What do Venture Capital firms in Nepal look after while investing?

Couples of years back the Nepalese financial industry learned a new jargon “Venture Capital for SME’s”; a fund to be provided to the small and medium scale enterprises against equity and help them to scale up their business. With time the VC funds at Nepal has exponentially grown up and there is now a handsome pool of money ready to start an industry. Companies like Gazzab Social Ventures, Udhyami Impact Fund (UIF) have already invested in companies while other companies like Dolma Impact Fund and Business Oxygen have already started to look after the companies and put them in the investment pipeline. Despite the variation in size of the fund, the VC companies at Nepal would basically look after the following bullets while considering the investment proposal:

·         The story of the enterprise: Firstly, the (infant) VC companies are always looking for a good story to share. The story can be a story of the struggle of the entrepreneurs before and after starting the company, the social impact of the company, the problems that the company solved, the advantages gained by the local communities etc. Being player in a new market and thus having an obligation to set an example, the VC fund would look after an ESG (environmental, social and governance practices) which basically is a tool for the storytelling and thus in order to qualify for the investment consideration, the company should always look for the better ways to frame their story.

·         The originality of the idea: VC’s invest in the companies that have an innovative business model. The ground breaking idea that has the potential to change the prevailing course of action is best fit in this type of fund. Say the company who first introduced cloud computing definitely may have received the VC but the company who now typically modifies the feature of an existing app (say dropbox) is unlikely to get the funding. Having closely looked at the UIF winner karkhana, I find their business model interesting. It’s a company that helps engineering student commercialize their innovative projects. They have already worked on 3D printer, smart metering system, robots and etc. Branded as a hacker’s space, they make, break, fail, learn and develop new technologies amongst which some might be a world changing one. Seeing this potential, UIF should have considered investing in this company. Companies that align with the prevailing copycat syndrome aren't generally appreciated in this market.

·         The capacity of the team: In the field of VC, it is often said that you are not investing in the idea but in the people. By people it means their potential, their passion, and their confidence. Anyone can go to a business consultant, get their help to write an excellent investment proposal and apply for the fund. But, when it comes to the business, it is not only about the idea and the strategy. It’s about the science and art of execution. And, this comes only through the experience. So, the whole judgment criteria would be identification of the skills the team members complement each other the capacity of the team to identify the risks, find way to minimize those risks and execute the plans.

·         Profitability of the business: The rule of investment is simple; invest penny and earn pounds. Anyone who invests money would be looking for a higher return on investment. VC projects are quite risky and majority of them fail before reaching the maturity. So, a VC investor typically has a portfolio in different businesses where one successful business is expected to compensate the loss from other unsuccessful businesses and even add profit to the whole.

In addition to these bullets, there are things like chances of conflict of interest arising while investing, legal constraints, terms between parties, detailed due diligence, stakeholders view on the business and etc. But, with the above mentioned points, the business is likely to get a green signal for obtaining the Venture Capital.