Bidhyabaridhi Sigdel, the Managing Director of Dolma Impact Fund, has played a pivotal role in shaping Nepal’s private equity and venture capital landscape since the fund's inception in April 2014. Under his leadership, Dolma has successfully raised $108 million and has been instrumental in fostering a thriving ecosystem that promotes impactful investments across various sectors. In an interview with Madan Lamsal of New Business Age, Sigdel reflected on the evolution of private equity in Nepal, addressed regulatory challenges, and highlighted Dolma’s commitment to sustainability and social impact. Excerpts:

How has the private equity and venture capital (PE/VC) ecosystem evolved in Nepal over the last decade? What role has Dolma Impact Fund played in this sector?

Dolma Impact Fund started in April 2014, and one of the major achievements in the last decade has been the establishment of a private equity ecosystem in Nepal. At that time, people weren’t even familiar with the concept of private equity. I remember proposing the idea to a client, and he responded with disbelief. He said, “Bidhya ji, investments are made in minority stakes, a board member is involved without controlling management, and even the member quits the board after a certain period of time. This sounds too good to be true.” So, we started from a point where there was virtually no understanding of equity investments.

Back then, in Nepal, equity financing meant borrowing from friends and family, and loans meant from banks. The scenario, however, has completely changed. I am a board member and founding member of the Nepal Private Equity Association, which now has 20 members—this is a huge achievement. In terms of funding, Dolma alone has raised $108 million, and in total, around $500 million has been raised or is in the process of being raised by various private equity players in Nepal. That’s approximately Rs 65 billion, which is a significant accomplishment considering we started with $20 million, which felt like a massive amount at the time.

Looking ahead, Dolma is launching a sector-specific fund called the Dolma Private Fund, targeting $200 million, with plans to raise $300 million. This fund will be dedicated to climate-related investments, as Nepal is particularly vulnerable to climate change. Although climate change is a global issue, the risks we face are local, and we must take action to address them. Our focus will be on hydro, solar and energy transition sectors. Currently, Nepal is a net exporter of electricity to India. Nepal’s renewable energy resources will not only help mitigate our own climate challenges but also contribute to solving regional climate issues in South Asia. In the next decade, we will need more specialised funds focused on areas such as gender issues, agriculture, and climate change, among others.

What role has Dolma played in the development of the PE/ VC ecosystem in Nepal over the past decade?

Our primary role was to raise awareness in the market. Initially, there was little understanding of private equity in Nepal. We introduced the concept of equity as a class of capital and as an alternative source of investment. The private sector gradually realised that private equity offers a valuable source of capital where both risk and reward are shared. Unlike banks, which offer low-risk loans with interest as the sole return, private equity involves shared risks and the potential for greater rewards.

We also faced regulatory challenges. For instance, Nepal Rastra Bank (NRB) had a regulation that blacklisted board members if institutions they were associated with defaulted on loans. This included private equity board members, which would have severely hindered the development of private equity. Fortunately, this regulation has since been revised.

Another challenge was the lengthy approval process for Foreign Direct Investment (FDI) in private equity, which used to take up to 13 months. Thanks to the Department of Industry (DoI), NRB and other agencies, the approval process now takes only about two weeks, provided all documents are in order. The government's one-window policy has also helped streamline this process.

While there is still room for improvement, these changes have been significant steps forward.

What are the exit options for private equity in Nepal, and are firms successfully making exits?

Exits remain a challenge in Nepal, as the market is still in its early stages and not fully tested. To be honest, our track record for exits is not yet strong. The companies Dolma has invested in have not seen full exits, so we have not delivered substantial returns to our investors through this route. However, we have distributed dividends from a few companies and made a partial exit from one.

Additionally, two of our portfolio companies are now publicly listed, although we have not sold those shares yet. So while there has been some progress, our exit performance is still developing.

It is also important to note that Dolma started investing during a difficult period. Nepal faced the 2015 earthquakes and the subsequent blockade which stalled our investments for the first 18-20 months. Even our investors questioned whether Dolma could successfully navigate the market during that time.

Has Dolma invested in the right companies? We have seen some companies facing setbacks.

We have been prudent in our investment approach. Every project underwent thorough due diligence, and while there may have been missteps, I take responsibility for many things as well. As equity investors, we must be prepared to take risks. In some cases, circumstances changed after we made the investment, leading to certain failures. However, our investment decisions were never compromised. We have a rigorous screening process, and our investment committee carefully evaluates each project.

That said, some unexpected challenges did arise. For example, we invested in healthcare, but internal disputes delayed progress and made things worse. In another case, we invested in a promising tech company, but its competitor proved to be much stronger than anticipated.

