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.

Motivating a Theory Y practitioner!

The chapter ‘Motivation’, during my undergrad, was one of the most interesting chapters to me. During the span of eight semesters, I repeatedly studied motivation in eight subjects (management, psychology, OB, sales force management etc.) After being confident in the theories like Maslow’s need theory, Hertzberg’s theory, Equity theory, and all, I thought I had mastered in this topic. But, when it came to apply in my workplace I then understood the thing ‘motivation’ is more an art than science.

As a theory ‘Y’ believer and a practitioner, I was self-motivated to the work and I was always ready to take on more responsibilities, work more hours, and take everything as an opportunity to learn. I thought this would continue till the rest but, at one point of time, things started changing. Now, at this date (when I am writing this blog), I am not so excited about my work. Nowadays, I seldom check my emails before reaching my office compared to early morning coffee-time reply and I have strictly changed my office time from late night works to general time of 10-5. I am not so interested to take on more responsibilities. The view of “Through increased responsibilities, I am learning more and more” is now changed into “I am making all the hard efforts to make my boss earn more and more”. When I thought about it, I came to the conclusion that this is because of the lack of motivation. And, now I think, practitioners of theory Y also need continuous motivation. 

“What sorts of needs are unfulfilled to get demotivated?” I questioned myself. I had a good paycheck, a decision making authority, a respect from the subordinates, recognition from the clients and a very good appraisal.  There is no point on getting demotivated. And then after weeks of incubation, I identified that my workplace had missed an important component “flow of positive energy/synergy”. One of our team members wasn’t supportive/receptive, was too defensive and didn’t appreciate our feedbacks/inputs. Although we tried a lot, we couldn’t change the person and, to my surprise, our days passed on unwanted arguments to the level which at some point of time disrupted the balance in our team. Despite having other needs fulfilled, this eroded the motivation in our team. That’s not an unfulfilled need but one of the most important things for a group where they work as a team.

This made me understand more that motivation is not only about unfulfilled needs, desire, hygiene, satisfaction but also about the passion of the team, the synergy they create, and the positive energy they pass on. Unlike traditional school of thoughts, it is not only your supervisor or your subordinate responsible to motivate you, but you are responsible to pass on the energy, confidence, and motivate your team. Motivation is not about top-down, bottom-up or across-the-line, in fact it has no approach. One single person is not responsible to motivate you; rather you are responsible to motivate every single person in your team. 

Taking the role of a Human Resource Personnel

My decision to join a startup company 17 months back made me lucky enough to gain experiences over all the departments. I am fortunate to get the opportunity to play the role in a HR department. Me, myself, being an employee and also playing the role of a HR personnel provided me the opportunity the learn things from both perspective, and, most importantly, I learnt how to balance the interest of employee and an employeer.

By nature, employer wants the employee to work the most at a lowest possible cost. But, in the other hand, employee wants to get the maximum payment with a minimum level of effort on it. Here is where the HR role comes in, becoming a spokesperson of both and bridging the gap between expectation and delivery. Here are some of my insights on the role of a HR personnel:

• Always have a smiling face, keep your voice calm and try to make it full of melody.
  
• You are the one to find if everyone is OK and ready for the job. So, go and talk, talk and talk with everyone. Make them excited, make them prepared, make them enthusiastic.
  
• If you find an employee in a problem make sure the employee feels that his problem is recognized and will be given attention. (It is not always necessary that you put effort in solving the problem, but create such an environment where the employee thinks you are trying to help him/her)
  
• Be proactive, identify the team players and the isolated ones. Conduct events to socialize the latter ones.
  
• Never make delay to thank employees. Thanking for a job is the best incentive that an employee can get.
  
• Create a self-motivated work teams.
  
• Always make the employee feel special and communicate that they are important for the organisation.
  
• Keep your personal ego outside the main door of the office.
  
• Maintain the same level of professional relationship with the colleagues who may be (1) your high school's best friend or (2) your ex's new boyfriend.
  
• Make sure that they like you. If they don't, it's time to hop the job.

HR management is not only about forecasting the HR needs, writing job description, vacancy announcement, recruitment, selection, placement, orientation, training, compensation management, appraisal ... blah blah blah but also a deep study of human behavior and the exploration of the ways to mould the employee behaviour in ways that benefits the organisation. Always remember a HR mantra, "person-job-fit and person-organisation-fit is the key to HR success".

Telecom Penetration in Nepal

With the 18.9 million subscription out of 26.64 million population, the Telecom penetration in Nepal has crossed 70%. This penetration rate shares the same country which has the literacy rate of 70%, poverty rate of 35% and unemployment rate of 45%. Quite impressive!

The penetration growth rate which was 35% last year (2012) has now ended up to 23.52% this year. 

