entrepreneurs, regardless of their family or financial backgrounds. This has offered a level playing field to aspiring youths, making entrepreneurship more inclusive and fostering an environment to realize innovative and disruptive ideas in business.
Over the years, the startups that came into the scene have brought a profound change in consumer behaviors, created hundreds of thousands of new jobs, and forced the government to think about bringing policies to support the budding business ecosystem.
The government is finally in the process of introducing an e-commerce law as well as ride-sharing guidelines. The e-commerce bill has reached the National Assembly. Similarly, eight years after it first announced funding for startups, the government has also issued the procedure to provide state financing for such businesses. The Ministry of Industry, Commerce and Supply on March last week issued the long-awaited “Startup Enterprise Loan Fund Procedure 2079” which enables startups to get loans at subsidized interest rates.
The fact that the government has started to listen and work to facilitate new businesses is testimony to the success of the Nepali startup ecosystem. And, it’s all due to a boom of technology-driven innovation in various sectors including information technology, e-commerce, digital payment, agriculture, hospitality, education, and entertainment. The impacts of companies such as f1Soft International, Khalti, Sastodeal, Foodmandu, Tootle, Upaya City Cargo, Sajilo Sewa, and Hamrobazar, among a few others, have forced the government to act.
Kavi Raj Joshi, one of the founders of Next Venture Corp, recalls the pre-Covid years from 2015 to 2019 as a golden period for the Nepali startup scene. “That was a time when the startup ecosystem started to foster. However, a slowdown occurred after the Covid-19 pandemic began. But I think the efforts in these years will continue to yield results,” said Joshi.
According to stakeholders, the pandemic and subsequent economic slowdown have been devastating for the startups as funding sources dried up, and rising operation costs led to the closure of more than 30 percent of such companies.
Transformative Period
Serious discussion about developing the startup ecosystem in Nepal began around 2009-10 and gained prominence after Ujjwal Thapa and Ashutosh Tiwari through the Facebook page Entrepreneurs for Nepal started the ‘Last Thursday with Entrepreneur’ series which led to discussions and debates about startups and entrepreneurship.
At that time, several organizations and individuals emerged as catalysts for the burgeoning startup scene. The likes of Viruwa Ventures, Entrepreneur Lab, and Idea Studio laid the foundation for nurturing the entrepreneurial aspirations of youths in Kathmandu.
Similarly, the establishment of One to Watch, True North Associates, and Next Venture Corp not only provided startups with a platform for alternative financing but also for mentoring and guiding. The accelerator programs launched by these three companies, namely Rockstart Impact, Enterprise Nepal Business Accelerator, and Next Launchpad became instrumental in the growth of new businesses.
Over time, the accelerators underwent changes in their operational models. “With the startup ecosystem gradually maturing, accelerators are increasingly emphasizing sustainable businesses, not just focusing on ideation stages but also on serious business ventures,” said Joshi.
Along with accelerators, business incubators also played a crucial role in fostering entrepreneurial growth in Nepal. The pioneering incubator, Biruwa Ventures, transformed into a consulting company Biruwa Advisors. Nepal Communitere, a not-for-profit, operates I3 Business Incubation Program. Antarprerana initiated Nava Udhyamshala and now ventured into entrepreneurship development consulting.
Today, Nepal’s startup scene is undergoing a transformation, with an increased focus on sustainable businesses. The accelerators, incubators, and fund managers now encourage startups to consider the long-term viability and environmental impacts of their business, reflecting the growing maturity and aspirations of the ecosystem.
Changing Consumer Behavior
A few startups in Nepal have completely changed the habit and behavior of consumers. Although some companies have lost their markets over the years, they created a space for newcomers and showed startup business has the potential to flourish in the country.
To name a few, Tootle, Foodmandu, and Sastodeal helped to significantly transformed consumer behavior in Nepal. These startups leveraged technology to revolutionize the transportation, food delivery, and e-commerce sectors, respectively, resulting in a substantial impact on the way Nepali consumers engage with these services.
Tootle, a ride-sharing platform founded by Sixit Bhatta in 2017, took no time to capture the market. It connected motorbike owners with passengers in need of transportation. By utilizing a mobile app, Tootle disrupted the heavily-syndicated taxi business in Nepal as it brought a convenient and cost-effective mode of transportation, especially for short distances in congested urban areas. Not only it provided convenient rides, this ride-sharing platform empowered motorcycle owners to become micro-entrepreneurs by providing them with an opportunity to earn income through ride-sharing.
