Laxman Paudel, a resident of Dang, used to serve as a policeman. During the decade-long insurgency (1996-2006), he was forced to quit his job due to pressure from the Maoists.

He struggled to eke out a living for him and his family. He then worked as a vendor selling wrist watches in the tourist town of Pokhara. His business wasn’t that good. So, one of his friends suggested to him, sell spices instead.

“When I started the business, I had invested Rs400,” Paudel said. He added, “I used to sell black pepper syrup, turmeric powder, flour and other household materials, going  home to home.” His wife used to accompany him by selling fruits from a traditional Nepali bamboo basket.

His friend who introduced the idea of selling spices, sent him to India to train at a spice production factory. After his return, he founded Kalika BM Agro Company in 2009. Now he produces fibre flour, barley, black pepper syrup, and grounded pulse.

A few months ago, he participated in a fifteen-day fair in Butwal, where he showcased his products. At the fair his products sold like hot cakes. Paudel said he made a profit of Rs1.85 million in the fair. He sold 7, 000 black pepper syrup bottles at the fair.

Paudel had initially started his business on a leased land in Butwal but now at Nawalparasi’s Tulsi Nagar, he’s expanding his business on his own land.

Paudel participated in a two-month AgriBusiness Boot Camp 2017 recently hoping to expand his enterprise effectively. The program was organised by Nepal Entrepreneur Hub. 25 businesspeople and 50 participants along with Paudel took part in the first ever boot camp to promote agricultural business. The camp was supported by the World Bank and INFO DEV. The co-sponsor was Business Oxygen (BO2).

At the boot camp, the 25 business people have been learning to harness their skills to uplift their enterprises. The organisers believe that they will be able to help the selected agricultural businesspeople towards sustainable development. Moreover, the camp will help startup companies to execute their projects both financially and structurally.

Nepal Entrepreneur Hub’s Bijendra Joshi believes that the participants will be able to acquire required skills to boost their companies. Also, the participants will be taught by business experts on various topics such as import, supply chain, value added tax, market-focused expansion, the process of law, buying, distribution, investment, and partnership.

The selection process for the boot camp was strict to pick out the best of best.

Businesspeople and those who had new ideas along with startups were invited to fill out forms separately between February 12 and March 10. Altogether 641 had filled the forms, including 383 startups and 258 businesses. Both groups went through a pre-judging process round where only 65 startups and 46 businesses were selected.

The selected 46 businesses then went through “speed dating” on April 1, where only 20 were selected. Furthermore, 25 participants, 5 startups, and 20 businesses participated in the “AgriBusiness Boot Camp” from April 21 to 27. Every day the participants were trained in the supply chain, packaging, value production, customer segmentation, branding, finance, and sales and distribution. On the last day, participants gave their presentations. The judges selected  the top 20.

Nepal Entrepreneur Hub’s official Susan Karmacharya said that co-sponsor Business Oxygen will invest in seven outstanding projects. “This boot camp is a first of a kind in the world and even the World Bank plans to replicate the experience in other countries,” she said.

Published: 01-06-2017 09:08

http://kathmandupost.ekantipur.com/news/2017-06-01/agribusiness-boot-camp-a-blueprint-for-success.html

While alternative ways of finance such as angel investment come in the idea stage and venture capital for early stage of startups with higher risks, PE firms support the growth phase when the company has earned certain amount of revenue.

–BY NIKEETA GAUTAM

Unlike in advanced and emerging economies, entrepreneurs in Nepal do not have facilities of alternative financing to start or expand their businesses. While wealthy entrepreneurs have various sources of financing, new and struggling entrepreneurs find it very difficult for a collateral free way of financing to take their businesses to the next level.

“Not all companies are able to get into IPOs or have access to the capital market. So, Private Equity (PE) can be effective way of alternative financing for the entrepreneurs here,” views Ajay Shrestha, Chairman and Managing Director of investment and holding company iCapital and partner of private equity and venture capital firm True North Associates.

