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June 2017 Economy and Policy

Published on: 2017-06-14 10:07:34     846 times read    0  Comments
Startup Policy for Changing Entrepreneurial Scene

Starting a startup takes more than just a dream. The reality is, it needs a lot of hard work and graft. But now new policies and guidelines are coming to hopefully help young and aspiring entrepreneurs.  

--BY NIKEETA GAUTAM 

From providing community level solutions in rainwater harvesting, hazardous hospital waste management, selling a pizza at just Rs 100, manufacturing bricks using eco-friendly techniques to urban farming and developing mobile app for traffic and road management, startups in our country have actively come up front with innovative ideas to overcome various problems. Indicating that emerging entrepreneurs hold a great potential to capitalise the existing opportunities in various sectors and bring positive changes in society through business, startups have been playing an important role in changing the perception of business among general Nepalis. While the country’s private sector has been encouraging startups by providing mentorship and guiding them in their entrepreneurial journey, the time has come for the government to take the responsibility to establish a proper system in order to encourage the budding companies that carry potentials to shape the country’s economy in a new way.

"There are many success stories of startup companies in Nepal. So, the time is perfect for us to promote, encourage and systematise them by introducing an effective policy framework," says Industry Minister Nabindra Raj Joshi. The Ministry of Industry (MoI) has prepared an initial draft of the Startup Policy 2017 in a bid to create a legal framework that will enable budding Nepali entrepreneurs to receive various types of support from the government. The draft which is yet to be finalised will be implemented once it is approved by the Cabinet.

“By facilitating the startups, we want to streamline the thinking of youth towards entrepreneurship,” says Joshi.  According to him, it will take around six months for the government to put in place the legal framework for startups as the proposed policy will incorporate suggestions from other ministries too.

The National Startup Committee formed by the ministry has prepared the draft which has defined all components of the startup ecosystem. “In Nepal, a systematic entrepreneurial platform has not been developed. That is why the fund allocated as entrepreneurship fund is not being used effectively,” reads the draft mentioning the reason behind introducing such a policy.

The draft defines a startup as a new entity, registered within Nepal that creates value in society via disruptive innovation in developing new products and services to meet the needs of today’s dynamic market. It says that the companies should have a registered life not exceeding than five years and invested capital not more than Rs 100 million with an annual turnover not exceeding the same amount in the preceding fiscal years to qualify as startups. The proposed arrangement requires entrepreneurs to submit their applications via online to the National Incubation Center which will be established under the proposed National Startup Development Council. The council will appraise each application according to the criteria mentioned in the policy to provide certifications to the startups.

Access to finance has been a major issue for Nepali startups for a long time. Despite having new and innovative business ideas, conventional financial institutions often hesitate to take the risk to invest in such ventures. The policy has envisioned establishing venture capital and special purpose vehicle (SPV). Similarly, the policy has provisioned National Incubation Centre and Private Incubation Center to facilitate the growth of startups by helping them in various areas such as providing them technical and other various types of business related support. The draft has mentioned SPV as a Startup Growth Financer and has also stated the role of Venture Capital which will inject fund to startups in exchange of debt/equity shareholding. The draft has also outlined a provision of financial grant for early stage startups under the 'Challenge Fund Support'. Under this, a grant of Rs 500,000 will be handed over to the selected startups with the payment schedule linked with phases, performance and milestones. According to the policy draft, one incubation center will be operated in each province and each university is entitled to open at least one university incubation centre.

Experts see the proposed policy as an important step to facilitate the changing entrepreneurial scene in the country. “Policies should always be proactive rather than reactive. Now when the private sector is fully enthusiastic about building an amazing startup ecosystem, it is the right time for the policymakers to formulate a legal framework for Nepali startups,” shares Narottam Aryal, the Coordinator of National Startup Committee and Executive Director of Kings College.