As the Managing Director, I acknowledge that mistakes were made. However, risk is an inherent part of private equity. It is not just about picking well-established or “safe” projects; we must take calculated risks.

How are Development Finance Institutions (DFIs) viewing the Nepali market, and how are you managing their expectations?

Nepal is seen as a high-risk market, and our investors, especially DFIs, are fully aware of this. For example, when we launched Dolma Impact Fund, the exchange rate was Rs 103 rupees to the dollar, and now it is Rs 133. This means we have lost 30% of our value due to currency depreciation alone. If I were investing in a stable market like the US with a 4% percent return, I would expect a higher return of around 7% for taking on the additional risks in Nepal.

DFIs are structured to take on more risk compared to traditional investors, and despite the challenges, they are satisfied with market returns. However, Nepal lacks a reliable track record to accurately assess what the appropriate level of return should be. Both we and our investors are still learning about what returns are realistic in such an evolving market. Managing expectations means recognising that higher risks should ideally come with higher potential returns. But the reality is that both we and our investors are navigating an untested market.

What is the role of impact-driven investment in Dolma’s strategy? How critical is this approach?

Impact-driven investment is central to Dolma's strategy. While framing our investment strategies, we hold extensive discussions about aligning our goals with the expectations of our investors. The relationship between Limited Partners (LPs) and General Partners (GPs) works in such a way that, once an agreed mandate is set, our investors trust us to execute it. They only step in if there are fundamental issues or if something happens outside the agreed mandate. Too much intervention from investors can hinder growth. That is why our approach is to manage investments rather than simply execute decisions on behalf of others.

Our investors do not allow us to invest in hotels despite the potential in the hospitality sector. The reason was that we were raising funds during Covid-19, and at that time, there was no visible potential in hospitality. Our investors wanted to ensure the funds were not misused, especially in risky sectors during uncertain times.

As a fund manager, I could be tempted to invest in distressed firms, thinking I could turn them around for profit. But that could send the wrong message, making it seem like we are vulture capitalists which would be harmful to our reputation. Our role is to ensure that investments remain impact-driven and aligned with our mandate, which helps build trust with both investors and the market.

DFIs are focusing on sustainable development. How does Dolma integrate criteria such as ESG (Environmental, Social, and Governance) into its investment decisions?

We have a specific mandate when it comes to ESG, and we also have a dedicated in-house team that looks closely at these issues. In addition to our internal assessments, independent due diligence is also conducted. For instance, we hold one-on-one meetings with potential partners to assess their ESG compliance.

ESG itself is not necessarily a direct value adder in the short term.

But following ESG principles is about conducting responsible business. When a business operates responsibly, value is naturally added, and it grows over time. Gradually, following ESG leads to tangible benefits.

We do not automatically reject projects solely because of ESG shortcomings, unless the institution is extremely weak in addressing those issues. Our goal is to help potential companies become ESG-ready, as they must align with these principles to grow sustainably in the long run.

In which sectors does Dolma invest. How are these investments reaping benefits?

Broadly, we invest in three key areas—renewable energy, healthcare and technology. In renewable energy, our focus is on hydropower and solar projects. In healthcare, we invest in hospitals, labs and pharmaceutical companies. In technology, we support both homegrown tech companies and tech-exporting companies. Recently, we have also begun investing in agri-processing where we are focusing on food security and enhancing the value chain.

This not only creates employment but also ensures high-quality produce.

In terms of impact, the companies we have invested in have collectively generated 12,000 jobs, with tech companies being the major employment generators. Technology is a crucial sector for Nepal right now, especially for local business enablers. When we think about the industrial revolution, every country had its own competitive advantage—be it proximity to ports or access to resources. Today, technology is democratising development. Intelligence and talent are global, and thanks to the internet and power, opportunities for networking and growth are boundless.

Nepal is also one of the few net exporters of renewable energy in the world which is a significant achievement. There is still much potential to tap into this sector. Nepal can generate Rs 30-35 million in revenue per megawatt per year from renewable energy. With 15,000 megawatts of renewable energy, the country stands to gain substantial revenue. In healthcare, however, Nepal lags behind. Even basic care is a challenge, and healthcare costs are excessively high. With youth migration on the rise, the need to improve healthcare is urgent. That is why we are focused on this sector as well.

What is the highly rewarding sector for investment in Nepal?

There are opportunities in almost every sector each with significant potential for impact. The biggest impact so far has been in the telecom sector. A foreign company's investment transformed Nepal's telecommunications landscape, thereby showcasing the potential in infrastructure-related sectors.

Likewise, electrification has seen a huge leap. A decade ago, only 50% of the population had access to electricity. Now, that number is 97%. There is still more potential for investment in expanding and upgrading energy infrastructure, especially in renewable energy.

