In an ongoing effort to promote startups, the government has introduced criteria for their legal recognition through the first amendment to the Industrial Enterprise Regulation. Published in the Nepal Gazette on March 10, the amendment aims to foster startup growth and create a more organized ecosystem. Observers view it as a positive step forward, expressing hope that, unlike previous initiatives, the government will follow through with this policy.

Under the amended regulations, businesses older than 10 years will no longer qualify as startups. Additionally, a business will lose its startup status if its annual transactions exceed Rs 150 million. The amendment also envisions the establishment of a Startup Promotion Center to help build a stronger startup ecosystem. While some stakeholders argue that the Rs 150 million turnover cap could hinder the growth of Nepali startups—particularly those aspiring to expand into international markets—many consider the cap reasonable given the current nature of startups in Nepal.

"At a time when startups worldwide are achieving new heights, we are still defining what constitutes a startup," said Kavi Raj Joshi, Founder and Managing Director of Udhyami Innovations. "But it’s better late than never," he added, stressing the need for swift implementation. "We have to take it positively."

Progress Amid Setbacks, but Challenges Persist

The Nepali startup ecosystem has faced significant obstacles due to inconsistent government policies and unfulfilled promises over the years. Successive governments have announced various initiatives to support startups, but many of these efforts have remained on paper

Amid this neglect, Nepali startups have encountered several challenges, exacerbated by the 2015 earthquakes, India’s trade embargo and the Covid-19 pandemic. As a result, trust in the government has eroded, particularly among entrepreneurs. According to Joshi, the government needs to focus on robust implementation of policies to regain its credibility. Despite these challenges, Nepal's startup ecosystem has made considerable progress over the past 10-12 years. Although still in its early stages, the movement has democratized entrepreneurship by making access to capital, networks and knowledge more attainable for aspiring entrepreneurs, regardless of their background. This shift has leveled the playing field, enabling innovative ideas to reach a broader audience.

The rise of alternative investments, such as private equity and venture capital, has played a pivotal role in driving startup growth in Nepal. Additionally, accelerators and incubators have provided invaluable mentorship to new entrepreneurs. Successful startups like eSewa, Upaya City Cargo and Foodmandu have become role models for others. Since 2018-19, Nepal’s startup scene has gained significant momentum, with organizations like the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) and the Confederation of Nepalese Industries (CNI) beginning to recognize and award startups in 2021. However, the appeal of startups has waned in recent years, particularly since the onset of the Covid-19 pandemic, with many facing tougher circumstances compared to 4-5 years ago.

Empowering the Ministry to Promote Startups

The amendment to the Industrial Enterprise Regulation has also empowered the Ministry of Industry, Commerce and Supplies to formulate policies and programs aimed at promoting startups. The Ministry is tasked with recommending reforms to improve institutional capacity, assisting and coordinating with the Startup Promotion Center, conducting research and surveys to promote startups, and monitoring the Center’s activities.

Under the new regulation, businesses seeking startup status must submit necessary documentation, including an audit report from the previous fiscal year if they are operational. Non-operational businesses must provide their financial details. Additionally, businesses must self-declare their use of innovative ideas or technology in their operations. Once approved, startups will receive a Startup Business Certificate and must begin operations within one year.

The Need for a Holistic Approach

According to Joshi, the government could learn from the ‘Startup India’ initiative, a comprehensive program of the Indian government to promote startups. Under this initiative, eligible companies can be recognized as startups by the Department for Promotion of Industry and Internal Trade (DPIIT), granting them access to tax benefits, easier compliance, IPR fast-tracking, and more. Observers suggest that the implementation of the new amendment should be dynamic. “The government should remain open to acquiring new learnings and rectifying mistakes,” they say.

This policy aims to provide a supportive framework for securing funding, helping businesses scale up and creating job opportunities in the future, with the hope of mitigating brain drain to some extent. One of Nepal’s pressing issues is the rapid outmigration of youths with varying levels of skills and educational qualifications. While migration’s impact on Nepal’s startup ecosystem is evident, stakeholders argue that the underlying issue lies in the country’s poor education system. "Youths are neither acquiring the right skills nor gaining adequate exposure, which in turn impacts their confidence," said Joshi.

As a result, more youths are seeking educational and job opportunities abroad. Stakeholders believe this also explains why most existing startups follow a self-employment model, which neither creates jobs nor is sustainable.

Joshi also highlights the confusion surrounding the term PEVC (Private Equity and Venture Capital) as a potential source of startup funding. “Private equity and venture capital are different things,” he said. “We need investors who are willing to take the risk and make substantial investments in startup ideas.”

Startup Funding Challenges

The issue of funding remains a significant barrier to the growth of startups in Nepal. Over the years, the government has made several commitments to support startups, but many of these promises have gone unfulfilled. In the previous fiscal year (2023/24), the government launched a new loan scheme for startups in collaboration with the Industrial Business Development Institute (IBDI) and financial institutions. IBDI and Rastriya Banijya Bank signed an agreement for loan disbursement, with additional security provided by the Deposit and Credit Guarantee Fund. Under this scheme, eligible startups can secure up to Rs 2.5 million in funding at a 3% interest rate. Loans up to Rs 500,000 are to be repaid in a single installment, loans up to Rs 1.5 million in two installments and those up to Rs 2.5 million in three installments. In the previous fiscal year, the government received 1,658 proposals and 1,183 of them were recommended for loans. However, only 165 startups received financial support.

For the current fiscal year, the government has allocated Rs 1 billion to the program, a significant increase from the Rs 250 million allocated in 2023/24. A nationwide call for applications issued in August 2024 attracted more than 5,000 proposals. Of these, 1,314 shortlisted applicants began presenting their business plans in February, with a March 24 deadline. The government aims to provide loans to as many as 600 startups this fiscal year.

To qualify for the fund, startups must not have been established or operational for more than seven years and must meet at least three of the following four criteria: paid-up capital not exceeding Rs 5 million, gross income not exceeding Rs 5 million, fixed capital (excluding home and land prices) not exceeding Rs 20 million, and no more than 10 full-time employees. Additionally, startups must meet two of the following three criteria: demonstrate innovation and use information technology to address customer issues; allocate 5% of their total expenditure to product development, market development and research; or possess intellectual property (such as patents, designs or software) registered or eligible for registration.

Abhimanyu Golchha, President of the NYEF Kathmandu Chapter, earlier told New Business Age that while young Nepali entrepreneurs, particularly in the IT sector, are developing innovative ideas, scalability remains a significant challenge. This is further compounded by policy hurdles. “Due to these challenges, many startups struggle with their roadmap and the support available to them,” Golchha explained. “It is equally important to help startups understand how to effectively utilize the funding they receive. We must also focus on mentorship to guide startups on their journey.”

While the government’s efforts to promote startups show promise, successful implementation remains the biggest challenge. With a framework in place, stakeholders hope that Nepal can create an environment that fosters innovation, attracts investment and enables startups to scale. However, to achieve this, the government must move past its history of unfulfilled promises, act decisively, and build trust with entrepreneurs.

(This news report was originally published in  April 2025   issue of New Business Age Magazine.)