According to Nepal Telecommunications Authority , the telecom usage for Nepal is as follows link :

• Number of Fixed landline telephone subscriptions: 839,710 (Penetration rate: 3.15%)
• Number of Mobile-cellular telephone subscriptions: 15,334,413 (Penetration rate: 57.60%)
• Number of data & internet users: 5,043,091 (Internet Penetration rate: 18.94%)
• Number of Rural PCO’s: 2,622

Workplace Stress Management

• Stress develops in workplaces among employees due to various factors viz work overload, disturbing workplace environment, mistrust, unfairness, unclear job responsibilities and the lack of appreciation culture.

• Employees also get stressed at the workplace due to misunderstandings that arise from the difference in nature of their colleagues. This inhibits smooth work operations as work is now dependent on employee emotional levels. For example, a senior staff dominating his subordinates can create stress in the latter.

• Stress also costs companies through increased absenteeism, lack of enthusiasm for the job, poor performance, and bad attitude. Improvements in each of these areas can improve productivity and increase profits.

• Staffs' nature of hesitating to say 'NO' has been assigned to them makes them prone to workplace stress. They can limit their job load by respectfully and logically denying to undertake work overload.

• Properly managed circumstances can reduce stress, maximize employee productivity, and improve the living conditions of everyone.

• A well-managed workplace reduces stress and creates a fun environment to work in.

• The most important realization employees must have is that it is not the actual stressor which needs to be managed, but instead how they choose to relate to the stressor. Employees should be able to perceive attitude vs aptitude.

• When having to to do the dull work, staff must take time to explore within to draw out their passion, and then investigate how they can weave it  into their work. This then gives all of their effort a purpose and meaning. And when both purpose and passion are activated, employees become empowered to handle tasks and responsibilities which under different circumstances would have stressed them.

• People with high level of stress can be treated through proper counseling which works better than prescribed drug.

 

Cardamom Farming in Nepal

Introduction: Large Cardamom (Amomum subulatum Roxb.) or Alainchi in Nepali, is a perennial herbaceous plant with subterranean rhizomes that give rise to several leafy shoots and panicles. Large cardamom was introduced into Ilam (Nepal) in 1865 AD, nearly 143 years ago by Nepalese laborers from Sikkim. Its commercial cultivation started in Ilam much later in around 1953 AD only. The establishment of Cardamom Development Centre at Fikkal in this district in 1975 paved the way for the development of this crop.

Most of the cardamom producing areas is located in  Ilam, Panchthar, Taplejung, Sankhuwasabha, Terhathum, Bhojpur and Dhankuta districts. While the area has expanded to include more than 37 districts covering all development regions of the country.  Today, Nepal is the top producer of large cardamom followed by India and Bhutan (Large cardamom is produced by only these three countries). In 2012, Nepal  exported 5902 mt. ton of large cardamom worth Rs. 3,892,651,271.

Production: Cardamom is generally reproduced by vegetative propagation using suckers.  Economic yield starts from 3rd years onward after planting and its optimal yield period is 8-10 years. The total life span of Cardamom plants is about 20-25 years.There are sixteen varieties of Cardamom in the world. Among them five types of Large Cardamom are in farming practices across Nepal-Ramsey, Golsey, Sawney, Chibesey, and Dammersey. Although it varies from place to place, and variety to variety, about 26 kg of Cardamom (dry) is produced from 500 sq m (a ropani) of land.

Harvesting: The yield starts from 3rd years onward after planting. Fruit is ripened during August to November. Harvesting is done with the help of mechanical instruments e.g. knife. After harvesting, Cardamom capsules are separated manually by hands. The harvested fruits are processed mainly using traditional or improved drying technology (bhatty). The existing traditional practice of curing and drying the Cardamom is age-old types, where the capsules are dried by direct heating in the traditional bhatty. Under this system the Cardamom comes in direct contact with smoke and turns the capsule to dark brown black color with a smoky smell. To reduce smoke and produce light purple capsules, improved bhatties are being introduced.

Drying and Curing: After 18 to 24 hours of drying, the capsules are removed. But the total time of drying varies depending on factors such as fire management, initial moisture content of the capsules,weather condition and bhatty structures. There is no clear indicator to decide if the drying process is complete or not. In some cases, the capsules are either over-dried or under-dried at the same condition of fire and weather. Sometimes the farmers feel that the product is over-dried and they sprinkle water to increase weight. This practice leads to difficulty in maintaining consistent quality. In Taplejung district, there is a provision of premium price for improved bhatty products but prices also vary depending on tail-cut, moisture content, color and the level of dryness.

Packaging of cardamom: There is no specialized packaging and handling systems. Cardamoms are packed in jute sacks with capacity of 40 to 100 Kg. The packaging practices, however, differ with the intended duration of stocking.

