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January 2018 Startup Scene

Published on: 2018-01-18 10:35:37     522 times read    0  Comments
Impact Investing : Contributing to Economic Growth

Impact investing is the key to shaping our future which can be seen in the outcome of impact investing in Nepal.

--BY POOJA PRADHAN

The term ‘impact investing’ was coined ten years ago and the concept has revolutionised the sectors of development aid and market investments. According to the Global Impact Investing Network (GIIN), “Impact investing provides capital to address the world’s most pressing challenges.” 

When impact investing first took shape it was considered a niche market, with interests from only a few financiers. But now, with proven healthy returns, investors are focusing on creating both value and profit. A recent survey by GIIN found that out of the 202 respondents, 76percent claimed that the financial returns from impact investments were in line with their expectations, 15percent reported that their investments outperformed their expectations. Only 9percent said their investments were underperforming. 

A study by Morgan Stanley found that (social) impact funds, on average, were less volatile than non-impact funds. Impact investing is the key to shaping our future which can be seen in the outcome of impact investing in Nepal. On average, an investment of 100K Euros in a small and medium-sized enterprise (SME) in Nepal is estimated to generate 50 jobs, and a combined earning potential of 15 million Euros, over the investment period of five to seven years. In a country where the youths are migrating due to lack of employment opportunities and 25 percent of the population is below the national poverty level, impact investments could make a significant difference.   

Investing in SMEs has a huge impact potential for the country’s economy, however Nepal’s traditional financial structure is not geared towards supporting these SMEs, sending them into what can be defined as the ‘Missing Middle’. These companies are too big for micro-credits, but too risky for large funds. Bank funding requires collateral, usually land, which doesn’t grow in the same rate as the organisation, leaving these companies with almost no option to access growth capital. One to Watch, a fund management company based in Nepal, specialises in investing in the missing middle. One to Watch works with companies that focus on basic needs like food and agriculture, infrastructure and healthcare.

According to Willem Grimminck, the founder of One to Watch, he would “bet on small and medium businesses,” because “they are innovative in the fields of infrastructure, agriculture, health care, housing, banking and much more. While serving the basic markets, these entrepreneurs generate income to distribute among themselves and others.” With six years of experience and fifteen companies in its portfolio, One to Watch is not just a pioneer in Nepal’s venture capital industry, but a leader when it comes to impact investing in Nepal. They provide access to investments and the expertise needed to grow companies. One to Watch not only discovers these high potential high impact companies through existing accelerators, it also introduced Europe’s best known accelerator, Rockstart, to Nepal in the form of Rockstart Impact. 

Launched in 2014, Rockstart Impact is a highly successful business acceleration programme, designed to help Nepali entrepreneurs become investment ready. Rockstart Impact, till date, has accelerated 29 companies, and raised over three million Euros in investment pledges for 21 of them. This intense 100 day programme is designed to meet the needs of growth oriented entrepreneurs. 

A unique aspect of Rockstart Impact is that it bridges the gap between local needs and international expertise and investment. Rockstart Impact’s international and Nepali mentors are experts on how to successfully grow a business; they not only help the entrepreneurs throughout the programme but also when it ends. The importance of these mentors is best described by AashishAdhkari, Rockstart Impact alumnus and founder of Red Mud- “the mentors have acted like teachers, reviewing my work giving me homework […] but the things they say made me question myself and helped me figure out the things I have been missing.” The application for this year’s programme closed on 5th October with more than 200 companies applying for the programme. The final ten enterprises in this year’s programme are from various sectors but have one thing in common - all of them create an impact. 

Though Rockstart Impact focuses on multiple sectors, this year there are several agriculture based companies in the programme. These companies are involved in farming (Kanjirowa Agro Farm, Indradevi Strawberry Farm and Tripathi Group), the floriculture industry (RudynAgiflora and UG - I am the Gardener), and coffee farming and processing (Mount Everest Organic Coffee). 

Companies like Kanjirowa Agro Farm and Tripathi Group provide a much needed service to Nepal’s agriculture sector. The high quality, disease free, seedlings produced by these companies, make them invaluable to farmers; especially smallholders who are their core customer base. Investing and helping such companies grow will not only reduce the import of seedlings from other countries, but also help make procurement of high quality seedlings affordable for all.   

UG - I am the Gardener, provides an important assistance to Nepal’s floriculture industry. The first garden centre in Nepal, this company provides a levelled platform to nurseries of all scales to sell their products. This gives smaller nurseries and nurseries situated outside major cities access to key markets. They also plan on opening a gardening institute to create a pool of educated gardeners, making it easier for the said gardeners to find employment.  

Low production volume makes it difficult for Nepal to compete in global agricultural or floricultural markets. But, companies like Rudyn Agiflora (a nursery focused on exports of flower bulbs), Indradevi Strawberry Farm and Mount Everest Organic Coffee make it possible for Nepal to compete in niche markets. At the same time, they also lower Nepal’s trade deficit. Majority of the employees in these companies come from the bottom of the pyramid. Supporting the growth of these companies also supports their employees in securing incomes and leading better lives.  

Furthermore, Rockstart Impact companies like Godam Sewa, Sarathi and Urban Girl have a much needed wider impact in Nepal’s economy. The customised, easily accessible warehouses provided by Godam Sewa allow entrepreneurs, SMEs and manufacturers outside the Kathmandu Valley, to stock up and sell their products in Kathmandu. This, in turn, increases the potential earning of the businesses by increasing their market base. With the number of entrepreneurs increasing yearly, Godam Sewa is an extremely scalable company that will make Nepal’s economy more competitive. 

On the other hand, the Kathmandu based taxi service company Sarathi could solve the prevalent problems in Nepal’s transportation industry. By hiring existing taxi drivers, instead of introducing new ones, Sarathi provides a stable source of employment to this undereducated and underprivileged section of the community. The implementation of 100percent metered ride and 24 hours taxi service will also set industry standards, that the currently unmanaged taxi services will have to follow if they want to compete with Sarathi. 

The gift and e-commerce platform, Urban Girl, allows Nepali people to present the perfect gifts to their loved ones by providing customised items, cakes or combined packages. Furthermore, by employing youths and selling products made by marginalised groups, Urban Girl helps them become economically independent and also decreases Nepal’s youth migration rate. 

Healthy Diet &Foods produces healthy and hygienic biscuits locally and by doing so aims to decrease import of biscuits, primarily from India. Healthy Diet & Foods plans to capture 20percent of the local biscuit market where Indian products currently own 65percent of the local market. 

As a part of the Rockstart Impact programme, these entrepreneurs take part in many workshops, one-on-one sessions and attend events throughout the programme. The programme culminates in Demo Days where entrepreneurs connect directly with Rockstart Impact’s network of local and international investors. The entrepreneurs pitch their business and investment proposals to the investors with the hope of getting investment pledges. Till date, there have always been two Demo Days in each programme, one in Kathmandu and the other in Amsterdam. This time, with the facilitation of UK-Aid, a third Demo Day will be held in London. The entrepreneurs will be pitching on 15 February 2018 in Kathmandu, 21 February in Amsterdam and 23 February in London.

The author is the Communications Officer at One to Watch.


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