In the food delivery space, Foodmandu has become a leading platform in Nepal. It has revolutionized the way people order food, bringing numerous restaurants and their menus onto a single platform accessible via a mobile app and website. Foodmandu has expanded the choices available to consumers, allowing them to explore various cuisines and dining options conveniently. It has also facilitated the rise of virtual kitchens and cloud kitchens, enabling others such as Bhojdeals and Foodmario to launch delivery-only restaurants without the need for a physical location.
While Sastodeal which began in 2011 may be behind the industry leader Daraz, many credit the home-grown company for starting the e-commerce movement in the country. Launched by Amun Thapa, Sastodeal transformed the way Nepali consumers shop, paving the way for foreign companies like Daraz to come and invest in the Himalayan country. Sastodeal addressed this gap by providing a wide range of products across different categories, including electronics, fashion, home appliances, and more. Through its user-friendly website and mobile app, Sastodeal has made online shopping accessible to a larger audience, overcoming barriers such as geographical limitations and lack of physical retail presence. The convenience of doorstep delivery and competitive pricing offered by Sastodeal has encouraged more Nepali consumers to embrace online shopping as a preferred mode of retail, thereby significantly impacting consumer behavior.
According to Joshi, had there been no Tootle and Satosdeal, Pathao and Daraz would not have come to Nepal. “Urban transportation would not be decentralized this way. Even Uber tried to enter the Nepali market multiple times, but it couldn’t. When Sixit Bhatta started Tootle, it changed consumer behavior. That’s when Pathao made investments in Nepal. The same can be said about Daraz which saw an opportunity in Nepal following the success of Satodeal,” said Joshi.
The Disruptors
First Tootle and now Pathao have transformed the public transportation landscape. By offering a convenient and efficient platform for booking rides, these platforms made commuting hassle-free for the public. Their technology-driven approach and commitment to solving daily transportation problems have provided an alternative to common people in Kathmandu as well as created new job opportunities.
Nepal’s digital payment service providers have reshaped the payment ecosystem. The likes of eSewa, Fonepay, and Khalti, changed the payment ecosystem by providing their users a comprehensive platform for digital inter-bank transactions. By integrating various digital wallets and partnering with numerous banks and financial institutions, Fonepay, a f1Soft company, has created a seamless payment experience for consumers and merchants alike. Its widespread adoption and exponential growth have led to a significant reduction in cash transactions, transforming the way people make payments in Nepal. The company is even preparing to issue IPOs to the general public.
eSewa, established in 2009, has emerged as a pioneer in the digital payment service provider industry. The f1Soft com,pany become a household name, transforming the way Nepalis conduct their financial transactions. By offering a digital wallet that encompasses a wide range of services, eSewa has simplified the process of paying utility bills, recharging mobile phones, buying movie tickets, and even paying school fees. Through its extensive network of merchants, agents, partner banks, and financial institutions, eSewa has made these services easily accessible to customers across the nation. The convenience and efficiency of eSewa have disrupted the traditional methods of bill payments and financial transactions, making it an indispensable part of the everyday life of many of its users.
According to Joshi, payment startups decentralized the banking system. “Payment service has now become easier. Our digital payment ecosystem has now become mature. And, in the food delivery sector, there have been significant advancements. Whoever has the ability to cook good food, they are opening virtual restaurants. The development of information technology has made the concept of virtual restaurants and any other related concepts easily achievable,” he said, further adding that the concept that restaurants in downtown cities or crowded areas will earn more money has been challenged by the emergence of virtual restaurants.
The healthcare industry is undergoing significant change. Rather than solely relying on hospital visits when experiencing discomfort, there are now companies that proactively offer a wide range of healthcare services. Hamro Health is one such company that sends health reports of every child to both the school and parents. They conduct regular tests such as weekly check-ups, monthly OPDs (Outpatient Departments), mental health checks every six months, yearly dental check-ups, and eye check-ups every three months. This systematic approach ensures that comprehensive data is collected, enabling the creation of a three-generation medical history. This disruption in healthcare is leading to a more proactive and preventive approach, allowing for early intervention and improved overall healthcare outcomes.
Veda, a school management software, has established its presence in Nepal and Brunei, serving as a reliable solution for 900 schools in these countries. With its success in these regions, Veda is also expanding its reach to India and Bangladesh, aiming to penetrate the education markets there. Similarly, My Second Teacher, an online learning platform, has gained significant traction in Nepal. While online learning is a relatively new concept in Nepal, My Second Teacher has emerged as a promising platform.
The Impact of the Covid-19 Pandemic and Economic Downturn
For many aspiring entrepreneurs, the Covid-19 pandemic and subsequent economic slowdown came as the biggest setback. Many have been forced into financial problems with a decline in market demand due to a reduction in the purchasing capacity of people.
