THE STARTUP ECOSYSTEM: GAPS BETWEEN RHETORIC AND EXECUTION

When Biswas Dhakal co-founded eSewa in 2009, he was planting the seed of a digital revolution in Nepal, a country where financial transactions were overwhelmingly cash-based. At the time, the concept of a mobile digital wallet was far ahead of the market, and the team faced initial resistance and a lack of trust from both consumers and financial institutions. Dhakal himself has often recalled this struggle in public forums, stating, “Everyone sees our success but they do not know about our failures.”

Yet, this unwavering commitment to innovation ultimately prevailed. eSewa, Nepal’s first mobile wallet, today boasts millions of users and facilitates over 80% of the country’s digital payments, transforming daily life by enabling everything from utility bill payments to ticket bookings. Today, eSewa is undoubtedly the number one e-wallet in Nepal and is on course to become the first digital wallet in the country to go public.

From a novel idea built from scratch to a market leader revolutionising Nepal’s cashless culture, the story of eSewa perfectly captures the essence of a startup. Globally, a startup is understood as a young company that is innovative, technology-driven and scalable. It is an enterprise that experiments with new business models, creates disruptive products or services, and has the potential to grow rapidly, often beyond national borders.

However, Nepal’s Industrial Enterprise Regulation defines a startup differently. Under this regulation, a business qualifies as a startup only if it is less than 10 years old and generates annual revenue below Rs 150 million. By this definition, eSewa can no longer be classified as a startup under the law.

SMEs vs Startups

Nepal’s entrepreneurial ecosystem has suffered for years from fundamental confusion as the government has treated startups and small and medium-sized enterprises (SMEs) the same. Globally, the difference is massive and obvious. A startup is a young, innovative, technology-driven venture designed for rapid scalability. It experiments with new business models, creates disruptive products or services, and chases exponential growth that can cross borders and transform industries. An SME, by contrast, is a stable, locally oriented business, think of the neighbourhood shop, restaurant or trading house that prioritises steady income, employment and gradual expansion rather than revolution.

Two key features are crucial for a company to be defined as a startup. The first is an innovative solution and the second is the ability to hyperscale which is possible only through digital tools.

Sixit Bhattaa

Founder, Tootle

In Nepal, however, any new business, no matter how traditional, has been routinely branded a startup. Government schemes, funding calls and policy documents lumped corner groceries together with potential tech unicorns, creating a fog that misdirected resources and held back genuine innovation. 

According to stakeholders, calling every newborn business a startup has been a serious problem because it ignores the core meaning of the word: innovation and technology-driven ambition. 

Sixit Bhattaa, Founder of Tootle, says, “Two key features are crucial for a company to be defined as a startup. The first is an innovative solution and the second is the ability to hyperscale which is possible only through digital tools.”

Recent policy reforms have finally begun drawing a clear line. A company now loses its startup status if it crosses ten years or if its annual turnover exceeds Rs 150 million. It must also start operations within one year of registration or the label is automatically revoked. These rules mark a welcome shift toward reserving incentives, concessions and attention for ventures that truly fit the global definition of a startup.

When funds meant for disruptive, high-growth companies end up in the hands of conventional SMEs, Nepal misses the chance to build its own innovation engines. SMEs remain vital as they create reliable jobs and keep local economies humming but they cannot deliver the transformative leaps the country needs to compete in a digital world. Confusing the two dilutes ambition and wastes scarce resources.

Setting examples

Nepal’s startup ecosystem may be young compared to global hubs but a handful of companies have not just launched businesses but have changed how Nepalis live, pay, move, shop and consume services. These trend-setting ventures pioneered entirely new digital categories, proving that technology can leapfrog traditional infrastructure limitations and solve entrenched problems in innovative ways.

Nepal’s startup scene is defined by a handful of companies that did more than just start a business. They established entirely new business models and fundamentally altered consumer behaviour, becoming true trend setters. These were the ventures that first proved technology could leapfrog decades of infrastructural underdevelopment, tackling entrenched problems where traditional businesses had failed. Leading this charge were platforms like eSewa, Tootle and Hamro Patro, each responsible for creating entirely new digital categories within the Nepali market.

eSewa’s rise marked a fundamental shift in how Nepalis interact with money. Before digital wallets, everyday transactions such as paying utility bills, topping up mobile phones or buying tickets required physical presence, cash and time. By aggregating these services into a single digital platform, eSewa normalised cashless payments and built trust in online financial transactions. Its success validated fintech as a viable sector and opened the door for competitors like Khalti and Fonepay, collectively transforming digital payments from a novelty into an expectation. This change also enabled growth in adjacent sectors such as e-commerce, ride-sharing and online services, all of which depend on seamless digital payments.

