Its been ~3 months since our initial report on the Nepal Private Equity and Venture Capital (PEVC) landscape. We conducted an interview with Nidhaan Shrestha (bio below) to provide additional color on the vibrant PEVC ecosystem in Nepal and an update on the market.
Nidhaan Shrestha is the Investment Director at True North Associates (TNA), a pioneer local PEVC firm in Nepal operating a permanent capital structure with a patient capital approach. TNA has invested in 14 companies since 2017 and managed 6 exits successfully. Shrestha has spent over 14 years working in the financial sector and has experiences in markets such as Nepal, India and the Philippines. He has been associated with institutions such as Standard Chartered Bank, Meralco Powergen, Manali Petrochemical and the UNCDF. Shrestha is an MBA graduate from the Asian Institute of Management, Philippines and believes in creating value through shepherding support to companies. He believes that the PEVC scene of Nepal is at pivotal stage and the quality of fund managers will have the ability to leapfrog Nepal’s entrepreneurial landscape to a global stage.
Since we spoke in April, there has been a change in government. What impact do you think this has had?
Nepal has had 14 prime ministers in the last 15 years, which in itself tells quite a tale for a democracy like ours. To quote a recent article in ‘Le Monde’ – “In the political instability Olympic Games, Nepal continues to claim top spot on the podium”.
However, if we dived deeper and beyond the narratives that prevail and unravel ground realities, despite the constant government changes, its impact on policy have been “relatively” stable and to some extent progressive (definitely not at the pace which we may have wanted). We have witnessed digital transformation unlock, favorable yet organic efforts undertaken to attract foreign investments and policies in place to retract past economic gaps and address potential economic growth.
Further, we observe new, young and educated actors stepping into the political arena, which garners hope that we might not end up a basket case. Hence despite changes in government, a typical learning curve that many democracies before us have gone through, we still have our bets on a progressive Nepal.
The NPEA just released their 2023 report. What do you think are key takeaways from that?
Four major takeaways:
The PEVC sector has made significant progress since the formative years, with only four players namely Dolma Impact Fund, Business Oxygen, One to Watch and True North Associates. The market now has 19 fund managers operating under different structures.
The market though nascent, has within a few years deployed over $100 million. More deals are observed in recent years, co-investments were witnessed and an improved market understanding of PEVCs has been developed even amongst pension funds, regulators, insurance companies and businesses.
PEVC is now a recognized asset class. It has been identified as a potential asset class that could spur economic growth and draw international investments to Nepal. Fiscal and monetary policy identify the asset class and observe gradual evolution in further opening up regulations.
Exits are beginning to show.
A lot of people are surprised to learn that there are so many active funds (16 made investments from 2012-2023) in Nepal. Why are there so many?
Since the recognition of PEVC as an asset class in 2019 and with the licensing of fund managers under the Securities Exchange Board of Nepal (SEBON)’s ‘Specialized Investment Fund’ regulation, 12 local fund managers have received fund manager licenses and 8 have had their funds registered and operative. A total of NPR 30 billion (~USD 230 million) in funds have been approved (deployed to a certain extent). Most of these funds are geared towards capital market exits which are yet to be tested in Nepal.
The risk in frontier markets such as Nepal though glaring, offer opportunities in areas such as Technology, Climate Finance, Renewable Energy, Tourism and Agriculture. An improving capital market, exponential uptake in digital transformation, growing diaspora and an intent to reposition Nepal to its potential has definitely caught interest and attention amongst local investors and DFIs.
In 2023, there were 22 investments. Any you found particularly interesting or noteworthy?
The ICT sector was recipient to 34.6% of the total investments in 2023. Our flagship investment ‘Foodmandu’ received its Series ‘C’ investment which was noteworthy in many senses:
We invested in the company, back in early 2017 when the company was doing roughly 100 orders, fast forward the company has grown 20x in size. A notable story from Nepal of grit, resilience and belief despite trying times (Earthquake in 2015 and economic blockade in 2016).
The company now has three of the leading PEVC investors on its cap table.
The company has provided partial exits through trade sales to its Series A and B investors and provided a partial cash exit to its founders.
What makes you excited to be an investor in Nepal?
We have had an exhilarating journey with a steeper learning curve at True North Associates, since it started off in 2014, when a group of entrepreneurs led by a veteran banker envisioned the potential and possibility of PEVC stimulating economic growth in Nepal.
Early days excitement was quieted by pipeline availability, wherein we ran acceleration programs (one of the firsts in Nepal – ‘Enterprise’) as a backward integration strategy to our investment objectives. Most of the early investments were part of the acceleration cohort. Of the 70+ companies who participated in the acceleration program, 20 of them received investments and many of them have scaled over the years.
We believe we are close to crossing the chasm and building a track record that would speak for itself with 14 investments and 6 exits with above market IRRs. TNA's exit track record has arguably been the best in the industry primarily due to our proactive approach and “supportive shepherding” of our portfolio. Our relentless focus towards ‘Preservation of Capital’ is one of the foundational stones that makes our journey forever exciting.
