The Hard Truth About Nepal's Private Capital Market
After 24 years immersed in the high-stakes world of global finance, including a significant tenure with the World Bank Group's International Finance Corporation in Washington, D.C., Dipta Shah made a decision that surprised many: he returned to Nepal. His move, driven by a desire to be closer to family, also granted him an unexpected vantage point. For the past seven and a half years, Shah has been observing, participating in, and critically analyzing Nepal’s expanding private capital market, revealing a landscape ripe with potential yet grappling with fundamental misconceptions and systemic gaps.
His journey from launching IFC's first fund-of-funds program for accelerators and seed funds in emerging markets to becoming an entrepreneur himself in Nepal has equipped him with a dual lens. This unique perspective allows him to dissect the market's evolution, pinpoint its structural weaknesses, and identify the crucial ingredients needed for genuine, sustainable growth.
The Illusion of Venture Capital: High Risk, Unproven Returns
Seven years ago, Nepal's private capital market was nascent, with only a couple of funds operating in a manner resembling true private equity. Today, while more dynamic, it remains largely misunderstood, particularly the concept of "venture capital."
Shah argues unequivocally that Nepal is not a venture capital market. The core problem lies in a fundamental imbalance: the market exhibits "venture-type risk" but lacks "venture-type return." Venture capital, by definition, targets high-growth, equity-driven, often tech or tech-enabled companies, promising exponential returns in exchange for high risk. In Nepal, the pool of pure tech companies is limited, and even tech-enabled businesses are far from abundant.
Furthermore, the funding cycle suffers from a critical void. While some grant capital exists at the very early, ideation stage, and some investors enter at the pre-IPO phase, there's a gaping "valley of death" in between. This means that a seed-stage company struggles to find subsequent rounds of funding (Series A, Series B) to scale. Investors taking early risks have no clear pathway for follow-on checks, making the risk profile exceptionally high without corresponding evidence of high returns. This structural gap prevents Nepal from truly fostering a robust venture ecosystem.
When Regulation Creates Perverse Incentives
The market's immaturity is compounded by regulatory frameworks that, while perhaps well-intentioned, have created unintended loopholes and distorted investment behavior. Shah points to a specific provision that allows private equity fund managers to enter companies shortly before their Initial Public Offering (IPO), hold shares for a mere 12 months post-IPO, and then exit. This strategy can generate astronomically high Internal Rates of Return (IRRs) on paper, which are often unrepresentative of true value creation.
The issue, Shah
