How To Collect Funding For A Start-Up Business In Nepal?

By: Prakriti Nepal

You want to keep the lights shining bright

You want to fight the battle so tight

You want to win the race and go-ahead

Cause time and tide wait for none they say

Cause time value of money is all that you pay

For building a startup so high

Cause its not just money

Because with money comes responsibility they rely

Upon the name and fame and communication

Every day, every moment, every momentum

You work uptight for the company with company

Of finances from here there everywhere

Remember keep the financial spirit peaceful!!!

Your startup is your dream and it becomes a symbol of dreams generation for generations and generations to come. A startup creates the cycle of finances moving. A startup sows the seed of the future. So isn’t it very much important to give a lot of importance to your dream and portray it as a larger impact creator? Of course yes! So for this, it is of utmost necessity to have a strong financial backbone for the startup company that you have or are going to build. You know, money and love aren’t the same things but if you put lots of love into the work you do then the money generated from the work creates more money. It is magnetic! Who knows this better than a startup owner?

Let us try to understand how to build money generating and money cycle and value-creating startup.

All types of businesses need funding some or the other time. A startup needs funding all the more for creating a healthy and long-term sustainable business. Many startups dream to become entrepreneurial ventures and look to hire well-skilled employees, perform partnerships with trustworthy firms and gain maximum customers. For some startups- the ultimate goal can be the 4 P’s- Place, Product, Price, and Promotion and for some, it would be touching upon all the 7 P’s adding Physical evidence, Processes, and People. To sum up, it would be a concoction of Networking, Trust Building, and Investing (Time, Money, Thoughts, and Willingness to Survive).

However, sales funnel that covers the overall growth strategy of a business from starting phase of funding idea generation to the closure of a deal and henceforth taking the business forward- all play a very important role for startups. Generally, there are various stages of startup funding consisting of;

Getting the seed capital
Searching and partnering with the Angel Investor
Gaining the trust of Venture Capital Player
Bridge Loans and Bank Loans
Initial Public Offering

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Understanding Each Phase Of Startup Financing

You feel lazy, you don’t feel like working, but it’s your dream, and that dream pushes you and it pushes you so extreme and in a happy place that you feel you have done something right.

Sounds satisfying, isn’t it? If your answer is yes, then you need to be sure that the first stage of funding for your startup should start with getting the seed capital.

Your strive of getting the best return from the funding that you get should result in good utilization well enough to push you forward towards your startup dreams.

a) Getting the Seed Capital

Things you need to contemplate while raising seed capital are:

-Trust

-Respect

-Sense of understanding while because of seed

Sources of seed capital funding can be your family members, banks of Friends or family, your saving, or credit cards.

Remember there is no free money. So, you need to be clear upon the interest that is charged up and the interest on the investment that they perform in your startup.

Try to keep a written and documented version of milestones, deliverables, and progress reports for the necessary update procedures. Usually, the first seed amount is for research and development. Hence, be clear and concise regarding the product and service that you want to generate with vision and mission. You need to learn about options such as Y-Combinator, Techstars, and 500 Startups internationally and nationally as per the law of the Federal Republic Government of Nepal. Avoid politicizing the first seed capital funding to avoid later dilemmas.

Prepare your clear ideas, make bull-eyed goals, and do proper calculations before showcasing your proposals to prospective investors/seed funds providers.

b) Searching and Partnering with the Angel Investor

Your startup cannot be stagnant and have the same level of capital for a long time. You need to scale your business. For this, you have to approach angel investors. If you get a trustworthy angel investor then you can segregate your business into various channels, increase your customer segments further increase your user base, you can boost your marketing efforts, and go on with the acquisition of more businesses.

As per Forbes, “Angel investors are individuals who offer promising startup companies funding in exchange for a piece of the business, usually in the form of equity or royalties. As per Angel Capital Association, While figures may vary annually, the near recent report suggests that angel investors have put approximately $25 billion into 70,000 companies.”

Angel investor use their own money which differs them from venture capitalists. Though, they are not confined to investing alone because angel investors can be one any- individual or a group of people. The money flow that would come from an angel investor would be slightly higher than the seed funding considering a leap or a jump in business decisions for conquering profits.

c) Gaining the Trust of Venture Capital Player

In Nepal, several venture capital firms are present and are erupting. At this stage of venture capital fundraising, your startup can be either profitable or could be availing from counterbalancing the negative cash flow with this new gesture of investment when the business/company continues growing. If your startup is still increasing/raising money at this stage, then multiple rounds of funding are suitable as investors might show interest in joining the company as a stakeholder and in various roles and would be interested in sharing knowledge and wisdom to grow the business. Return in investment (ROI) is the prime factor that venture capitalists are looking for in business as they would be investing their money in your business idea hoping to get maximum returns and sometimes they would want to get very high profits within a short frame of time. So the pitching of funding at this stage should be well aligned with the kind of venture capital firms or venture capitalists you are approaching and the value-driven growth-oriented goals that VCs want to accomplish from any businesses that they are investing in.

