Since the launch of India Aspiration Fund (IAF), a Rs 2,000-crore fund under the Small Industries Development Bank of India (SIDBI) five months ago to boost the startup ecosystem in the country, the bank has already sanctioned Rs 1,130 crore to venture capital funds (VCFs) in three consecutive rounds. So far, the government has extended support to 30 VCFs. “Another Rs 300-400 crore proposals from six fund managers will be cleared soon,” says Kshatrapati Shivaji, chairman and managing director of SIDBI.
Normally, government funds are fraught with red tape, but the disbursal rate of IAF shows the government is sincere about helping the growth of startups.
“It is the only government fund where investment decisions are taken not just by government employees, but with an investment committee of professionals appointed by the government,” says Saurabh Srivastava, cofounder of Indian Angel Network. The committee comprises names like Mohandas Pai, chairman of Manipal Global Education, Sanjeev Bikhchandani of Naukri.com and Srivastava among others.
The significance of a domestic fund set up by the government is that the capital can be directed where the country needs it the most. For instance, SIDBI sanctions funds only to VCFs that invest a minimum 50 per cent of their fund corpus in micro, small and medium enterprises (MSME) in India. This fills a big gap in the investment market where foreign VCFs focus only on companies with late stage risk or with a global appeal. With IAF, venture capitals are able to promote companies solving India-specific problems such as connectivity and sanitation using indigenous solutions.
Besides, the fund is not limited to the Rs 2,000 crore contributed by the government, the public capital encourages more investment from other quarters. For instance, for IAF, SIDBI contributes 15-25 per cent of the fund corpus of a VCF, while the rest is raised from conventional investors such as family offices, foundations, insurance companies, pension funds, etc.
The Rs 930-crore of the fund that SIDBI cleared earlier was able to mobilise Rs 9,650-crore of VC investment in India. “This capital efficient financial architecture will set Indian economy on the fast growth path,” says Shivaji.
The next big date for Startup India is 16 January, when the government has promised a slew of reforms to boost the ecosystem in the country. We hope the wait is worth the while.
(This story was published in BW | Businessworld Issue Dated 25-01-2016)
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Sonal was a writer on startups and entrepreneurship for BW Businessworld,
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