“Nepal is one of the poorest and least developed countries in the world”, is the sentence that surely makes our skin crawl but is, in fact, the sad reality we must face. Despite having a rich history which we must never undermine, we cannot stay complacent of what we had achieved in the past and remain oblivious of the present.
Despite the recent turbulent years fuelled by the Covid-19 pandemic and the ever changing macroeconomic and political uncertainties, the alternative investment market in Asia has proved itself to be a strong and resilient market. According to Preqin, the alternative investment managed in the Asia Pacific region is expected to reach $5 trillion by 2025.
In particular, the venture capital opportunities in the healthcare sector in China and India are expected to grow significantly as alternative healthcare solutions increasingly jump in demand. Digital transformation and the shifts to e-commerce are expected to further give rise to other sectors such as digital payments and cybersecurity services. China and India have, indeed, become large markets for growth and venture strategy, and there is no doubt that Nepal, too, has the capacity to leverage the opportunities provided by this space.
Specifically, the small and medium sized enterprises, known to be the backbone of emerging economies, account for the largest part of the Nepali businesses and have significant growth potential that can be unlocked through strategic financing.
Venture capital is a long-term investment that can help stimulate the economy. It fosters innovation through financing the development of new products, new technologies, and processes of companies. In fact, many of the leading companies around the globe were backed by venture capital, including Facebook, Google and WhatsApp. There are countless gaps to bridge which, in turn, translate to excellent opportunities for the entrepreneurial-spirited and bring about an unwary of alternative investment avenues.
A few well-known examples include Bangladesh’s Pathao and Nepal’s Foodmandu. The prominence of venture capital further improves the absorptive capacity of the economy by raising the level of knowledge, skills, and business acumen acquired from the process of inventing various solutions and start-ups. This contribution to human capital is vital. More importantly, it creates wealth that is measured by market performance and growth of sales, profitability, survival, and return on investment.
The Securities Board of Nepal only in 2075 B.S. introduced a Specialized Investment Fund Regulation to regulate pooled investment funds/vehicles like private equity, venture capital and hedge funds. While the industry policies and regulatory frameworks slowly but steadily settle its dust, the alternative investment market has been active in Nepal with investment firms, private equity funds and venture capital providers actively investing in Nepali businesses.
Some popular names include Dolma Impact Fund and Business Oxygen, which are funded by Development Financial Institutions like FMO, FinnFund, DGGF, OeEB & IFC. Ancillary service providers like legal, business incubation and accelerators have also been effective in contributing to the network.
Though there are many hurdles to overcome and frameworks to be fitted, I am bullish about the prospects of the alternative investments industry. A cross-country research is especially critical to provide further depth in understanding the development of venture capital firms in similar regions. Although this is a rather new universe to Nepal, it brings a compelling opportunity that serves as a useful macroeconomic function which complements the banking sector and the primary capital markets.
What is for sure, is that the ecosystem must aspire for disruptive innovation for a different and better future.
(Soyena Dhakal serves as the Head of Funds at a leading Private Equity Advisory Firm in Hong Kong. She graduated with a Master's Degree in Finance from the National University of Singapore.)