1K Per Nepali: Crunching Some Numbers

Last week at a Diwali Party a great idea was floated. Nepali professionals in NYC should put 1K each into a pool which would be in the form of a company. There would be a small Executive Committee that would invest in early stage Nepali origin high tech startups following pre-approved guidelines. The company would also invest in startups based in Nepal.

Let's say 100 Nepalis got together and put in 1K each. You can't invest in every tech startup that comes along just because they are Nepali origin. And not all startups in which Nepalis are involved are looking for money, especially small money like this fund might have. At that event there were two Nepalis who were already working for tech startups. But neither were Founders. And both startups were well funded in their own right.

So with this startup you are looking for Nepali Founders.

Money invested in the stock markets grows at an average annual rate of 10%. Money invested in the US Treasury bonds gives you 5% or less. But the first 100K invested in Google became a billion and a half in about eight years. That is tens of thousands of percentage points in growth. That is wild. Never say never but let's assume, statistically speaking, that a Nepali Founder coming up with the next Google is not very likely. Statistically speaking.

The top VC firm in NYC has a success rate of 66%. As in, one third of the companies it invests in tend to fail. The best ones give them a 10X return. As in, every dollar invested becomes 10 dollars. A 10X return is considered excellent in the VC industry. So Google by that standard is out of the ballpark.

Let's say 100K is raised. And it is invested in three startups that have Nepali Founders, two in NYC/USA and one in Kathmandu. Let's say one NYC startup starts at a million dollar valuation and ends up with a billion dollar valuation in five years. Let's say one NYC startup goes bust, and the investment is lost. The Kathmandu startup starts at a million dollar valuation and goes on to a 100 million dollar valuation in five years.

So, it was 35K, 35K and 30K. 35K went bust. And this is an excellent scenario.

35K fetched 3.5% in equity, there was an anti-dilution clause. And so 3.5% of a billion is 35 million dollars. 30K fetched 3% and 3% of 100 million is three million dollars. So the 100K fund became $38 million in five years. And this is an excellent scenario.

A dud scenario is, 100K was raised, it was invested in three startups, all three went bust. The consolation was it only cost each person 1K each. A 10X scenario would be the 100K became a million dollars. In the VC industry that is considered to be excellent. As in, 100K becoming 35 million dollars is pretty much a wild case scenario.

When the money comes in, each 1K person would have the option to cash out. What is 1% of 35 million? 350K? Or the people could say, I want to take out 300K, and leave 50K in there. 50K times 100 is 5,000K, that is five million. And the Executive Committee now has five million to play with.

Or the fund could expand. It might start with 100K, and it might bring in 400 more people, or a thousand people, and be a 500K fund or a million dollar fund to start with. It is possible to show your companies are doing well before you actually get to cash out.

So far as I know I am the only Nepali in the city who is both a tech startup founder and is actively looking for round one money. My ask is in the 35K range. And my projection is that my startup should be a billion dollar company in five years.

Another great candidate would be the Amazon/Flipkart/Alibaba for the Nepal market that would also do Bitcoin based money transfer for near zero rates.

So my take would be, raise 100K right away, like today, invest in my startup, and start looking for that Kathmandu team. And then start looking for more 1K people. Maybe you want to come into my round 2 as well, as one of several investors.

In my particular case, I would be happy to offer to the fund what I have offered to some of my friends who have come into my round one at 5K each. I will make it risk free for the fund. Should the venture fail, from the day of the failure, I will have 12 months to return this 35K to the fund, as if it were a personal loan. Should the venture succeed, I will get 5% of the growth this investment might see. So if this 35K becomes seven million dollars in five years, I get 5% of that seven million, namely 350K, and the fund gets the rest.


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