Yet, this unwavering commitment to innovation ultimately prevailed. eSewa, Nepal’s first mobile wallet, today boasts millions of users and facilitates over 80% of the country’s digital payments, transforming daily life by enabling everything from utility bill payments to ticket bookings. 

Similarly, mobility startups like Tootle redefined urban transportation. In cities where public transport was overcrowded and unreliable, Tootle introduced app-based motorcycle ride-sharing that prioritised speed, affordability and flexibility. It challenged traditional transport models and created new income opportunities for riders, effectively turning private vehicles into micro-enterprises. The behavioural shift it triggered, using an app to request transport on demand, made Nepali consumers comfortable with the idea of digital mobility services and paved the way for platforms like Pathao, inDrive and now Yango to expand into rides and deliveries. What changed was not just how people moved but how they perceived convenience and time value.

“It was a homegrown innovation. When we started the digital payment method, GPS tracking and map reading were not fully used and developed. But the digital economy added up and caused a paradigm shift now,” says Bhattaa. 

Foodmandu, SastoDeal and Hamrobazar further extended this transformation by introducing online food delivery, e-commerce and digital marketplaces. These platforms accustomed consumers to browsing, comparing and ordering online, which was earlier an uncommon behaviour. Over time, they reshaped expectations around availability, pricing transparency and home delivery, accelerating Nepal’s transition toward a digital convenience economy. 

“These early movers also trained talent, built operational playbooks and produced alumni founders who went on to start or join new ventures, creating a compounding effect across the ecosystem,” Bhattaa adds.  

“Having said that, we are slowly transiting from mobile/digital to the AI economy but this is being applied to only urban areas, not equally throughout the country,” he states. 

Despite these successes, many Nepali startups that once showed massive promise have struggled to sustain momentum. The reasons are structural rather than purely entrepreneurial. Limited access to follow-on capital, weak mentorship pipelines, regulatory uncertainty, small domestic market size and a lack of structured support systems have caused several startups to stagnate or shut down before reaching maturity. Reviving and strengthening the startup ecosystem, therefore, requires deliberate intervention beyond individual founder effort.

The biggest gaps are very limited pre-seed/seed capital with founder-friendly terms, lack of repeatable exits and benchmark success stories, weak support for growth-stage capital (we know the example of SastoDeal), and ‘ecosystem capital’ is sometimes driven by external impact agendas, which can be helpful, but not always aligned with Nepal’s market realities and what startups actually need to scale. 

Kailash Pandey

Founder, Khatapana

A key step is the expansion and professionalisation of accelerators and incubators. Early-stage founders in Nepal often lack access to experienced mentors who have scaled companies before. Strong accelerators can provide structured guidance on product-market fit, unit economics, governance and fundraising while incubators can support idea-stage startups with technical resources, legal support and market access. These programmes need deeper industry involvement, longer support cycles, and stronger links to regional and global networks, rather than short demo-day-focused models.

“The biggest gaps are very limited pre-seed/seed capital with founder-friendly terms, lack of repeatable exits and benchmark success stories, weak support for growth-stage capital (we know the example of SastoDeal), and ‘ecosystem capital’ is sometimes driven by external impact agendas, which can be helpful, but not always aligned with Nepal’s market realities and what startups actually need to scale,” says Kailash Pandey, Founder of Khatapana. 

Universities can act as innovation hubs by supporting research commercialisation and student-led startups. Corporations can partner with startups as customers or pilots, providing revenue stability and validation.

Narottam Aryal

President, King’s College

Access to capital must also evolve. While seed funding has improved, there is a critical gap in growth-stage and follow-on investment. Public-private co-investment funds, tax incentives for angel investors, and clearer regulatory frameworks for venture capital can help startups survive beyond the early hype phase. At the same time, startups need support to expand beyond Nepal, as regional or diaspora markets often provide the scale necessary for sustainability. 

Equally important is the role of universities, corporations and government as ecosystem enablers.

“Universities can act as innovation hubs by supporting research commercialisation and student-led startups. Corporations can partner with startups as customers or pilots, providing revenue stability and validation,” says Narottam Aryal, President at King’s College. 

“Government, rather than trying to pick winners, can focus on reducing friction through startup-friendly regulations, faster compliance processes and procurement policies that allow startups to compete. Incubation and university grants also act as a support for this which I have been vouching for so long,” states Aryal.

The rise and fall of a startup

The Nepali startup ecosystem saw a rise and fall over the past two decades, playing a significant role in the democratisation of entrepreneurship in Nepal. This evolution has gradually reduced traditional barriers to entry, allowing young aspirants to access essential resources such as capital, professional networks, mentorship and business knowledge regardless of their socio-economic background. 

The rise of technology-driven ventures across sectors, including digital payments, e-commerce, mobility and information technology, has not only reshaped consumer behaviour but also generated employment opportunities and compelled the government to acknowledge startups as a legitimate economic force requiring policy support.