Towards holistic entrepreneurship development
It is the rising number of startup companies in the country that has led the government to move ahead with a managed and systematic approach towards entrepreneurship. According to a research by StartupsNepal, a startup forum, the number of startups registering at the Office of the Company Registrar averages five per week at present. This shows that there are lots of self-motivated Nepali youths who aspire to become entrepreneurs. “With the growing entrepreneurship, the number professional third party investors have also been rising over the last few years. There are few incubators, accelerators, venture capitals and private equity to foster the startup ecosystem,” says Kavi Raj Joshi, Founder of StartupsNepal. According to him, difficulties in entering and exiting business have been among the reasons many people are not motivated to start businesses. “Also, tax benefits, subsidies, grants, funds are not available. So, bringing the policy will encourage the entrepreneurs now,” he opines.

Minister Joshi says that the Startup Policy 2017 aims to value the entrepreneurial ideas and help the startups with the much needed resources. He mentions that the government will proactively move hand in hand with the private sector for the promotion of startups. “We are also planning to introduce a curriculum related to entrepreneurship at the secondary school level. We will design a course for it and are currently discussing with the Ministry of Education in this regard," he informs.

Meanwhile, National Startup Committee Coordinator Aryal says that the committee has been trying to address the problems startups generally face. He mentions that the draft of the policy will be further enhanced by the time it is finalised. “This is the first draft of the policy.  There certainly are rooms for revision,” says Aryal.

Mentorship is another area the proposed policy has highlighted in order to foster a good environment for startups. “We also want to set a system for the startups where they can go to incubation centers before their registration. In this way, they will save money in paying taxes during their mentorship period,” mentions Aryal. He also shares that the committee has proposed to the government to provide incentives to the incubation centres, highlighting crowdsourcing as one of the financing ways for startup.

Who actually are startups?
According to Aryal, there are two components for determining the status of a company as a startup.  "The startups should be innovative and they should have fast growth potential which is scalability. Unlike other small businesses, such companies should be tech-driven even if they do not work for the IT sector. If a company lacks innovation, it is not a startup," he stresses. He says that startups don’t necessarily need to create a new product or invest a huge capital but should have the zeal to create unique platforms for the existing products. "Few Nepali startups such as F1Soft and Foodmandu are examples of this. Through innovation and creativity, they have created their own platforms and brands," he points.

Nepal a country with supporting ecosystem
For startups to succeed in any ecosystem, the importance of early adopters is very high. Luckily in Nepal, there are startups eager to use each other's products and services. "When you introduce a new product, the general public may not understand the importance of the product. So, definitely startups are the ones which understand the situation of other startups," says Kavi Raj Joshi, adding, "A favourable ecosystem is not found in all economies. Few startup hubs in the world including Israel, Hyderabad and Bangalore of India, Finland, Bangkok and China have thrived due to such friendly environment for early businesses. So, the supporting ecosystem is definitely encouraging all the entrepreneurs of the country."

Why startups fail
It is said that over 90 percent of startups fail to continue after some years due to various reasons. "Even in a highly developed economy like the United States, more than 75 percent startups fail," says Aryal.  According to him, the market is entirely new for startups and young entrepreneurs often do not realise this fact. There is a tendency among the youths to jump into a business without evaluating the market scenario for products and services that they intend to provide. "This causes a situation of uncertainty for many startups which ultimately leads to their failure," he mentions.

In Nepal, it is usually observed that the initiators of the business ideas take their work lightly and don’t do enough homework to make their concept a success. "Those who aspire to become entrepreneurs first need to understand consumers, market and potential investors. They need to look if there is demand for their products in the market. They should conduct a lot of tests, re-tests and gain in-depth knowledge about the products and the market. Equally important is the perseverance and acceptance of failure," expresses Aryal. He views that the word 'entrepreneurship' is highly glamorised at present. Most young entrepreneurs dream of becoming another Steve Jobs or Mark Zuckerberg. "Everyone eyes success but they don’t understand the efforts needed to achieve success. Startups need dedication, commitment and hard work," he says.

Aryal suggests documenting the success and failures of startup companies in Nepal so that it can be useful for future reference. “We have been vigorously discussing about entrepreneurship across different forums over the last few years. It has gained massive for the last five years," says Aryal. "However, the concept of startup is being limited to discussions. Now, it is the time to look back and evaluate the rate of success and failure of startups before going ahead. There should be a database of the existing startups and the failed ones for improvement in areas where the young entrepreneurs are lagging behind," he adds.


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