While e-commerce and online education startups remained have been seen as relatively stronger to face the whirlwinds, those working on the business-to-business model, and service providers either struggled or have collapsed, according to the industry insider. Experts say the impacts of the pandemic and the economic downturn on startup businesses are yet to be fully understood.
The country’s economic woes have resulted in a reduction in investment in startups. Investors are hesitant to invest in businesses that are struggling to survive, and many startups are finding it challenging to secure funding. According to experts, the lack of investment has long-term consequences for the growth and development of startup businesses in Nepal.
“The aftermath of the pandemic and the ongoing global recession caused by the Russia-Ukraine war have led to a decrease in foreign investments making it difficult for companies to secure additional financial injections. Just as Nepal was poised to gain momentum in 2021 due to increased government seriousness, global challenges emerged, further complicating fundraising efforts for startups. This has not only affected Nepal but also created difficulties for prominent Indian startups like Oyo and Byjus,” said Suman Rayamajhi, Managing Director of Upaya City Cargo. According to him, investors are becoming increasingly reluctant to finance business projects unless they see a tangible return, as they seek returns beyond mere valuation increments. “This has added to the challenges faced by startups. In response to this, Upaya made a crucial change to the business model in 2022,” said Rayamajhi, adding, “Previously known as a tech startup, we now position ourselves as a technology-enabled logistics company. This shift has instilled confidence in investors, emphasizing that we are more than just a startup. As a result, we anticipate turning profitable in the next fiscal year.”
Delayed Promises
The government has repeatedly promised to support and foster startups and innovators only to delay it further. In the budget for the fiscal year 2015/16, the government announced a Rs 500 million fund to groom startups. Again, in FY 2019/20, the government announced a cash subsidy of up to Rs 5 million for promising new businesses. While the government did some work in this regard but the work procedure did not see the light of day.
In FY 2020/21, the government again formed a Rs 500 million startup fund to issue loans at a two percent interest rate. The National Planning Commission was designated as the agency to implement the fund. However, the plan to provide loans to startups at subsidized interest rates got stalled. In the federal budget of FY 2021/22, the government provisioned a fund of Rs one billion for startup promotion.
With the Ministry of Industry, Commerce and Supply finally issuing the long-awaited ‘Startup Enterprise Loan Fund Procedure 2079’, the deck has been cleared for the startups to get loans up to Rs 2.5 million at an interest rate of three percent for a maximum period of seven years.
With loan procedure 2079 coming into effect, the Startup Enterprise Implementation Committee led by the Director General of the Department of Industry has now called the proposals from interested entrepreneurs and prepared details of the proposed projects for loans.
The fact that it took eight years to bring the loan procedure shows the government and its agencies are not serious about fostering entrepreneurship and innovation. This lack of commitment, according to Rayamajhi, has created a sense of frustration and disillusionment among startups where timely availability to secure investments is key to survival in a rapidly evolving market.
According to Binay Devkota, CEO, Clock b Innovations, the government has always lagged behind when it comes to the implementation of policies on startups. “The problem with the government is that they have understood the benefits of startups, and have even brought good policies for it. But they lack implementation.”
The Brighter Side
Despite the numerous challenges posed by the Covid-19 pandemic, startups in Nepal have shown resilience. One significant factor contributing to their success is the increased availability of funds from investors. The emergence of private equity (PE) and venture capital (VC) firms in the country provided much-needed support to these entrepreneurial ventures.
Dolma Impact Fund, Nepal’s first international PE and impact fund, has played a crucial role in supporting startups in the country. In 2021, Dolma Impact Fund signed a Memorandum of Understanding (MoU) with Upaya City Cargo. As part of the agreement, Dolma committed to investing Rs 180 million in the two-year-old logistics startup. This investment has enabled Upaya City Cargo to further expand its operations and enhance its services.
Another example is Sastodeal, a prominent local e-commerce company in Nepal. In 2020, Sastodeal successfully raised USD one million from Dolma Impact Fund, in addition to other existing shareholders. This fundraising round has provided Sastodeal with the necessary capital to strengthen its position in the market and fuel its growth.
In 2022, True North Associates invested Rs 100 million in Sajilo Sewa, a company specializing in new installations and solutions for carpentry, electrical work, air conditioning, plumbing, and computer hardware and networks. This financial infusion has allowed Sajilo Sewa to expand its service offerings and meet the growing demand for its solutions.
Dolma Impact Fund continued its support for startups in January 2022, when it invested USD 4 million in Foodmandu. This investment has enabled Foodmandu to enhance its operations, improve its technology infrastructure, and expand its reach to a wider customer base.