Serious dialogue around building a structured startup ecosystem in Nepal began around 2009–2010 coinciding with the emergence of early technology ventures and entrepreneurial communities. However, the period between 2015 and 2019, before the Covid 19 pandemic, is widely regarded as the ecosystem’s ‘golden period’. This phase was particularly important as it laid the foundational infrastructure for entrepreneurship, introduced formal support mechanisms and normalised the idea of startups as viable career paths. During these years, innovation was driven primarily by market demand rather than policy incentives, allowing organic business models to take root.

The golden era from approximately 2008 to 2019 was characterised by startups that fundamentally disrupted traditional markets and captured widespread public attention. Ride-hailing platforms such as Tootle transformed urban transportation by introducing app-based mobility solutions that prioritized speed, affordability, and flexibility. In the financial sector, mobile wallet platforms including eSewa, Khalti and Fonepay successfully led the transition from cash-based transactions to digital payments, reshaping everyday financial behaviour and enabling the growth of adjacent digital services. 

Similarly, e-commerce platforms like SastoDeal altered consumer shopping habits by introducing online product discovery and delivery. At the same time, Foodmandu revolutionised Kathmandu’s food service industry and catalysed the rise of competing delivery platforms.

Behind the visible success of startups was a network of ecosystem builders that quietly supported early-stage entrepreneurs. Organisations such as Entrepreneurs Lab, Biruwa Ventures and Idea Studio were instrumental in cultivating entrepreneurial mindsets among young Nepalis through training, mentorship and exposure. Investment and advisory firms, including True North Associates, One to Watch and Next Venture Corp, provided alternative financing avenues and structured guidance at a time when traditional funding options were scarce.

Accelerator programmes such as Next Launchpad, Rockstart Impact and Enterprise Nepal Business Accelerator played a critical role in helping startups refine business models and scale operations. At the same time, incubation initiatives led by Antarprerana, Nepal Communitere’s I3 Business Incubation Programme and early Biruwa Ventures efforts provided physical infrastructure, community support and long-term capacity building.

Following this period of rapid growth, the startup ecosystem faced a major disruption with the onset of the Covid 19 pandemic. “The economic downturn severely constrained capital availability, increased operating costs, and reduced consumer demand, leading to the closure of an estimated more than 30% of startups,” says Aryal.

“This period also exposed the vulnerability of an ecosystem heavily reliant on private investment, as investor fatigue and financial exhaustion became increasingly evident,” he adds. 

“Sadly, private investment was not simply accessible because without collateral or some guarantee, small businesses cannot access funds, even though banks advertise such products, the reality is totally different. You simply cannot get a loan without collateral in Nepal,” Pandey says.

Lofty promises, sluggish action

Despite frequent high-profile commitments to boost entrepreneurship, the Nepali government’s track record on turning promises into tangible support for startups has often been criticised as sluggish and inconsistent. 

“In Nepal, access is often relationship-driven: who can guide you, who can introduce you, who can get your file moving, who can help you interpret unclear rules,” states Pandey. “I navigated it by treating network-building as a core business function, building credibility through content, documentation and repeatable systems, so progress does not depend entirely on personal favours,” he adds. 

Over the last decade, multiple budget announcements included ambitious plans such as funds worth hundreds of millions of rupees and subsidised loan schemes, but many of these initiatives were delayed or failed to materialise for years because of unclear guidelines and bureaucratic inertia. 

For example, sizable startup funds announced in earlier years were not operationalised and even when subsidised loans were finally formalised through the Startup Enterprise Loan Fund Procedure 2079, it came after nearly eight years of delay, causing frustration among entrepreneurs who rely on timely access to capital. 

“On paper, the government-backed startup loan at around 3% interest is one of the most affordable financing options in Nepal. In practice, access is uneven. Founders in Kathmandu generally have better awareness, easier documentation support and faster access to banks and recommendation networks,” Pandey says, adding that the process is much harder outside Kathmandu due to information gap, weaker institutional support and slower coordination, which add friction. 

Experts and startup founders have pointed out that while the government repeatedly talks about idea-based funding, legal frameworks and policy support, the actual implementation often lags, leaving key programmes gathering dust or only partially functional. 

“Founders struggle most with unclear selection priorities and evaluation criteria, heavy documentation and verification requirements, inconsistent interpretation across institutions and branches,” says Pandey. “Delays that can kill momentum for early-stage startups. Also, the selection process takes almost 8-9 months, and the loan disbursement only happens at the financial year’s end.”

This gap between rhetoric and execution has undermined confidence, with stakeholders warning that without consistent follow-through and clearer operational policies, government commitments may remain well-intentioned but ultimately ineffective in building a vibrant and sustainable startup ecosystem.