Last year, govt approved Fund of Funds for Start-ups with a total corpus of Rs 10,000 crore.
New Delhi: Alternate Investment Funds will now have to invest at least twice the amount they receive from a SIDBI-operated Rs 10,000 crore fund in start-ups, giving a boost to entrepreneurs.
The decision was taken at a meeting of the Union Cabinet chaired by Prime Minister Narendra Modi. Last year, the government had approved the proposal to establish a Fund of Funds for Start-ups (FFS) with a total corpus of Rs 10,000 crore.
"Alternate investment funds (AIFs) supported by FFS shall invest at least twice the amount of contribution received from FFS in start-ups...," an official statement said today.
It was also decided that operating expenses for carrying out due diligence, legal and technical appraisal, convening meetings would be met out of the FFS to the extent of 0.5 per cent of the commitments made to AIFs and outstanding.
"This will be debited to the fund at the beginning of each half year, that is April 1 and October 1," it said. Earlier, it was decided that the FFS shall contribute to
the corpus of AIFs for investing in equity and equity-linked instruments of various start-ups at early stage, seed stage and growth stage.
FFS contributes to SEBI registered AIFs that may go up to a maximum of 35 per cent of the corpus of the AIF concerned. It said that stakeholders have raised certain issues related with AIFs.
They have said that the process of funding of start-ups by AIFs is long drawn, which starts from pitching by a start-up, commitment by the AIF and then release of funds in tranches.
Due to this, it was possible that before release of the final instalment the turnover of the start-up crosses Rs 25 crore but it still needs funds to meet its growth requirements.
Besides, start-ups need access to funds through various stages of their life cycle -- early, seed and growth stage. It was also pointed out to the Department of Industrial Policy and Promotion by SIDBI that the present provisions do not provide for the latter to get compensated for activities done post sanction to AIFs.
"These decisions have been taken to in the backdrop of the above concerns," it added. Startup India Action Plan is a flagship initiative of the government for nurturing innovation and promoting budding entrepreneurs.