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Investigating the Investment Market

Things to consider while looking for investment in Nepal

 

Investors these days are very specific about what they look in investees and many a time than not, the investees understand and fulfill the criteria. It is, however, important for investees to be aware about the market in depth while looking for investors, because the relationship of the investors and the investee is two-way and long-term.

 

For this edition of NEXT Venture Corp’s blog, NEXT is in conversation with Ashish Shrestha,  the Director of Seed Investments, who talks about the factors startups should consider while looking for investment in Nepal. Seed Investment, an investment management company, creates an equity bank by bringing investors together, and helps in balancing risk and returns of such investors. The investors mainly invest in three types of structured portfolio: infrastructure, equity and ventures. Today, the company has collected around NPR 400 million which is being disbursed through 3 Special Purpose Vehicles (SPVs)–SeedInfra, SeedEquity, and SeedEngery.

 

Have a clear idea about your requirements

 

The types of investments that may be suitable for different companies largely depend on their requirements and growth timeline. In Nepal, several startups depend on family and friends for initial seed funds. While several startups have started using the services of accelerators and incubators, they are still seen as a new phenomenon here and their roles are yet to be fully assessed. As a company moves from the startup phase to a  growth-stage business, its requirements also change. They start looking for expansion capital and equity investments. It is important for both startups and growth-stage businesses to be certain of their requirements, which to a great extent, will define the potential investor’s nature.

 

Understand the investor’s nature

 

In order to better assess the investor’s priorities and expectations, companies need to have a clear idea of whether the investor wants to lead or just follow the business proceedings once the investment is made and whether they are committed and serious about the investment. It may be difficult to exactly predict their behavior, but it is important to know how the investor’s understanding of the business or the sector is. Businesses also have to be wary of overly excited investors who agree to jump on the bandwagon based on a 5 or 10 minutes presentation or pitch. Such investors might not have understood the business fully or may have ulterior motives. Any investor who does not clearly spell out their reasons for investment, and their expectations from the initial years of investment could bring trouble in future.

Who is an ideal investor?

 

Broadly speaking, any investor that can provide funds and add value to the business is ideal. An ideal investor will understand that it must be a win-win situation for both parties, and will not  necessarily be concerned only about the majority stake. They will align the funds requirement and market cycle with the investor’s pocket, clarify expectations in terms of returns, control, and payouts, and outline value additions beyond funds. However, it does come down again to what the requirements and expectations of the company are. Angel investors, who are looking for a high return on investments, usually finance startups with seed funds and look to sell that investment at a big premium when larger investors come in with longer term plans. A venture capital, like an angel investment, is usually appropriate for startups or initial stage companies. They also look for value addition beyond funds, such as business planning, network growth, and business support. Private equity is usually interested in purchasing a business for a specific purpose, and usually do not look to invest into startups.

 

Planning, pitching, and having exit strategies

 

Potential investors look for more than just outlined business projections, elaborated plans, and financial details. The fluidity and flexibility while presenting the pitch deck (which is usually asked prior to investment) is critical ,and sticking to a planned pitch instead of an improvised one is key. Similarly, confidence in one’s material and the readiness to elaborate about the target market, competition, and revenue model also plays a major role in securing an investment..

 

To receive investment by ‘Seed Investments’, applicant companies must reach minimum investment qualifications. Once all conditions within the investment contract are reached, committed investment funds are released to the applicant company in return for the applicable shares and securities.

 

A good investment proposal has a strong story presented by an experienced team, favorable return possibilities and long-term prospects. Expecting the investor to be moved by a five or ten minutes of presentation is not realistic. Similarly, companies that simply overemphasize in the prominence of their product, and forego other aspects of market, actually scare investors than lure them. Some startups don’t have clear revenue models, business valuations or exit strategies, which ends up being red flags for investors.

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