A different approach to financing business
The Himalayan Times, 07.08.2016
Alternative finance has become the new buzzword for entrepreneurs worldwide who are seeking for a fund to either start a business or to grow their existing ones. In the past 5 years Kathmandu has witnessed a big change in the way the entrepreneurs are financed. With several new funds coming up in the entrepreneurial ecosystem, the investors are not only injecting cash flow to the businesses but also helping to build a sustainable and financially sound ecosystem. I met Siddhant Pandey, CEO of Business Oxygen, one of the alternative finance funds present in Nepal.
Verbatim from Pandey.
‘The whole idea behind Business Oxygen (BO2) was to create private equity venture capital fund that would be invested in SMEs in Nepal. It was promoted by the IFC which is a member of the World Bank group. They have such funds in 15 other countries with a fund size of 15 million dollars for Nepal. The investment size for the entrepreneurs willing to grow their business is between 100K to 1.5 million dollars. The idea is not just investing for commercial usage but also develop capacity of SMEs along the lines of international practices.
One of the biggest lacks that the local SME sector has is structured systems and processes, and of course capital. Banks usually do not finance SMEs and do not have collateral of securities. So it is very difficult for an SME to go to the next stage. We do not cater to startups but invest in companies that have enterprise value and have been in business for a couple of years and who need a scale-up capital. That is where we come in. And the value addition with a fund like Business Oxygen that differentiates us is that we have technical assistance-ship fund which enables the capacity building of the entrepreneurs and the his business.
Unlike a bank’s debt financing where the bank gives a debt on the basis of the security and the future cash flow of the company, we act as an equity partner for the companies that we invest in. We hold hands with the company from financial injection to exit. So at that point, we put the processes and systems in place, and make sure that the company is transparent, good governance is in practice, structures like the Board is present, the SME venture pays taxes on time.
The biggest problem with SMEs in Nepal is that they are unstructured with multiple books of accounts and do not pay tax. The prime stipulation when we enter such a company is that they need to buckle up and take care of such details. Most of them understand that initially, that might have profitability but in the long run; double book keeping is not sustainable.
International mentors, that have decades of experience in running a business, spend time with the SMEs for a few weeks and pave a path ahead for them. We feel that alternative ways of financing a business is not just about making money but making a business sustainable. I personally find incredible potential in the market and great ideas that have started which do not get a chance to scale because of the lack of capital.
BO2 has successfully invested in two of the finest restaurants in Kathmandu, Dalle and Le Sherpa and have a couple of more promising and ambitious companies in the pipeline. You can get in touch with an associate at BO2 at firstname.lastname@example.org