• If the storage period less than 15 days, cardamom is packed in jute bags and left unstitched.
• If the storage period is more than 15 days, it is packed in jute bags with plastic sheet lining.
• If the storage period is more than one month, it is stored in bulk and is covered by Hessian sheets.

Marketing Channel: Cardamom makes its more than 90% of its sales to India without value addition. The Large Cardamom produced in is exclusively sold to Indian markets (Siliguri). Delhi and Amritsar are the potential markets in . After reaching India, the large cardamom are value added and sorted to export abroad. The typical market channel is:

Collector – District Traders – Regional Trader – Indian Traders  – Export to third countries

Market price of Cardamom:

The market price however is greatly influenced by the following major quality considerations:

• Size – the bigger the size of the capsules, the higher the price obtained. No grading is in vogue at present and mixing of all sizes and different cultivars is quite common.
• Color – more prices are offered to the capsules having a light pink color in international markets.
• Moisture contents – the products with high moisture fetch comparatively low price. The  moist capsules are also subject to easy fungal infection.

Cost of Cardamom at various market channels:

Farmers		Local Traders		Wholesaler		Exporter
Item	Cost	Item	Cost	Item	Cost	Item	Cost
Production Costs		Assembling Costs		Assembling cost		Assembling cost
Seed materials	8.63	Cleaning/Sorting	0.25	Sorting/Tail cutting	3.00	Cleaning/ Sorting	1.50
Fuel Wood	4.00	Packaging (in jute bags)	0.14	O'head Cost	2.00	O'head Cost	1.00
Labor	55.98
Others	3.43
Total Production Costs	72.04	Acquisition Cost	195.00	Acquisition Cost	210	Acquisition Cost	225
		Transfer Costs	0.75	Trucking Costs	1.04	Trucking Costs	0.71
Post Production Costs	1.50	Total Assembling Costs	196.14	Total Assembling Costs	216	Total Assembling Costs	228
Miscellaneous	0	Miscellaneous	0	DDC  & other tax	4.57	DDC & other tax/levy	5.00
Total Farm Level Cost	73.54	Total Trading Cost	196.14	Total Wholesale Level Cost	221	Total Export Level Cost	233
Losses	9.75	Losses	4.88	Losses	3.21	Losses	1.61
Margin	111.71	Margin	8.98	Margin	1.18	Margin	15.18
Avg Farm gate Price	195	Assembler level price	210	Wholesale level price	225	Wholesale level price	250

Export Figure:

S.N.	Country	Unit	Quantity	Value(NRS)
1	India	Kg.	5879702	3875674562
2	U.A.E.	Kg.	18000	15501059
3	Canada	Kg.	1000	1177650
4	China P. R.	Kg.	3000	240000
5	Nicaragua	Kg.	50	58000
Total			5901752	3892651271

From Date: January 2012 - December 2012

Production Yield (at farm level):

Country Average: 0.61 mt/ha; 30kg per ropani

Production Cost (Per Ropani): 73.50 * 30 = 2205

Sales Price: 195 * 30 = 5850

Profit per ropani: 5850-2205 = Rs. 3645

The Product HS Code of Large Cardamom is 09083010

The Product HS Code of Small Cardamom is 09083090

For more information visit these pages:

http://www.agripricenepal.com/newsdoc/20090716150653.pdf

http://www.cadp.gov.np/Document_Uploads/Reports/dd1d5812506492836355.pdf

http://www.snvworld.org/en/regions/asia/publications?filter=agriculture

http://208.67.23.5/~itsoftc/projects/tepc/

Helping Farmers in Nepal

If you are a farmer and stuck in a problem, you don't know what to do? Here is an agriculture counselling team ready to help you at free.

Established about a month ago, Agri-Care Nepal Private Limited (ACNPL) through the service 'Kisan Call Centre' has started toll-free counseling service for farmers.

With this service, farmers from any part of the country can get counseling on farm diseases from experts by making free calls to 1660-56-52999. Farmers can register their problem and nature of diseases through phone calls at the call center. Then the team of agro-technicians studies the case and provides technical counseling to farmers.

Vegetable Seed Production and Current Situation in Nepal

•   Over the last decade, around 50% of the domestic demand for the vegetable seeds was met by the domestic formal (government and private seed companies) sector.

•   The gap in demand of vegetable seeds is mostly met by imports and to some extent domestic informal sector  (farmer to farmer exchange, saved seeds, cross border informal seed supply)

•   Of the 2,000+ MT of vegetable seeds demand, around 3/4th of the total domestic demand in volume term is accounted by peas, (French) bean, onion, radish, cow pea and okra.

•   Cauliflower, cabbage, onion, radish and tomato are the top five vegetables in terms of area under cultivation, account for around 50% of the total area cultivated for vegetables in Nepal.

•   Radish and onion are important (in terms of vegetable seeds); in terms of cultivated area for vegetables and potential volume demand of commercial seed.