Hence, perform thorough research and be clear that VCs are looking for a competitive edge, primarily focused on sales and profits, and are extremely conscious about competitors’ moves. Sometimes they don’t want the competitors to get into the market and want a monopoly. They are not fascinated by many competitors and are very finance-focused. The more the profit, the merrier the venture Capital Firms or Venture Capital Investors are. Also, try to understand what equity and convertible notes are.

d) Bridge Loans and Bank Loans

Which start-up owner would want to be controlled? Probably very few startup owners or none, but well, we all know, the one thing that controls and creates movement in the world is money. Hence, If you are the kind of startup owner who doesn’t want interference in any kind of decision making then a bridge loan might just be for you. Yet, remember that though a bridge loan is a short-term loan until your financing gets the track on its own- it brings with itself short-term issues. If you are a startup owner then you already know about problem identification, don’t you? Hence, short-term financing to set foot in the industry as a company can be done through getting bridge loan financing considering the problem factors.

Bridge loan financing solidifies your business foundation. So, when at this stage your product and service is ready to be out in the market commercially, then you want the revenue to come exponentially and continuously. Isn’t it? Even if your startup company has not achieved profits, you would want the revenue to be free-flowing.

Here, comes the time of the merger, acquisition, and probably initial public offering. The investors would want to see a proper road map of when where how, why, why not, pros, cons, SWOT, everything.

Bridge financing usually is provided by Investment Banks worldwide and in Nepal, even venture capital firms are providing bridge financing.

Talking about bank loans, in Nepal, there is a procedure starting from proposal submission to getting and loan approval from banks to start a business. Many commercial banks of Nepal are already financing businesses for a long time. Though, the repercussion might come with untimely payment which can cause severe punishments. Banks should provide the subsidized loan in two installments recommended by the working committee.

e) Initial Public Offering (IPO)

Going Public is not compulsory. Yet, if the money of your company has raised and is roaring for expansion, then IPO is the way to go. While and after the company goes public, some investors might sell their shares in the primary phase of going public to not be last in the race, while some would be happy to hold their shares and become a shareholder of the company. We see similar kinds of activities in banking shareholders’ behavior regarding selling and buying of stocks as well.

One benefit for the company after going public would be the easy attraction of skilled and talented employees and partners of various types for further growth. So finally when you are listed as a public limited company, you are no more a startup. Though, the hustle constantly continues for sustaining and growing larger with each new day.

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What Are The Financing Facilities Given By The Government Of Nepal For Startup Owners?

The Government of Nepal has also been providing financing to startups. We already now know that a company starts with seed funding and then moves toward A, B, and C and further other funding rounds.

In terms of Nepal, Nepal Government’s Fiscal budget (2021/22) has highlighted the financing budget for startups and businesses. The budget of the Government has focused on increasing startups. They have given facilities such as:

As mentioned in Point 68: Free company registration, renewal, and other taxes for startups
As mentioned in Point 483: Full discount on the income tax for the initial five years for startups

Other information shared regarding startup are:

Start-up entrepreneurs/owners will get Rs 5 million in seed capital at 1 percent interest as per Business Credit Work Flow Procedure 2021
1 billion challenge fund
opportunities of seed investment

Other than this, the government has been providing loans to open a business/ startup in Nepal for many years now. There is a complete guide of how to initiate a business in Nepal in NEPAL.GOV.NP: http://nepal.gov.np:8080/NationalPortal/view-page?id=14

Also, the World Bank, doing business in Nepal has mentioned everything from starting to resolving insolvency in its doing business page. https://www.doingbusiness.org/en/data/exploreeconomies/nepal/starting-a-business

The Simplicity Of Startup Financing To Consider Internally

In simple terms, if you are a startup owner, you need to have the following things intact internally for making sound funding and financing decisions:

A checklist that is your companion at all times to check and cross and create a balance in your financing strategy
A proper database of angel investors, investors, venture capital firms, and people
A Proper Customer Relationship Management software (CRM)
Understand the equity, balance, and valuation components of your startup
Make a list of Prime Goals and a few main goals other than the valuation of your startup because ultimately generating money matters
Consider the Opportunity Cost
Know the process of Equality, Practicality, and commitment
How does the equity split up work- please get hold of this
Plan B regarding founder departure- usually startup founders tend to have opposite opinions which might result in splitting and So this is vital considering the financial and funding aspect.
Remember depending on your burn rate is your financing needs
A first-year budget needs to be strategized and/or should be on hand
The legal aspect of funding and financing must be well versed to a startup owner
A mindful strategic mindset regarding accounting, financing, VAT, Tax is a must
Your first employees are the main. Make sure you hire what is good not just for the startup owner but good in terms of raising the returns of funding and finances of the startup.

Thus, as Elon Musk has said “Persistence is very important. You should not give up unless you are forced to give up.”

Yes! persistence and a progressively practical mindset are very important while considering funding generation for your startup. Pour your heart out, spread the love of business passion and be open regarding funding concerns because it’s a love affair when it comes to startup creation.

From The Author:

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