In addition to increased funding from investors, the government has also recognized the importance of startups and has been introducing new policies to foster their growth. Although the implementation of these policies may still be pending, the government’s acknowledgment of the significance of startups is a positive step towards creating a supportive environment for entrepreneurial ventures in the country, say startup businesses.
According to Manohar Adhikari, founder of Foodmandu, at least the government acknowledges the existence of startups, which is a positive step. “I believe this realization will lead the government to make further policy-level changes for startups in the future,” he said.
According to Devkota, allowing IT companies providing services abroad to invest 10 percent of their profits overseas is a commendable policy initiative of the government in the new fiscal year’s budget. “This encourages companies to invest and establish themselves in foreign markets. Despite the challenges, there are several positive aspects to consider, indicating a brighter side to the current landscape,” he opined.
The Challenges
Talking to the HRM, startup stakeholders said funding and lack of capital pose significant challenges for startups in Nepal. Startups require financial resources to develop their products, build teams, and scale their operations. However, accessing funding can be difficult given the situation in Nepal, they say.
According to Ashutosh Tiwari, founder of Safal Partners, this situation highlights the lack of focus from the government on fostering startup development. “Mere talk of providing loans is insufficient. In fact, I believe that offering loans to startups alone is fundamentally flawed. Instead, the government should consider inviting incubators and providing funding to selected startups through them. This approach would promote sustainability,” he said. “I strongly believe that startups require sustained attention and support from the government for a period of at least five to seven years. Let’s consider the case of Tootle. Initially, the ride-sharing company performed well, but it eventually lost its market share to Pathao. This outcome was largely due to the fact that Tootle lacked sufficient funding, whereas Pathao had access to substantial investment.” According to Tiwari, investment is like oxygen for startups, and without it, they struggle to thrive.
The challenge, according to Joshi, for startups in Nepal is the size and availability of the market. “Nepali startups often face limitations in their vision and reach. Unlike startups in India, which tend to think about serving the entire South Asian market, or startups in Singapore that aim to cater to the broader Asian market, Nepali startups often confine their ambitions within the boundaries of Kathmandu or, at most, limit their scope to areas within the Ring Road in Kathmandu.”
“Offering government loans directly to startups is a fundamentally flawed proposition”
Ashutosh Tiwari, Founder, Safal Partners
The significance of startups has been widely recognized, and the country has observed a surge in startup activity in recent years. However, only a handful of these businesses have managed to make a lasting impact, as many enter the market, fail, and eventually exit.
This situation highlights the lack of focus from the government on fostering an environment conducive to startups. Mere talk of providing loans is insufficient. I believe that offering government loans directly to startups is a fundamentally flawed proposition. Instead, the government should consider inviting incubators and accelerators and provide funding to selected startups through them. This approach will help to achieve sustainability in business financing. By doing so, the government can ensure that startups receive the necessary resources and support to flourish, leading to long-term success and positive contributions to the economy.
I strongly believe that startups require sustained attention and support from the government for a period of at least five to seven years. Let’s consider the case of Tootle. Initially, the ride-sharing company performed well, but it eventually lost its market share to Pathao. This outcome was largely due to the fact that Tootle lacked sufficient funding, whereas Pathao had access to substantial investment.
Investment is like oxygen for startups without which they struggle to thrive. Therefore, it is crucial for the government to reevaluate its approach and prioritize the development of the startup ecosystem.
The challenges faced by startups in Nepal, there is also the burden of substantial tax payments imposed on them. Startups are required to pay approximately Rs 50,000-60,000 in taxes each year. This amount may not seem significant for established businesses, but for startups operating on very limited resources and struggling to establish themselves in the market, can pose a considerable financial strain.
“Startups need to thoroughly comprehend the market dynamics and adapt accordingly”
Manohar Adhikari, Founder, Foodmandu
While there has been significant growth in startups in Nepal across various categories, it is important to acknowledge that not every startup will succeed, which is a global trend. Research suggests that less than 10 percent of new startups thrive in the market. To succeed, startups must understand and cater to what the market requires. In Nepal, the Covid-19 pandemic has led to a surge in e-commerce startups. These startups overserved the demand in the market during these challenging times.
We cannot just solely blame the government for the success or failure of startups. At least the government has started to acknowledge the importance of startups, which is a positive step. Also, startups need to thoroughly comprehend the market dynamics and adapt accordingly.
“The appeal of startups seems to have diminished compared to 4-5 years ago”
Binay Devkota, CEO, Clock b Innovations
The startup scene has been going through difficult times since the start of the Covid-19 pandemic, and the appeal of startups seems to have diminished compared to 4-5 years ago. However, there is also a positive aspect. Only those who are genuinely passionate and dedicated to business and innovation will remain in the market.
