Nidhaan Shrestha is the investment manager at True North Associates, a Kathmandu-based private equity and venture capital firm that has invested in 10 Nepali companies since 2017. The firm has managed two full exits and a partial exit. Shrestha was instrumental in leading investment into Foodmandu, one of Nepal’s first food delivery companies, which recently raised its series C round.
How would you summarize the state of the private equity and venture capital (PEVC) sector in Nepal?
The PEVC market here is still in its nascent stage but has been bubbling for some time. There are only a handful of active players in this sector, with investments in just over 70 businesses. PEVC as an asset class was only formally recognized in 2019 by the country’s stock exchange board, and approvals to hand out ‘fund manager’ licenses have recently commenced. Most players have limited experience in a typical PEVC cycle, and are familiar with fundraising, deployment, and nurturing alone. Exits are scarce. Active managers are mostly on the venture capital side rather than private equity, due to limitations in access to leverage for reasons beyond just regulations. But we can see light at the end of the tunnel.
What keeps you and your team up at night — Raising funds? Finding portfolio companies? Government regulations?
Over the years, we have been cautious in our investment approach, and have ensured the non-erosion of shareholder and LP value through a very steep learning curve. It is something that nudges us always and keeps us on our toes, reminding us of our fiduciary and ethical responsibility.
We have also burnt the midnight oil over typical PEVC issues. For example, deal flow issues were significant during our early days and we maneuvered [them] through a strategic back-end integration by operating accelerators — participant companies in whom we later invested. On regulations, we have lobbied with peers in the industry for the recognition of PEVC as an asset class, leading to what is, today, the guiding document for alternative investments in Nepal. We are grateful that the regulations are in place, though half-baked. We expect them to mature and incorporate international norms as we move ahead and gather mass in this sector.
Fundraising is a constant effort and has been challenging, especially in the local landscape, given the traditional asset classes we compete with and myopic investment mindsets. And nurturing investee firms to head on the exponential growth trajectory keeps us on our toes every day. The need to work with founders closely, though time-consuming and excruciating, allows us to ensure strong governance, transparency, and a commercial business outlook.
For a market this size, exits are still rare at this stage. But from the few that have happened, which is the most notable and why?
Yes, exits are still rare here. But Foodmandu’s partial exit during its series B funding would surely be a notable one. This exit was outside the realm of a typical owner buyback. The firm now has the top three PEVC firms in the country on its cap table, which shows the confidence of investors in the business. We also have two companies — one focused on warehousing and the other on affordable housing development — in our portfolio looking to go public in the coming years. That should be exciting as well.
When it comes to doing business, what would you say is the one thing most outsiders get wrong about Nepal?
I think it’s actually the other way around: most seasoned investors understand, and have hunches on, how developing markets like Nepal operate. What they discount is the intensity of perseverance, patience, and persistence required to operate a business here. Recent developments in digital readiness, adaptation, adoption of technology, and the talent pool are a nice surprise to outside investors and businesses. And the narrative around entrepreneurship is quite romanticized and would require a deeper lens to weed out the fluff. Quality over quantity!
What’s your 30-second elevator pitch to a global investor? Why should they invest in Nepal versus other emerging markets?
The emerging tech scene in Nepal marks the dawn of a tech hub cradled at the heart of South Asia. There’s an incremental supply of quality tech graduates, and passionate and commercially oriented young entrepreneurs. An inspiring and growing Nepali diaspora globally is now bringing home business acumen, innovation, and success stories. Nepal is reconnecting to the globe, and, with the right capital and partners, it is poised for exponential growth. So what are you waiting for?