A large portion of Nepal’s population is abroad. Remittances sent by them have boosted domestic consumption. There is a great potential for industries producing goods consumed locally. By producing in Nepal, we can not only reduce imports, but can also create local employment opportunities.

In healthcare, many middle-class Nepalis go to India for healthcare, while the wealthier seek treatment in Thailand and Singapore. There is an opportunity to bring sophisticated medical technologies and facilities to Nepal by improving local healthcare options and reducing the need for going abroad for healthcare.

Likewise, tourism remains underdeveloped Despite Nepal’s rich cultural and natural assets. The sector holds massive potential for growth, especially if we can better market and sell Nepal’s unique products and destinations. Nepal is even importing fruits that can be grown locally. There is room for growth in agriculture, especially in the production of high-quality local produce, which would reduce imports and strengthen food security.

Shifting toward domestic production in various sectors—whether manufacturing, agriculture, or services—offers tremendous opportunity for economic growth and job creation.

How is Dolma balancing scalability and profitability in light of Nepal's socio-economic challenges?

Nepal is not a small country; it ranks 50th in terms of population. With giants to the north and south, Nepal has considerable scalability potential. For example, Kathmandu itself has a population of around five million which means that the market can support scalable businesses. Profitability, on the other hand, is about optimising business processes. If we expect a business to be profitable in its first year of operation, then we might be in the wrong line of work and should consider trading instead. Adding value to a business often takes time, and profitability may not come immediately. To navigate this, we focus on developing comprehensive business plans. Our team discusses the positives and negatives of these plans to ensure we are making informed decisions that align with both scalability and long-term profitability.

What are the key milestones of Dolma, and what valuable lessons have you learnt in this journey?

One of the key milestones for Dolma is the establishment of an ecosystem and a dedicated sector within the private equity landscape in Nepal. Significant advancements have been made in FDI regulations and SIF Regulations have been introduced which have positively impacted the investment climate.

Another achievement is the investment in Fusemachines, which is now set to be listed on NASDAQ — a remarkable success story in itself. Also, in the renewable energy sector, we participated in the first commercial Power Purchase Agreement (PPA) for solar energy. Now, the Nepal Electricity Authority (NEA) has called for bids for 800 MW of solar energy.

While there are many success stories, we also recognise that not every investment will succeed. It is essential to understand that it is okay to lose money, even with proper due diligence in place. We operate in a sector where it is impossible to be a winner in every endeavour. We have mentally prepared ourselves for potential failures, knowing that efforts might not always yield positive results.

We believe in trusting our partners, but we also maintain a healthy level of scepticism. Trust issues and friction can arise. We need to navigate these challenges thoughtfully.

What are the aspirations of the Dolma Impact Fund?

We believe that Nepal is on the cusp of achieving sovereign credit ratings which would be a significant milestone for the country. Currently, Nepal lacks a yield curve which makes it challenging to establish benchmarks for investing in the country. We see the need for this benchmark to guide investments effectively.

One of our major initiatives will be the issuance of a green bond backed by hydropower projects. This green bond will be listed on international markets, providing a yield curve that Nepali banks can utilise to raise capital. This development will serve as a step in the right direction for the investment landscape in Nepal.

Also, we are actively working on the Dolma Impact Fund III, with a focus on sectors such as healthcare, technology and manufacturing. A crucial part of our strategy is assessing how our funds will impact Nepal’s GDP. Over the next 10 years, we aspire for Dolma’s funds to significantly contribute to the economy, and we are committed to working towards that goal.

How is Dolma's portfolio performing in terms of loss or profit?

The performance of our portfolio has been mixed. In one of our companies, we are facing a 100% write-off, while in another, we have achieved a 50% return. There are also some companies where we expect additional capital appreciation on our investments. For instance, we have high expectations for certain tech companies, particularly Fusemachines, which is set to be listed on NASDAQ with a valuation of approximately $270 million. This is a significant milestone for us.

Also, two of our hydropower projects are now listed, and their values have appreciated significantly, now standing at 2x to 3x of our initial investment. While there have been challenges, there are also promising returns in specific sectors.

Where do you see Nepal in terms of PE/VC over the next decade?

In the next decade, Nepal’s banking system will hold around Rs 60,000 billion in deposits and facilitate about Rs 50,000 billion in credit flow. According to the central bank’s guidelines, if the debt-equity ratio is set at 80-20, this would imply a Rs 10,000 billion equity industry.

Currently, we are discussing a figure of almost Rs 65 billion in private equity and venture capital. This indicates that there is significant room for growth. This presents a tremendous opportunity for the alternative investment landscape in Nepal.

( This interview was originally published in November 2024 issue of New Business Age magazine.)

Watch the detailed interview on Youtube