In a major relief to the Indian startup Industry, the Small Industrial Development Bank of India (SIDBI) has finally pledged Rs 110 crore from the 2016 announced Rs 10,000-crore ‘fund of funds’ for startups, to four venture capital funds, namely Orios Venture Partners Fund II, Kae Capital, and two little known funds, Saha Trust and Kitven Fund III.
The selected four are currently trying to raise over Rs 1300 crore, to invest in India-born startups. Out of the 110 crores committed by SIDBI, 50 crore have been given to Orios Venture Partners Fund II, 45 crore to Kae Capital, 10 crore to Saha Trust and 5 crore to Kitven Fund III. Only 5.66 crore of the 110 crore amount has been invested in startups till date.
Orios Venture and Kae Capital are Mumbai-based Venture Capital funds being headed by Rehan Yar Khan and Sasha Mirchandani, respectively. Kitven Fund is a fund run by the Karnataka government aimed at promoting IT startups, Saha Trust on the other hand is a venture capital fund for women centric businesses that are being run by women. Currently, Saha Trust is targeting a corpus of Rs 65 crore and Kitven has a target of Rs 50 crore.
The Rs 10,000 crore startup fund has been allocated to the Small Industries Development Bank of India (SIDBI) by the Reserve Bank of India. The capital has to be invested in Indian startups through a way of providing them soft loans, equity and other risk capital.
Designed to stimulate the growth of the practically non-existent domestic venture capital industry, the Rs 10,000 crore ‘fund of funds’ is the part of January 16, 2016 announced Start-Up India programme.
It is important to note that the Rs.10,000 crore ‘fund of funds’ is just a reiteration, rather a repackaging of the July 2014 budget proposal by Finance minister Arun Jaitley where he set aside Rs.10,000 crore for startups. The ‘fund of funds’ just provides us a little clarity on how it will be structured and managed. Earlier, we had reported that the much ambitious Rs 10,000 crore startup fund announced by the Modi government in financial budget of year 2014 was still lying unused as no one is clear which government department is responsible for managing the scheme.
Though announced on January 16, 2016, the Rs 10,000 crore ‘fund of funds’ was established only on June 22, 2016. This is when SIDBI took the responsibility of managing the funds. The funds were to be invested in SEBI-registered Alternative Investment Funds (AIFs). These AIFs were to then further invest in India-born startups.
Though Life Insurance Corporation (LIC) of India also committed to be a co-contributor to the ‘fund of funds,’ it hasn’t yet contributed any money to the fund.
According to a statement given by Mohandas Pai, who is a member of the six-member committee that selects AIFs, “The fund of funds has sanctioned more than 2000 crore. The disbursements are around 200 crore as of date. It is typical in a fund of fund structure to start like this and go up the J curve.”
Under the original action plan, the ‘fund of funds’ was only supposed to provide support to startups operating in education, manufacturing, health and agriculture domains. But, it was finally concluded that the funding through the AIFs would not be just restricted to the startups that the commerce ministry recognises for other benefits. Hence, now the AIFs are allowed to invest in startups functioning in the other domains as well.
The AIFs were selected by SIDBI based on a number of criteria, with the primary one being that the selected ones will have to would to invest more than 50% of the corpus allocated to them in SMBs.
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