Startups had got their hopes up after the government lifted pandemic-related restrictions. They were expecting to make a fast rebound, but the Russia-Ukraine war put a damper on new businesses as the cost of everything went through the roof.

“The sharp rise in prices of goods has impacted both production and sales,” said Aayush Bajracharya, digital marketing head at Wow Popcorn, a company that has been producing popcorn since 2017.

“We have to import 20 percent of our raw materials, and a rise in shipping charges and fuel prices has pushed up the cost of production,” Bajracharya said.

"Sales are also down by around 20 percent compared to pre-pandemic levels. With the pandemic petering out, we had thought that business would head towards recovery, but the situation turned out to be just the opposite.”

Startup entrepreneurs expecting smooth sailing in the post-pandemic period are finding out that challenges remain.

“The market has not recovered since the devastation created by the pandemic, and the ongoing price rise has added to the woes of startup entrepreneurs who are facing challenges in selling their goods and services,” said Kavi Raj Joshi, founder and managing director of Next Venture Corp.

"There is no startup business spirit in the market like in 2018-19 before the pandemic."

According to insiders, the government’s tepid response towards startups has discouraged business innovators.

The government has been unveiling different cash schemes for startup entrepreneurs in its budget statements every year since fiscal 2015-16, but it has not implemented any of them.

For this fiscal year 2021-22, the erstwhile KP Sharma Oli administration had announced that Rs2.5 million in seed capital would be provided to innovators at 1 percent interest.

The government then created the Business Credit Flow Work Procedure 2021 that was expected to go into effect from mid-July, but it has not happened.

“Currently, big startup companies are having a hard time due to the liquidity crisis in the market,” Joshi said. "All the elements in the business process have been increasing."

During the first wave of the coronavirus pandemic, startup entrepreneurs somehow survived with their savings. "But the second wave pushed them to the edge," Joshi said. The liquidity crisis among commercial banks emerged as another problem for startups as they could not get loans.

"Many businesses have become irrelevant now compared to the pre-pandemic period because of a fall in the people’s purchasing power," Joshi said. “Business-to-consumer has been hit harder in this situation compared to business-to-business,” he said.

To compensate for the losses of the past two years and maintain a return on investment, most entrepreneurs are increasing the cost of goods and services and rarely think about business expansion.

Entrepreneurs say that the business environment is not positive for startups who are facing challenges, and the political instability has made the situation worse.

“There are people in the market who are willing to invest in startup businesses, but the cash flow is low compared to the eagerness of the investors,” Joshi said. "Currently, there are no investments in early-stage startups and small-scale startups."

Although there is no actual data, it is estimated that about 25 percent of startups folded within a year and a half since the pandemic began in mid-March 2020.

“The major challenge is that the government has not been to clearly define startup or prepare any policy,” said Ranjit Raj Acharya, chairperson of the Startup and Innovation Committee at the Federation of Nepalese Chambers of Commerce and Industry (FNCCI).

"The government has not prepared any policy document for startups; and as a result, private companies that created mechanisms to invest in them are finding it difficult to do so. Even banks and financial institutions are in a dilemma about investing in startups because of the absence of a definition of startup," he said.

"Incubator centres are a must to develop startup ideas and businesses, but the government does not even have work procedures for that either. It takes at least 10 years to start benefiting from any type of business, and entrepreneurs do not have that kind of patience. It seems entrepreneurs lack commitment towards their business," he added.

Acharya says there are people in the market who are willing to invest in startup businesses, but they are not finding the right propositions. “I have invested in five startup businesses during the pandemic,” he said.

"Lack of the right mentor is also another challenge. There is a problem on the entrepreneur side too. The FNCCI called for applications to invest in 50 startup businesses almost none months ago, but we found very few eligible candidates among the applicants received,” Acharya said.

"Certain investors in the programme will not have problems investing in the business despite the liquidity crisis in the market," he said.

"Startups coming with similar business ideas is also a problem as there are many other opportunities in the market. There is a liquidity crisis and inflation in the market. This is the right time for startups to come up with different business ideas to grab emerging opportunities as the government has tightened imports,” Acharya said.