Aspects of Private Equity 

“In the investment ecosystem, angel investors, venture capital, and private equity are asset classes providing support at the various stages of business, before taking the companies to public for participation through IPOs and listing arrangements,” says Bidhyabaridhi Sigdel, Investment Director at Dolma Impact Fund, the first Nepal-based international private equity and impact fund.

While alternative ways of finance such as angel investment come in the idea stage and venture capital for early stage of startups with higher risks, PE firms support the growth phase when the company has earned certain amount of revenue. Such firms not only provide assistance in terms of capital but also provide strategic insight and upskill them with best practices to gain profitable growth in exchange of its equity.

In PE funding, there are two kinds of partnerships – general partners and limited partners. General partners are the private equity firms and limited partners are the investors that invest the capital. The limited partners can be high net worth individuals and institutions such as Citizen Investment Trust Nepal, Nepal Telecom, IFC (International Finance Corporation) and World Bank in case of Nepal.

“The delineation of the PE fund and the management is important from the governance aspect. Generally, the fund would have limited life and it has to exit or transfer the assets under management to limited partnerships (LPs) at the end of the life. The fund managers pick up appropriate companies for investment and the deal is structured with the desirable instrument for investment and returns,” informs Sigdel.

“PE firms have to raise funds locally or internationally to be able to create a corpus to invest in the companies that qualify or meet their risk appetite.  Once they have the funds, mostly the funds are close -ended, they find a pipeline of companies also called deal sourcing and after a rigorous due-diligence process invest in the companies,” informs Siddhant Raj Pandey, Chairman and CEO of Business Oxygen, an SME Fund managed by the White Lotus Centre (WLC). “PE funding does not take collateral and is based on the future cash flow of the company,” he adds.

PE firms usually invest on late stage startups. According to iCapital’s Shrestha, startups that have started to market prototypes of their products, gained trust of customers, have proven their business model and maintained a good track record are the companies worth investing for private equity firms.  The PE firms basically evaluate the needed investment of such startups, their value and the percentage of equity they are willing to give.

The fee structure consists of management and performance charges. The firms charge annual management fee of around two percent of the invested capital. The performance fee is 20 percent of the profit from the investment. “In terms of return, either the founder themselves buyback the shares or the investors acquire the company. Most of the PE firms exit through IPOs,” informs Shrestha.  Pandey says that the investment period is mostly 4-7 years in a company depending on the mandate of the PE.  At exit, they sell the shares and withdraw their investment with a capital gain.

Benefits
“PE plays an integral role in developing the businesses by injecting much needed capital in investments that the companies would otherwise find difficult to raise. The investments can be either seed money or growth capital.  In Nepal, banks and finance companies (BFIs) are the primary source of capital, but not all have the capacity to access that capital due to lack of collateral or investment appetite of the BFIs.  This gap is filled by PEs,” mentions Pandey.

As per Shrestha, though PE firms demand 100 per cent ownership which is taken as one of the limitations in this way of financing by many entrepreneurs, having experienced professionals in the business, have chances to result in major improvement. He says that it is an effective way of financing especially for the tech startups as BFIs usually don’t take risk on the basis of the idea of innovative people who have the zeal to become tech entrepreneurs and to those with fewer financing options.

Besides this, the PE investment also helps small businesses to tie-up with big businesses, which helps them to gain visibility in the market.

Dolma Impact Fund investment director Sigdel says that the entrepreneurs entering into partnership with these entities can focus on the core business and take it to the next level of excellence because, besides financial participation, these partners come with the objective of ensuring growth, operational efficiency and transparency in governance to the company.

Trend in Nepal
PE financing is a new term for Nepal where entrepreneurship is still in a nascent stage. “Besides investment companies created as Special Purpose Vehicles (SPVs) for collective investment, there are a few PE funds in the country. The industry is new, but we can see a number of players at different stages to support the investment ecosystem in Nepal,” mentions Sigdel.