•   The current production of vegetable seeds (formal sector) would be less than half of the mentioned figure of around 950 mt (in 2008/9), i.e., around 400-450 mt. A trade survey in 2008/9, carried out by CEAPRED indicates that Kathmandu–based seed businesses bought not more than 340 mt of domestically produced vegetable seeds.

•   If five crops namely radish, broadleaf mustard, cress, peas and bean are excluded then it is estimated that over 80% of the domestic demand for seeds is met through imports.

•   Informal sources could account for anywhere from 30%-45% of the total vegetable seed consumed in Nepal, depending upon situation and circumstances

•   Most of these are introduced varieties of vegetables (cabbage, carrots, coriander, onion, spinach, tomato and zucchini) depend highly on imports. Indigenous varieties such as peas, cowpeas, radish, cucurbit crops, beans and rayo are lesser dependent on imports for seeds supply.

•   Taking an example of 2008/09:

•       Total estimated demand was 1,932 mt (VDD/ DoA),

•       Private / government sector supply was 957.3 mt (49.5%) (VDD/ DoA),

•       Formal imports: 407.8 mt (21.1%) (TEPC),

•       Data Gap comes to  566.9 mt (29.3%), which is met by informal channels and cross-border imports.

Mergers and Acquisitions in Nepalese Banking Sector

Presently, the Nepalese Banking Sector is facing a huge problem and is in critical juncture. So, in order to cope with this problem Nepal Rasta Bank (NRB) has directed the Banking Institutions to go in the process of mergers and acquisitions. NRB has provided several benefits to the merging institutions. Responding to the benefits presented by NRB, the banks and the financial institutions of the country are opting in the process of merger.

Mergers and Acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can aid, finance, or help an enterprise grow rapidly in its sector or location of origin or a new field or new location without creating a subsidiary, other child entity or using a joint venture.

In the present Scenario, there are mainly three reasons that forced the Nepalese Banking Sector to go into the process of M&A.

Liquidity Crunch:

Liquidity refers to the amount of money in the form of cash. The amounts of deposits in bank are very low and the rate of loan recovery rate is also very low. So, liquidity has been a major problem in Nepalese banks. Hence, M&A is believed to solve the liquidity problem as the deposits of the two banking institutions are combined as one.

Capital requirement:

The paid-up capital requirement of the Nepalese bank is currently Rs. 2 Billion. However, the government is planning to raise the paid-up capital requirement from 2 Billion to 5 Billion. It may not be difficult for large banks to meet the requirement set by the government but for the middle and small scaled banks, it may be very hard and sometimes impossible.  So, M&A can be a solution to this requirement.

Open Financial Market:

Nepal’s financial market opened up for international investment on January 2010. One foreign bank has already applied to start operation. If foreign banks do enter Nepal, it concerns about the capacity of local banks to compete with its foreign counterparts. Hence, M&A will minimize costs, increase the economies of scale, and increase institution's capacity, thus being able to compete at international level.

Although there are several advantages of mergers and acquisitions, and Nepalese banks are interested in this process, they may not be fruitful in all the case. Study by Wharton, Harvard, and Morgan has shown that Merger and Acquisition around the world have a failure rate of 50%-70%. And in the case of Nepalese banking industry, in last seven years, Success rate of merger is 15%. In addition, Nepalese banking sector lacks sufficient corporate experience in mergers and acquisitions. Merger and Acquisition do not always lead to success or always failure. Impact of M&A depends upon how well the vision, mission and objective of two organizations are well integrated. Moreover, it depends on how effective the management is and how the stakeholders perceive the M&A decision. So, the M&A of any business organization should be carried out with sufficient homework. So, before undergoing a process of merger, it is very crucial to be determined for merger expansion strategy to be undertaken. Otherwise, it may jeopardize the present situation and even worsen the condition of Nepalese Banks.

We can not blindly agree that the Nepalese Banking Sector problem will be best addressed by the M&A strategy. The government should just not rely on mergers and acquisitions for addressing the problem of banking sector. Rather, it should bring appropriate fiscal policies and monetary policies to settle the problem.  Spending of the budget at the final months of fiscal year reduces the flow of money in the market. The government should introduce deficit budget financing and spend the allocated budget at the current time, so that the velocity of money circulation will increase, and the liquidity problem will be addressed. Government should encourage the investments in the productive sectors. Investments in productive sector increase the value of the capital and hence, increase the chances of repayment of loan. Finally, not relying solely in the merger and acquisition, the government should provide additional benefits to encourage Joint Venture, Licensing, Franchising, etc. as they hinder the direct foreign investment and strengthen the condition of Nepalese banks to compete with international banks.

(As Published on October 2012 Issue of BOSS- A monthly business magazine of Nepal)