Govt. Revamps The Roll-Out Of Its Rs 10,000 Crore Startup Fund

Govt. Revamps The Roll-Out Of Its Rs 10,000 Crore Startup Fund  

In a bid to assist innovative start-ups through their journey to becoming full-fledged business entities, the Department of Industrial Policy and Promotion is set to overhaul its Rs 10,000 crore start-up funding scheme by allowing venture capital funds to invest half of the corpus in start-ups and the rest of it in firms at a more mature stage to reduce capital risk.

Union Cabinet Clearance

The Union cabinet cleared the Fund of Funds for Start-ups under the Small Industries Development Bank of India in June for contribution to various VC funds registered with the Securities

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and Exchange Board of India as part of the Start-up India Action Plan unveiled by Prime Minister Narendra Modi in January 2016.

The fund is intended to assist innovative start-ups through their journey to becoming full-fledged business entities. The Rs10,000 crore corpus could potentially be the key factor for catalyzing Rs60,000 crore of equity investments and twice as much debt investments, according to DIPP. “This would provide a stable and predictable source of funding for start-up enterprises and thereby facilitate large scale job creation,” DIPP had said last year.

Not A 100% Funds Allocation

At present, the allocation of funds has been decided in a systematic and prudent way. “The problem with 100% allocation of funds to start-ups by Sidbi-funded VC is that it would restrict the number of companies in which the VC can invest, hindering the absorption of these funds,” said Anil Joshi, managing partner at Unicorn India Ventures, a Mumbai-based fund. The plan to reduce the allocation to 50% is a practical move, he added.

Easier Norms For Investors

At present, a VC fund will need to make pitch a presentation before Sidbi’s Venture Capital Investment Committee to avail funds from the corpus. Previously, VCs have raised the matter holding that start-up investment is only a portion of their investments and there is more risk involved in investing in start-ups.

“We are planning to give them some relaxation so that they have to invest around 50% of the funds in start-ups. Rest they can invest in non-start-ups,” a DIPP official.

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Takeaway

Of late, Series A funding rounds have seen a hasty retreat due to the overall slowdown in funding. Sidbi’s decision to allow VCs to allocate 50% of funds to start-ups will give a much needed boost to the early stage funding scene amongst startups. One can expect more association between VCs and Sidbi with the progressive distribution of the corpus fund. Moreover, the implementation of GST will rationalize multiple tax structure and provide relief to the industry.

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