However, there are only a few firms that have come up specifically as PE funds. “There are around hundred investment companies registered in the Company Registrar office. However, it is difficult to identify if they are working as private equity firms. With the formulation of proper regulations, the data can be structured,” shares Deepesh K. Vaidya, Managing Director and Founder of Kriti Capital and Investment.

Private equity investment started getting recognition after the entry of three PE funds with international capital including Business Oxygen promoted by IFC and WLC Ventures, Dolma Fund with its investors from Europe and One to Watch, a Dutch company. Similarly, companies such as iCapital and True North Associates are notable names in PE funding in the country.

“PE funds started over one and half decade ago in an informal way in Nepal.  In 2001, an effective private equity model was adopted by Nepali investors while buying the shares of a French company that had 50 percent of the shares in the Nepal Indosuez Bank,” Shrestha shares.  As the French investors wanted to sell their shares to one individual, the investors in Nepal formed a joint fund and selected a leader to buy the shares. Afterwards, they distributed it among the shareholders and changed the bank’s name to Nepal Investment Bank.

“Though it has been five years since PE fund started formally, it is observing a good growth in the last two years. The credit goes to international capital based PE funds that started engaging in policy levels and also began promoting themselves in media which helped the PE financing to gain momentum,” says Shrestha.

In Nepal, PE funds are basically being received by some high growth sectors including renewable energy, pharmaceuticals, healthcare, hospitality, IT, agro-processing and restaurants. Some PE firms like Business Oxygen are sector-agnostic while, funds like Himalayan Infrastructure focus on construction, One to Watch on impact social entrepreneurship and impact investment and True North Associates invests on disruptive and technological business.  Attic Bar, Kidzy Pre-school, the popular food delivery website Foodmandu are some few examples that have benefitted through the PE investments. Meanwhile, Buddha Airlines and Nimbus Group are also said to have used the PE investment model for their growth in the past.

Need of Legal Framework 
PE mainly needs investment opportunity. The more it gets opportunity, the more it can strive.  Now, it has limitations from formation to investment area because of lack of regulations. Legally, PE firms have not been recognised as institutions and due to this, it is definitely facing lots of problems.

Currently, there are issues in entry, operation and exit as a private equity fund. “PE is not regulated in Nepal, so the general corporate regulations prevail for the operation and investment of such funds. For any PE investor, there have been issues with the valuation of the company, as the company law restricts the issue of shares at premium for any company who has not made profit or declared dividends for three years,” informs Sigdel, adding, “The securities board regulation relating to issue of shares at premium is limited to the net worth of the company and locked in period of three years proves a challenge for any company which has limited life. There have been Nepal Rastra Bank (NRB) directives relating to blacklisting and single obligor limits which restrict the PE funds in leveraging the company.”

Sigdel mentions that for the international funds willing to invest in Nepal, with all the above mentioned hurdles, the investment has to have approval from the Department of Industries for the FDI and also from NRB to bring in the funds in the country and for the repatriation of dividends at exit. The methodology for the valuation at exit for international investors is also one major hurdle.

“PE has just started to gain momentum in Nepal.  At present, we do not have the requirements or regime to regulate PE.  However, this fiscal year, the budget has mentioned PE for the first time and the draft of FITTA also has clearly mentioned PE as a part of alternative form of investment. Along with it, the Securities Board of Nepal (SEBON) is also mooting regulations in this area,” says Pandey.

Pandey has been advocating for a special regulatory regime for PE investments.  “In Nepal, all investments, at present, are regulated by Banks and Financial Institutions Act (BAFIA) or Company Act.  PE is governed by the Companies Act, which is inadequate and confusing,” he says.  According to him, issues such as valuation of shares, taxation issues and exit options are not addressed by present regulations, which make it difficult to operate a PE along the lines of international practices.

A report published by Kriti Capital and Investment highlights structural issues in PF financing as FDIs and investments from non-resident Nepalis are being prioritised over domestic investments. The research also explains about blacklisting of investment firms, which is a hindrance to PE investments in Nepal. According to it, as per NRB’s approach of blacklisting, if an investee company with 15 percent of its stakes controlled by PE investor, defaults from any commercial loan, the PE investor is subject to blacklisting and is forced to withdraw all the existing investments.

