We are making an investment portfolio of 15 percent for startups: Dr. Manish Thapa
Established in 2019, Global Equity Fund, Private Equity and Venture Capital Fund is the first company in Nepal to receive permission from the Nepal Securities Board Sebon.
PEVC, which provides small and equity investment, is seen as the main source of investment for Nepali startups.
The managing partner of the company about the direction to be taken by Global Venture Fund as the country’s first PEVC and the strategy to be decided by the company for Nepali startups suffering from lack of investment. Dr. Manish ThapaFor icity news with Yuzu KhalingEdited part of the conversation:
You have recently received your Private Equity Venture Capital license. Now how to proceed for investment mobilization?
We succeeded in becoming the country’s first private equity venture capital fund approved by Seven. Getting a license from Sevan was the first step for us, now we are working to get the fund scheme approved by Sevan.
Our plan is to make this first fund between 2 to 4 billion. In the next two weeks, we will register this fund scheme in Seven and get it approved. We expect Seven to approve the fund scheme sooner rather than later. Only after this is approved we will start collecting funds.
Since we have been going on for three years in fund collection, we have done a lot of work. Many organizations and wealthy businessmen are already in the pipeline to invest money. Many companies seeking investment are also in the pipeline.
How much total investment is coming for PEVC in Nepal now?
Talking about foreign investment in Nepal, we are forecasting that there will be around 600 million dollars of investment by the end of this financial year. Foreign direct investment FDI and especially development financing organizations British International Investment BII of Britain, DFC of America, Proparco of France and Sweden have said that they will invest 600 million dollars in Nepal by the end of the financial year.
But all this investment is not only in pure PEVC. Currently, we are collecting 2 billion funds ourselves, if the other 10 who have applied for permits get approval, then there is a possibility that we can raise 2.2 billion and about 20 billion worth of investable funds for the PEVC sector.
Many startups have reached a stage of closure due to lack of investment. They have great expectations on PEVC as a source of investment. How do you address it?
Of course, our focus is on startups. After raising funds, our first task is to invest. Our investment will be towards both startups and growing businesses.
In particular, the private equity fund we provide is a small growth stage fund. A company that has established its brand in the market, established goods and services, earned income, profit or has reached breakeven by earning profit, such companies get private equity funds.
But a venture capital fund is an investment made in a growing stage startup that is based on an idea or a prototype, whose market has been tested and has potential.
Now, we have planned to make about 15 percent of the portfolio of venture capital under the investment diversification of the global equity fund. In which 15 percent of our investment will be exclusively for startup businesses.
If we bring a fund of 2 billion now, the plan is to invest 20 to 30 million in venture capital. Yeti Fund is certainly the largest fund in venture capital for now.
But we are not the only ones, some of the companies that are coming to get the license recently have registered themselves as investing only in Vishuddha Venture Capital. Therefore, it is certain that more and more investments will be made in the startup business in the coming days.
How crowded are the startups to demand investment in global equity funds now?
Now many businesses have started coming to us to ask for investment. We have already announced for funding in 2, 3 rounds.
At the startup fest organized by CNIEF some time ago, we announced that our global equity fund will fund 5 startups, now that process has reached various stages.
Someone’s due diligence is being done. While the documentation of some is being done, we have reached the final stage to advance the shareholder. Likewise, we invest in potential startups and we have a strong desire to do so.
A startup is a business full of risks, in this case, is this investment of yours a risky portfolio?
Of course, venture capital is a slightly risky portfolio. That is why we have allocated only 10 to 15 percent investment for this.
Even if we look at the whole world, only 10 out of 100 startups seem to be successful. But looking at what kind of startups have been successful, only the startups that have been able to raise investment, that have been invested by PEVC, have been successful.
In fact, we not only invest in startups, we also provide technical and managerial support to enhance their capabilities.
A startup that can attract PEVC always has a higher chance of success. Such startups have a very low chance of failure.
How do you provide other managerial support to startups?
When we invest in any startup, we don’t just take funds. Since that startup is our common business as well, together with the founder, we have taken our own vision of how we can advance his team, how we can make the product better.
Startups do not have the knowledge and experience of how to take their services and products to the market, market them, create a brand, manage the organization, etc. We will teach and support it.
Our investment in their ideas and management skills can develop that startup into a good company. We don’t just invest free money, we also transfer skills and help turn them into successful businesses.
Startups always accuse PEVC of trying to get a bigger share while investing, is this correct?
