The Future of Startups in Nepal
With the ongoing pandemic affecting all sectors of businesses, I thought of analyzing the future of startups in the context of Nepal. This entire article is about my perspective on this issue — perspectives may vary from person to person.
What is a Startup?
In my view, a startup is a sole venture or partnership business that innovates products and services to meet the demand in a target market. Amy Fontinelle describes a startup to be “a young company founded by one or more entrepreneurs to develop a unique product or service and bring it to the market[i].” Although the exact definition of the term is widely discussed, a startup can be understood as a business that offers a solution to a problem and learns to achieve growth and sustainability.
The last decade or so has seen a huge surge in startups in Nepal. With the growth of technology and people being more conscious about their choices, there are reportedly over 300 startups operational, with many more yet to come.
This article will cover the challenges and opportunities faced by startups in Nepal given the current pandemic and will end with how I perceive startups could potentially operate in a post-COVID world.
Challenges Startups Face in Nepal
It is obvious that when the pandemic ends the business world will be taken by a storm, but the challenge is to survive until the pandemic ends or at the very least adapt to the “new normal”. Additionally, of all the sectors this pandemic could potentially affect, I feel as if they will create newer and tougher hurdles, especially for startups.
For instance, collecting capital for startups was already burdensome before COVID because financial institutions expected such ventures to default on their debts due to the fact that the probability for such ventures to go under was high — experts claim that the failure rate for Nepali startups is over 90%[ii]. Now, collecting capital for startups from traditional sources like banks or private loans will be even harder because of the skepticism caused by the pandemic and such events generally tilt investors into opting for more risk-free forms of investment.
During such times investment in real estate, gold, silver, and other precious metals gain popularity as they are perceived to be less risky than financing startups.
Furthermore, another challenge that could arise for all companies could be the need to make marketing digital and increase dependence on information technology (IT). But not all startups would prefer this option as it would mean the need for additional investments at a time when just survival would be the key goal. This could prove to be a huge downside because based on current observation, companies like Pathao and Foodmandu are the only few companies that seem destined to endure this pandemic.
Opportunities for Startups
Startups are working on various ecosystems inside Nepal ranging from food delivery and ridesharing to sustainable living. They have had their share of failures along the way, but that is the thing about startups. They learn from their failures only to grow better as they move forward. Usually, when failures caused by problems can be pinpointed, doors open for entrepreneurs to attain even more opportunities by knowing that the same mistakes shall never be repeated.
In the context of Nepal as well, we can see that many startups have now grown into successful businesses. Foodmandu, Tootle, Daraz, to name a few, have managed to spread their names across the country not without any mishaps along the way. Like all businesses, they must have faced problems, but they turned those problems into opportunities by:
1. learning from their mistakes
2. having a clear idea of their product/services
3. targeting a set audience
4. having a clear business model
The inability of financial institutions to finance startups have created an opportunity for Venture Capitalists (VC) and Private Equity (PE) firms to bridge this gap.
The start of 2020 was a testament of exactly this; first, Foodmandu, Nepal’s largest food delivery platform, had secured its second-round funding from PE firm Team Ventures. Next, a healthcare service protocol called Health at Home was also got funded by another PE firm Business Oxygen (BO2). This was followed by Nepali e-commerce site Sastodeal receiving a first-round funding of NPR 90 million from the first international PE firm dedicated to Nepal; Dolma Impact Fund. These examples show how startups were already approaching other sources of funds apart from banks. However, they also show that the need to incorporate IT is more significant than assumed previously. Some might argue that the precedent of VCs and PE firms only funding IT-based companies in Nepal may have already been set.
Startups in a Post-COVID Nepal
If we can learn anything from all the times there have been crises, it is that crises are opportunities for new ideas, systems, and innovations to thrive. As we all may know, the economic crisis in 2008 left the whole world in a pitiful state. But many famous companies today such as Airbnb, Slack, and WhatsApp were released just after 2008.
The current pandemic has been horrific and challenging but it has also created an ambitious environment for young entrepreneurs to launch their startups. Although raising capital will be tougher than before, by understanding the business environment and the needs of the people, one can still be able to thrive. Younger people in Nepal are also more likely to infuse IT in their startups which could prove to be a valuable addition to acquire extra external funding.
We also need to keep in mind that we cannot act like unicorns as in a pre-COVID world, we need to start acting like camels — something Alex Lazarow emphasized because of the pandemic in his article ‘Startups, It’s Time to Think Like camels — Not unicorns’.
He states that the “Bay Area Bubble” consists of Silicon Valley startups that are valued over a billion dollars and are called unicorns because of their high growth while the “Frontier” consists of those companies outside this bubble and are termed camels[iii]. The camels in the Frontier do not have access to the finances or human resources the unicorns do and are more susceptible to macroeconomic shocks.
The unicorn may seem more desirable, but they are mythical, imaginary, and current evidence shows that IT-based companies are the only startups that can become these fictitious creatures; this is true even in Nepal.
Given the current circumstances, we need to become camels that are much more real and resilient and are built to last for weeks without food or water all while being able to run when required.
These startup camels can provide valuable lessons on the crisis, sustainability, and growth in adverse conditions because of the three strategies they adhere to according to Lazarow:
- they execute balanced growth — “Balance instead of Burn”
- they take a long-term outlook — “Camels are built for the long haul”
- they weave diversification into the business model — “Breadth and depth for resilience”
Startups in almost all cases have big ambitions and large numbers. This is not bad but what we need to realize is that everyone post-COVID will be cash sensitive. We should be too. In time, our country will fully reopen, and business will resume. There may not be business as was common, but we must all find a way to manoeuvre on. Like there are different ways to catch a fish, there are different ways to keep your startup alive. Just know that your opening move is to strive and not to faint.
References
[i]FONTINELLE, A., 2020. What Exactly Is a Startup? Aug 14, [viewed Nov 1, 2020]. Available from: https://www.investopedia.com/ask/answers/12/what-is-a-startup.asp.
[ii] GAUTAM, N., 2020. Nepali startup ecosystem: the growth so far & the future. May 12, Available from: https://www.newbusinessage.com/MagazineArticles/view/2618.
[iii] LAZAROW, A., 2020. Startups, It’s Time to Think Like Camels — Not Unicorns. Oct 16, [viewed Nov 26, 2020]. Available from: https://hbr.org/2020/10/startups-its-time-to-think-like-camels-not-unicorns.
