Rs 10,000 crore ‘Fund of Funds’ for startups

The Union Cabinet on Wednesday approved a Rs 10,000-crore “Fund of Funds for Startups”, giving a big push to the government’s ambitious Startup India campaign.

“The fund is expected to generate employment for 18 lakh persons on full deployment... A corpus of Rs 10,000 crore could potentially be the nucleus for catalysing Rs 60,000 crore of equity investment and twice as much debt investment,” an official statement said.

The Cabinet has approved the establishment of the “Fund of Funds for Startups” (FFS) at the Small Industries Development Bank of India (Sidbi) for contribution to various alternative investment funds registered with Sebi which would extend funding support to start-ups, the statement added. This is in line with the “Startup India Action Plan” unveiled by the government in January.

The corpus shall be built up over the 14th and 15th Finance Commission cycles, subject to progress of the scheme and availability of funds, official sources informed. “This will provide a stable and predictable source of funding for start-up enterprises and thereby facilitate large-scale job creation,” they added.

An amount of Rs 500 crore has already been provided to the corpus of the Fund of Funds in 2015-16 and Rs 600 crore is earmarked for 2016-17.

Further provisions will be made as grant assistance through gross budgetary support by the Department of Industrial Policy and Promotion, which will monitor and review performance in line with the “Startup India Action Plan”.

The statement said the expertise of Sidbi would be utilised to manage day-to-day operations of the fund. Monitoring and review of performance would be linked to the implementation of the action plan to enable execution as per timelines and milestones.

The move assumes significance as start-ups face several challenges, such as limited availability of domestic risk capital, constraints of conventional bank finance, information asymmetry and lack of hand-holding support from credible agencies.

A majority of successful start-ups have been funded by foreign venture funds and many of them are locating outside the country to receive such funding, sources said. “A dedicated fund for carrying out “Fund of Funds” operations would address these issues and enable flow of assistance to innovative start-ups through their journey to becoming full-fledged business entities,” they added. This would encompass support at the seed stage, early stage and growth stage.