While some government policies may not have been effectively implemented, it is crucial to acknowledge that there is a growing realization of the importance of startups. Allowing IT companies providing services abroad to invest 10 percent of their profits overseas is a commendable policy initiative of the government in the new fiscal year’s budget. This encourages companies to invest and establish themselves in foreign markets. Despite the challenges, there are several positive aspects to consider, indicating a brighter side to the current landscape.
Currently, Clock b Innovations has partnered with the Embassy of India to formulate an entrepreneurial network in Nepal and India. With the CONNECT[IN] initiative, Clock b scouts entrepreneurial talents from all over the country, incubate them, and connect them with wider market possibilities and networks in India and Nepal. We have also made collaborations with government institutions to facilitate ideation camps and also run innovation programs most notably in Tulsipur and Itahari.
Clock b has provided mentorship, supported more than 5,000 youths and startups, and has equity investments in 10 enterprises from diverse sectors. We invite investors to make joint investments in startups and companies. After connecting with nearly 100 investors and facilitating over 10 investment deals, on November 16, 2019, we formulated a formal private investment company, Investment Circle. With this, we share investment information and connect investors together to make co-investments, particularly in private (startup and scaleup) companies.
“Investors are becoming increasingly reluctant to invest unless they see a tangible return”
Suman Rayamajhi, Co-founder/Managing Director, Upaya
Since 2018-19, Nepal has witnessed a growing momentum in the startup scene. In 2021, the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) and the Confederation of Nepalese Industries (CNI) started awarding startups. There has also been increased attention and support from the government in terms of budget allocation for startups. These developments have been encouraging for the ecosystem.
The aftermath of the Covid-19 pandemic and the ongoing Russia-Ukraine war led to a decrease in foreign investments. The global economic recession coupled with the economic downturn in Nepal has made it difficult to secure financial injections for startups. Just as Nepal was poised to gain economic momentum in 2021 due to increased government seriousness, global challenges emerged, further complicating fundraising efforts for startups. This has not only affected Nepal but also created difficulties for prominent Indian startups like Oyo and Byjus.
Investors are becoming increasingly reluctant to invest unless they see a tangible return, as they seek returns beyond mere valuation increments. This has added to the challenges faced by startups. In response to this, Upaya made a crucial change to the business model in 2022. Previously known as a tech startup, we now position ourselves as a technology-enabled logistics company.
The challenges faced by homegrown companies in Nepal are immense. These companies have to develop their own technology, raise funds, and manage operations, whereas foreign startups can import technology and obtain funding from their home countries, allowing them to focus solely on operations. Foreign startups like Daraz and Pathao have found it easier to operate in Nepal, while local startups struggle to compete. Also, banks require collateral for loans, creating further challenges for Nepali startups.
“Lack of coordination hinders the overall progress of the ecosystem”
Narottam Aryal, Country Lead, Society of Entrepreneurship Educators
A significant amount of progress has been observed in the startup ecosystem over the last 10-12 years. The emergence of alternative investments, such as private equity and venture capital, has made a tremendous contribution to the proliferation and expansion of startups in the country. Additionally, the presence of accelerators and incubators has provided valuable mentorship to new entrepreneurs. Successful startups like eSewa, Upaya City Cargo, and Foodmandu have emerged as role models for aspiring startups and entrepreneurs.
During this time, entrepreneurs have also learned valuable lessons. They have come to understand that achieving success and making a significant impact requires time, effort, and patience. Institutions like the National Innovation Center have played a crucial role in supporting innovators in building the products and technologies they aim to develop. The government has also recognized the importance of startups, although there are still challenges when it comes to execution.
However, it is important to note that we haven’t yet made the significant leap that was expected. An ecosystem implies the presence of stakeholders who can cooperate, interact, and collaborate. Unfortunately, a substantial amount of work is still being done in isolation. Organizations like FNCCI and CNI are investing in startups, running incubators, and organizing startup events, but there is a need for more coordinated efforts.
A similar situation can be observed in the development sector. Instead of supporting existing actors in the startup ecosystem, they are also establishing incubators and conducting isolated programs. This lack of coordination hinders the overall progress of the ecosystem.
I often hear from investors that there is a scarcity of investable companies. However, what I have been emphasizing for a long time is the need to create opportunities for investable companies to emerge. Public funds should be made available at the early stages, particularly at the bottom of the pyramid. It is crucial for the government and donors to allocate funds that support ventures initiated by budding entrepreneurs, which will subsequently attract private investors.