“We would like to see a special alternative investment regulation that would govern PE alongside other forms of investments that will enable PE in its truest form,” emphasizes Pandey .

Global Scenario
The modern PE industry started with the formation of American Research and Development Corporation (ARDC) in 1946.  Prior to that, there were some similar types of US governmental institutions that were created to address the needs of businesses after two World Wars and the Great Depression. Till 1970s, there were small volumes of PE firms, elementary firm organisations with limited awareness about PE industry.

“As per the US-based data and intelligence company Preqin, the global private equity assets under management is USD 2.4 trillion, which means it is one of the biggest assets class,” informs Sigdel.  The Blackstone Group, Kohlberg Kravis Roberts, Apollo Global Management, CVC Capital Partners, Oaktree Capital Management, The Carlyle Group, Axcel, IK Investment Partners, Business Growth Fund are some of the largest PE firms in the world. Big ventures including Facebook, Google, and Amazon have received huge growth after receiving PE investments in their growth stages.

United States 
PE industry ran largely unregulated for many decades until 2010 when the Dodd-Frank Wall Street Reform and Consumer Protection Act came into effect as the federal law. The Act was drafted to address the problems that contributed to the financial meltdown of 2008.

The Act requires all PE firms with more than USD 150 million in assets to register with the Securities and Exchange Commission (SEC), the US agency to regulate securities and capital market, in the category of “Investment Advisers.” The SEC in 2012 created a special unit to oversee the PE industry.

India 
A recent report states India as the most attractive market in terms of attracting PE investments in Asia-Pacific followed by China.

Sigdel says that in India, total assets under management are close to USD 60 billion. “In 2016, 53 percent of total FDI investment in the country was through private equity. In India, PE firms are well established with a significant track record of good returns to their investors,” he adds.

Challenges in Nepal
Vaidya observes that the investors in Nepal have a short horizon in terms of return. “Value creation in PE takes time. It is only after about five years, the profit will turn out three-four times more. However, the Nepali investors keep a small horizon of 6-7 months with an expectation of huge growth in the short period,” he says.

Besides this, investors in Nepal are wealthy individuals rather than institutions. “The individual investors keep their eye on profit, whereas private equity firms understand that to gain the profit, there should be the growth of the company. Internalising this, they themselves engage in the activities for growth of the company,” he says. For this, notes a dire need of proper regulation addressing PE in order to bring proper private equity funds for systematic PE investments.

He views that investors should understand that economy has to run with a normal growth.  “If we see the growth of stock market in the last ten years, it has gone up by 18 per cent per annum. So, Nepali investors should understand the concept of reaping investment and invest with long-term prospect in their mind.” Another challenge Vaidya points out is the lack of experience in Nepalis regarding PE financing. “Nepal has no history in private equity and there is no big market for it to bring well -experienced professionals. So, we have to groom the homegrown human resources to do well in this sector,” he says.

Besides this, the companies willing to take PE investments are very few in our country. “In Nepal, most businessmen hold their family business. Due to this, they don’t like the engagement of the PE firms in the operational aspect of the business which has been running for many years. Companies should be educated in all these aspects which will help them go to the next level of their business,” he says.

Published : 2017-02-19 (http://www.newbusinessage.com/MagazineArticles/view/1700#.WK1TKZ9pbOk.emai)

With good food, consistent quality and lightning quick service, Dalle is well on its way to becoming a gastronomical institution

-BIBEK SUBEDI

Dec 29, 2016- The restaurant is not very lavish. It has a stripped-down menu. And it wants its guests to leave soon after the food on the table is over.

Yet this eatery has become the talk of the town because of its momos which, many say, are showstoppers. Dalle, a fast food restaurant established five years ago, has now carved out a niche for itself as one of the best places for dumplings in the Kathmandu Valley.

