PM Modi’s ‘Startup India; Standup India’ vision has received a big push with the establishment of a special ‘Fund of Funds for Startups’ (FFS). Rs 10,000 crore has been allocated for this FFS, which is expected to generate 18 lakh jobs in the next 5 years.
As per a notification from Press Information Bureau, Union Cabinet headed by PM Modi has approved this special fund of funds yesterday, which would be handled and managed by Small Industries Development Bank of India (SIDBI).
In the coming years, SIDBI will systematically allocate funds from this corpus to various Alternative Investment Funds (AIF), registered with Securities and Exchange Board of India (SEBI).
Last year in the month of August, we had reported initiation of this Fund of Funds corpus, which would actually provide funds to various VCs which are proactive in supporting startups. Budget 2015 had hinted about this possibility. Narayan Murthy has already been roped in to guide & mentor various startups under Alternative Investment Funds.
Fund of Funds for Startups has been described as a unique investment program, aimed at helping VCs, investors and financial institutions to provide a stable cushion for assisting Indian startups.
As of now, Rs 500 crore has already been allocated to FFS during 2014-15 financial year; while Rs 600 crore would be allocated during 2015-16 financial year.
As per the notification, “The corpus of FFS is Rs.10,000 crore which shall be built up over the 14th and 15th Finance Commission cycles subject to progress of the scheme and availability of funds. “
Channeling Massive Funding For Indian Startups
Indian Govt. has made a well thought out plan and strategy for dispersing funds to VCs via FFS, in the next 5 years.
Although the corpus of Rs 10,000 crore under FFS would lie with SIDBI, special provisions have been made to allocate these funds via Gross Budgetary Support by Department of Industrial Policy and Promotion (DIPP).
In fact, DIPP has been allocated the responsibility to oversee proper utilization and optimization of this funding for betterment of Indian startup.
Creation of this special Fund of Funds has been done inline with Startup India, Standup India Action Plan 2016 which was unveiled earlier this year. Day to day operations of FFS would be managed by SIDBI.
Fund of Funds: The Vision
Govt. of India is aiming to help create 10,000 startups in the next 10 years, out which 2500 would be supported and nurtured to become ‘highly scalable businesses’.
An expert committee formed by Indian Govt. on the creation of Govt. sponsored VC funds have remarked, “India has the potential to build about 2500 highly scalable businesses in the next 10 years, and given the probability of entrepreneurial success that means 10000 Start ups will need to be spawned to get 2500 large scale businesses”.
The corpus of Rs 10,000 crore has been allocated to become a ‘nucleus’ for triggering Rs 60,000 crore of equity investments (by private players) and Rs 1,20,000 crore of debt investments by PSUs and private firms.
Fund of Funds for Startups or FFS is actually a grand scheme to encourage both private and public financial institutions to invest in Indian startups at various stages – seed stage, early stage and growth stage.