As torch bearers in this sector, we believe its our fiduciary responsibility to see through that the industry goes through the appropriate learning curves to come out to its full potential. Our hands-on-approach to investing and efforts to warehouse portfolio companies (when needed) has provided us with many instances to uncover human behavior and market dynamics that go beyond rationality and academic theories.
Nepal has in the past, squandered many opportunities of economic growth (textile boom in 90s, dot com era of 2000s and so forth) for reasons beyond political unrest alone. We believe that we are at an opportune time sandwiched between two of the fastest growing economies to ride that growth wave. The internet has been an enabler to provide us with a platform and tools to learn and grow to be global citizens. Opportunities are no longer restricted within geographic boundaries and a growing diaspora opens up to brighter prospects.
Where do you see opportunities in Nepal? What sectors do you find to be interesting?
With a population of 30 million, Nepal is not your typical small country. However, we do believe that we have been left behind in this economic race for reasons of our own. Come 2024, we are a youthful nation with immense potential in tourism, technology, agriculture and renewable energy. We have a diaspora spread far and wide, now climbing corporate ranks and looking to bring back skills and opportunities. We have government(s) who acknowledge the need for economic prosperity as a engine for happiness.
Narrowing it down, we believe Technology, Healthcare, Climate finance, Tourism, Agriculture and Renewable Energy and key sectors to keep tabs on.
What advice do you have for foreign investors looking to learn more about investing in Nepal?
Most seasoned investors usually understand frontier markets like Nepal better and have practiced hunches on market dynamics and changing political landscape. What they discount is the intensity and persistence required to operate a business in Nepal. Digital readiness, technological infrastructure and adoption, and a diligent talent pool are surprises for foreign investors. We believe there is more that meets the eye than macro-economic numbers and development narratives about the economy.
It is advisable to foreign investors looking to enter Nepali market to best partner with local champions with demonstrated track record. Institutional knowledge of Nepal’s evolving investment landscape and business environment can be interwoven to deliver faster and better results.
Your fund recently had a successful exit. Would you be able to speak more about that?
We invested in Katmandu Coffee in December 2020 and received a 2x exit in June 2024. Katmandu coffee is a farm to mug coffee company operated under two firms Alpine Coffee Estate and Alpine EXIM Pvt Ltd. The company was founded in 2010 and had received an impact investment from a foreign investor. We invested in the company buying out the the foreign investor.
Over the three years, the company's revenue grew two-fold, provided us with a dividend, and significantly grew its profitability and free cash flow. A Danish technology was acquired to bottle coffee concentrates of various flavors under trade name “Iced Espresso” which are now being exported as well. The company also started a new vertical of high-end coffee outlets first of which was a flagship store followed by 2 franchises.
The exit came through a trade sale to another group of investors as part of the fund-raising mandate, we led on their behalf. The new investors are further expected to inject funds into the company to fuel their international and Pan-Nepal ambitions in both product and franchise.
Another noteworthy exit, to elaborate on the Nepal’s exit environment would be “eBeema” – a market place for insurance and loans.
We backed the founder despite the business being too early for the market. When it transpired that the business gestation would be longer than expected and would absorb more burn money without a clear path to sustainability, we supported the founder to ride the rest of the journey with a prominent business conglomerate having businesses synergistic to eBeema and in the process secured a profitable exit for ourselves.
Incidentally, we went on to invest in another business started by the founder of eBeema and we're happy with the performance.
Such cases of exits provide a broadened lens at the industry rather than a siloed case-to-case approach.
The NPEA report also mentioned expectations for a strong exit environment for 2024. Do you have any thoughts on this?
Exits are still a challenge though they have started to show. We don’t have a lot of precedence but remain hopeful as the market gathers further depth and more players join in. Improvement in the capital market definitely drives expectations, however we are yet to observe cases of success (We are closely observing one of our portfolio companies that has been listed in the stock exchange. We invested at par while the last 120-day average prices stand at 8x par). More successive series investments may bring together different stage investors to open opportunities for exits as in Foodmandu or Katmandu Coffee.
On a different note, we would love to hear your favorite places to travel in Nepal. Where do you recommend that our readers venture to when they visit?
Nepal has quite a lot to offer apart from the mighty Everest and famed Annapurna. Shorter treks to the likes of Mardi Himal, Langtang, and Gosaikunda come highly recommended. For jungle and nature experiences, Chitwan and Bardia won’t fail to surprise you. For cultural immersion, if you can time your visit to coincide with certain festivals such as Jana bha dya (aka: Seto Machindranath) Jatra or Yen Ye (aka: Indra jatra) in Kathmandu, Biska jatra in Bhaktapur, and Bunga Dya (aka: Rato Machindranath) Jatra in Patan. These Jatra experiences lets you plunge into a living museum of art and culture. Lastly, as mystical as it may sound, Nepal has a lot to offer in religious and spiritual tourism from Buddha’s birthplace in Lumbini, to Goddess Sita’s birthplace in Janakpur and the all-powerful Pashupatinath (Shiva) Temple in Kathmandu.
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