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IN THE twelve years after Nepal’s private equity and venture capital industry began to be tracked, its funds deployed about $110m. In 2024 alone they deployed $64m. That is a startling jump: nearly 40% of all the capital placed over the previous dozen years, put to work in a single twelve-month stretch. Forty deals were closed. Nine funds were active, three of them making their first investments. A regulatory framework introduced in 2019, the Specialized Investment Fund, suddenly found its feet: three-quarters of that year’s capital went through such vehicles.
The numbers arrive like a proof of concept after years of ecosystem-building. The question for investors, fund managers and policymakers is what comes after $64m.
Start with the banking system. Commercial banks are sitting on $58bn in deposits, parking more than $20bn overnight at the central bank and growing private credit at under 10%, less than half the deposit growth rate. The weighted average lending rate has compressed to 7.1%, down from over 12% six years ago. Banks cannot effectively deploy capital to the growth-stage and early-growth companies that stand as the primary PEVC opportunity set. Patient private capital with operational support becomes the scarcest and most valuable resource in the ecosystem.
A second tailwind is the remittance base. Nepal received $13bn in annual remittances last year. That flow funds household consumption, drives e-commerce, digital payments, healthcare and education demand, and supports the customer base of companies across every sector that PEVC invests in. That structural support is absent in most comparable frontier markets.
The headwinds are structural as well. The exit market is thin. Nepal has 19 operational funds with 137 cumulative investments, but only 11 full exits and eight partial exits have been recorded since tracking began in 2012. That 14% exit rate is not unusual for an emerging market at Nepal’s stage: but it means that fund managers raising new vehicles are doing so without the kind of demonstrable track record that institutional limited partners expect. Exits are the market’s most urgent structural need.
Foreign investor access continues to constrain the LP base. Offshore funds—despite accounting for 36.7% of cumulative capital deployed—face ongoing complexity in capital repatriation; currency convertibility given the rupee’s peg to the Indian rupee; and regulatory approval timelines. Several prospective offshore LPs have cited approval uncertainty and repatriation mechanics as the primary deterrents.
The pipeline of institutionally investment-ready companies also remains narrower than the available capital. Nepal Opportunity Fund I deployed capital across ten deals in 2024 alone—a high velocity for a frontier market—suggesting that fund managers with local networks can find deals. But the quality distribution is uneven. Many growth-stage businesses lack the financial controls and governance structures that institutionally backed funds require.
The 2012-2024 investment breakdown shows patterns for forward deployment. Renewable energy has attracted $55.2m, the largest single sector, with an average deal size of $23m. Hydro is not only Nepal’s most compelling sector but also the one with the largest individual deal capacity, capable of absorbing institutional-scale cheques.
Several underinvested sectors stand out. Healthcare, with a cumulative $11.1m deployed but an average deal size of $22m, suggests that when deals are done, they are large-scale institutional investments. The healthcare sector’s total investment is disproportionately small given Nepal’s fundamental healthcare infrastructure deficit. That shows a real allocation gap.
Pharmaceuticals are similarly underinvested at $2.1m cumulative. Agri-business at $8.2m cumulative with an average deal size of only $4.5m suggests a sector served primarily by smaller funds. Given Nepal’s comparative advantage in agricultural production, this sector warrants more institutionally-sized capital than it has historically received.
The investment case for hydropower in the next cycle is materially stronger than for the last one, for a specific structural reason: cross-border power export has moved from aspiration to reality. Nepal and India have executed power purchase agreements. So have Nepal and Bangladesh. Operating plants with signed PPAs and demonstrated generation history are the most defensible assets in Nepal’s PEVC universe. NEPSE IPO exit is well-established for hydro—97 companies already listed, the sector commands consistent retail investor demand.
ICT has attracted $38.1m in cumulative PEVC capital, second only to hydro, and the largest single deal recorded is $75m, suggesting that when the sector produces winners, they are institutional-scale outcomes. Electronic payment transactions have grown explosively across every channel. The financial services infrastructure supporting these transactions (reconciliation, fraud detection, payment gateways, digital KYC) stands as the next layer of investable B2B opportunity.
Manufacturing has attracted $24.7m in cumulative PEVC investment, with an average deal size of $16.4m. The NEPSE manufacturing sub-index gained 33% in the first half of fiscal year 2025-26, and SEBON’s IPO approval pipeline is explicitly manufacturing-tilted. These converging signals indicate that manufacturing is transitioning from niche to mainstream.
Of all the structural challenges facing Nepal’s PEVC market, exits are the most urgent. If exits do not materialise, the fundraising cycle for the next generation of Nepal-focused funds will be heavily constrained.
The NEPSE IPO is the most established exit pathway. The structural risk is the six-to-twelve-month post-IPO lock-up period and the reality that NEPSE’s secondary market liquidity is unevenly distributed. Fund managers should model conservative exit timelines and plan for staged disposals.
Strategic M&A has been the least utilised exit pathway, but it is the one with the greatest potential in the next cycle. The geography of opportunity is India. Large Indian corporates across energy, healthcare, financial services and consumer goods have explicit regional expansion mandates. The sectors where Indian strategic M&A exits are most credible are healthcare, manufacturing, fintech infrastructure and renewable energy.
Secondary PE, where one fund sells its stake to another, is essentially non-existent in Nepal today. This gap is a serious limitation. With 19 cumulative funds, a critical mass of portfolio companies exists. A dedicated secondary vehicle would serve a market need.
Foreign limited partners cite capital repatriation complexity as the single most significant deterrent. The timeline for repatriation approvals, which can extend to six to twelve months, creates a liquidity risk that offshore LPs cannot accept. This single reform would expand the addressable LP universe for Nepal funds by an order of magnitude.
Nepal also lacks a formal pre-IPO framework. A formal pre-IPO market would create an intermediate liquidity layer between private PEVC rounds and full NEPSE listing, improving price discovery. Key legal instruments widely used in other markets (convertible notes, SAFE structures) are either legally ambiguous or unenforceable under Nepal’s current corporate law framework. Standardised terms would reduce transaction cost.
Capital gains tax treatment for PEVC exits is another impediment to domestic LP participation. A differentiated tax treatment—with a reduced rate for investments held for more than three years—would incentivise domestic institutional investors to allocate to PEVC. The NRB data shows insurance companies holding billions in bank deposits at returns below PEVC risk-adjusted expectations.
Nepal’s PEVC market has crossed its first inflection point. The question of whether institutional private capital can be deployed in Nepal has been answered affirmatively by the 2024 data. The question that now determines the market’s trajectory is whether it can address the structural constraints that have limited its growth. The investments still not exited are the single largest source of risk and opportunity simultaneously. If this overhang is successfully monetised, the resulting LP distributions will validate the asset class for the next generation of institutional investors.
Nepal has the capital, the sectors, the regulatory framework and the ecosystem. What it still needs is exits, foreign LP confidence and the operational infrastructure to make portfolio companies IPO-ready and M&A-ready at scale. The next $64m will be deployed into a market that is demonstrably better than the one the first $64m entered. The work of the next five years is to ensure that the exit environment develops fast enough to validate the capital already deployed. ■