There is some truth in this but much of it is the result of misunderstanding. Because, before investing in every company or business we evaluate it which has its own method.
It is easy to assess the assets of large companies. Their factories have very large assets such as buildings, land, goods, stocks, etc.
But if you invest in an IT-based business, there is only an empty computer and intellectual property of software. Which in itself is an ‘intangible asset’.
The method of valuation of such tangible and intangible assets is different. Intangible assets are very difficult to value, because such assets are not backed up.
Therefore, there is a problem of evaluation method and understanding. It is also a problem that investors cannot understand the company’s founder or team. Sometimes such problems appear because there is no understanding between how to evaluate and how to take it.
As you said, not knowing the method and process of valuation, how many founders of companies have been caught by investors and the trend of trying to get the company as an investor may also appear.
But there is also a trend among the founders of our companies here. We watch SarkTank, we watch reality shows like Dragon’s Den, we watch big businesses in India and Silicon Valley. We say that the same way the business there has been evaluated, ours should be the same.
India has a population of one billion, the market is very big, we have a population of 30 million here, the market is small and new, so looking at the valuation of India’s Silicon Valley, we cannot expect it in Nepal.
The founders here tend to increase the valuation of their company quickly by watching the reality show. But the valuations in reality show and real life are sky and ground different.
They are in the idea phase, but in India and in Silicon Valley, the idea has been given so much value. This kind of problem is seen a lot because of the practice of setting your own prices and doing the calculations yourself by looking at the reality.
What is the status of successful exit of PEVCs from Nepali startups now?
This market is very new in Nepal. It is just starting. Business Oxygen, Dolma Impacts are also taking the first exit of their first fund. The industry itself is just moving to the left.
Looking at Dolma Impact, Business Oxygen, Team Ventures, True North Associates who came before us, they have exited from one or two of them.
If we look at Business Oxygen, it seems that they have successfully exited in 3, 4 units, similarly, Dolma Impact has also taken partial exit in 2, 3 units portfolio. The exit of private equity venture capital means that the fraternity of this industry will increase.
There are three types of exits in PEVC in India. One is to take it to IPO. Since that is possible only in big factories, it is possible in private equity but not possible in venture capital.
The second exit is called strategic sale, in which the shares of one PEVC will be sold to another PEVC. This kind of exit is seen especially in India and Bangladesh.
Players like us are coming to Nepal. Currently there were 3, 4 players, now after getting the license, another 10, 15 players will come. In this way, we can also give exit to each other here.
No VC is a very successful business in 10 years today. They need financing and they continue to do so after selling the new PEVC.
As this happens, we can easily see all our PEVCs exiting the portfolio in the next 5-6 years.
Now because Dolma and Business Oxygen also need to take exit from the fund, a new PEVC like us will give them an exit and this way the market will move forward.
On what basis do you choose a startup for investment?
We Global Equity Fund have set 5 criteria to invest in any idea or startup.
Under the first criterion, we look at the feasibility and market of the business or idea.
Secondly, we look at its founder’s involvement, commitment and the team he has built. In a country like Nepal, we invest by looking at the founders.
The third is compliance. Since we have also collected public money, we cannot make random investments. We also have certain standards. In compliance, we see their balance sheet and whether the government of Nepal has been working in compliance with all the rules and laws.
In the fourth criterion, we believe that we can also contribute to the startup or business we invest in. If we do not have a role in any business and there is no place for us to be involved, we do not invest in such organizations. This is something to be decided in the agreement.
The fifth is our exit. We cannot continue to invest for a long time. In such a situation, we are planning how to exit from this business from the first day.
We invest only if your business has a business strategy that can be exited according to our plan and exit is easy.
The economy is in crisis, there is a lack of liquidity in the market, how many problems do you have to raise the right investment?
Even when there is a lack of liquidity, it is not difficult for us to raise investment. Most of our investors are banks and financial institutions, pension funds, insurance companies, etc., so it is not difficult to raise investment.
But if we have a problem, due to the liquidity crisis, the interest rate has increased now, normally you can get 11 percent interest rate on fixed deposit, similarly, if the insurance company makes a fixed deposit, it gives 10 percent interest rate, at this time we are also under pressure to give high returns when raising investments.
When there was no liquidity crisis, two years ago, we used to raise investments from insurance companies and pension funds at a huddle rate of 6 to 8 percent, but now when the interest rate has increased, the huddle rate we give to them has reached 10 to 12 percent.
We are burdened by this cap. Rather than raising investment, our problem now is how much return to raise.
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