The Union Cabinet on Wednesday formally approved the establishment of Rs 10,000 crore fund of funds to back venture capital firms that would in turn invest in domestic startups.
The fund was earlier unveiled as part of Prime Minister Narendra Modi’s ‘Startup India, Standup India’ star-studded jamboree of entrepreneurs (click here for what he announced and here for the devil in the detail) in January this year.
“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. This would provide a stable and predictable source of funding for startup enterprises and thereby facilitate large-scale job creation,” according to the government note.
The government said Rs 500 crore has already been provided to the corpus in 2015-16 and Rs 600 crore has been earmarked for 2016-17. It hopes that the fund will help generate employment for 1.8 million persons on full deployment.
The Cabinet has approved the establishment of the fund of funds under Small Industries Development Bank of India (SIDBI). The mandate of this entity would be to back alternative investment funds registered with capital market regulator SEBI.
The government said the overall targeted corpus shall be built up over the 14th and 15th Finance Commission cycles subject to progress of the scheme and availability of funds.
According to the statement, further provisions will be made as grant assistance through gross budgetary support by Department of Industrial Policy and Promotion (DIPP) which will monitor and review performance in line with the Startup India Action Plan.
Startup funding has slowed down considerably in India in the past six-nine months. While the angel and seed-stage investments continue to thrive, venture capital investments at large have seen a sharp scale back.
This is despite several VC firms raising new funds in the past year or so. Sequoia, Accel, SAIF and Lighthouse are among the VC investors that have raised new funds for India. Several others are on the road to raise their new funds. While some of these funds are registered with SEBI, many others are not and therefore are not able to access this fund of funds to support their fundraising efforts.
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