Momo—a juicy Nepali dumpling made of meat, vegetables, paneer or cheese—is dish ubiquitously popular in the Valley. They are found almost everywhere—from roadside eateries to fine dining places.

But, in spite of the food’s widespread availability, Dalle still appeals to a broad demographic because of its plain and spice-less momos, with the kick of ginger, served with sauce made of fiery chili, referred to as dalle khursani, or dalle in short, in Nepali.

This simple approach to delight the palate has emerged as its strength, enabling the restaurant to draw loyal followers, like Shradha Acharya of Siphal, who calls herself “a fan” of the momos served at Dalle.

“The dumplings taste so good and are reasonably priced,” says Acharya.

But Dalle is not only about momos.

It’s about a concept carefully designed by Alok Yonzon and Subash Gauchan, with focus on effective and efficient management, customer service, hygiene and above all consistent quality. Perhaps this is the reason why the restaurant has survived in a place like Kathmandu, which is dotted with eateries but has a high promoter turnover rate because of flawed business models.

Established in December 2011, Dalle had a simple concept in mind: serving few quality dishes. This philosophy is reflected in the restaurant’s menu, which includes very few items, such as aaloo dum (spicy potato), Thukpa (Tibetan noodles with soup), Fried rice, Dalle bowl, and noodles or rice served with kidney beans and sauce.

Yonjan and Gauchan had designed this menu keeping their potential customers in mind.

Dalle had opened its first outlet in Kamaladi, a business district in the Valley, which is a hub for financial institutions and corporate houses. People working in these places are generally well-paid and look for quality, but are not always willing to pay steep prices.

Striking a balance between operating a restaurant in an expensive area like Kamaladi and serving food at relatively lower prices was a difficult task.
“We knew this would eat into our profits. So, the only way to keep prices low was to serve few items, which would reduce operating cost, and serve as many customers as possible,” says Yonzon, explaining why they settled for a “volume-driven business model”.

The duo then decided to limit the order cycle to 25 minutes. This means clients should have their food and leave the restaurant within 25 minutes of occupying a table.

“This is why our staff are always in a rush,” says Yonzon. So, Dalle may be the right place for those seeking gastronomic delight at an affordable price, but not the right place for those looking to engage in hours-long chitchats or business meetings. Many patrons may not like this strategy but fast food restaurants all over the world follow this principle to reduce financial burden on consumers. And Yonzon and Gauchan wanted to push the barriers.
But again, the Dalle business model was not only about keeping prices low and the service lightning quick. It was also about serving quality food. As a quality control measure, Dalle even imported chicken from Thailand during its initial days. The restaurant, however, could not continue doing so after facing “opposition” from local chicken producers.

“Yet, what we have always strived to do is give our best and offer a taste of home in the food we serve,” says Yonzon.

As a result, the duo is now planning to open a central kitchen at Maitidevi, where dishes will be semi-prepared before they are sent to every Dalle outlet. “This way we can keep the taste and quality consistent. This will also enable us to serve dishes quickly to our customers,” says Yonzon.

Opening a central kitchen has now become essential, as Dalle has expanded to three locations—Kamaladi, Bhatbhateni and Labim Mall in Pulchowk.
“We are happy about our growth. We are also happy that our growth has been organic, as we have always focused on quality rather than aggressive marketing or advertisements,” says Gauchan.

As a result, Business Oxygen (BO2), a private equity fund set up with the support of the World Bank’s International Finance Corporation, in May, made an equity investment of around Rs50 million—equivalent to 45 percent of the company’s share—in Dalle.

The duo plans to use the capital to expand Dalle to around eight locations across the country in the next few years. And if things go according to plan, Dalle will open at least one outlet abroad in the next five to seven years.

“Immediate priority, however, is to make optimum use of the fund injected by BO2 and stand firmly on our own feet in the next four years, when the equity partner will pull off from the venture,” say the duo. These are heady days at Dalle momo, and if their short but illustrious past is anything to go by, the restaurant is well on its way to becoming a gastronomical institution.

@bibekbilly