SIDBI Venture Capital (SIDBI VC) Ltd, a state-owned venture capital firm dedicated to small and medium enterprises, is raising its third fund, targeted at a corpus of Rs 1,000 crore ($250 million). It has also appointed Harsh Kaul, the former chief general manager of SIDBI as its CEO. Harsh Kaul was previously with the venture capital division of SIDBI, which largely deals with the fund of funds operations. He was appointed as the SIDBI VC CEO on April 16.

"Right now I am in the process of launching our third fund at SIDBI Ventures. We are setting up Rs 1,000 crore fund,” Kaul told VCCircle in an interview.

Kaul succeeds Ajay Kumar Kapur, who has moved back to the parent Small Industries Development Bank of India (SIDBI). Kapur is posted in SIDBI headquarters at Lucknow.

Parent SIDBI has already made an anchor investment of Rs 200 crore in the fund. SIDBI VC is currently in talks with various financial institutions and banks for raising the remaining amount of Rs 800 crore. Kaul expects to make a first close at Rs 500 Cr in next three months. Though the fund will be sector agnostic, it will concentrate on investing in sectors like agro-based sectors, clean technology, IT and the retail sector.

SIDBI Venture Capital will follow the strategy of making smaller investments, Kaul said. “Over the years we have earned the perception that we are not interested in smaller investments. There are a lot of VC funds that are prepared to invest Rs 30-60 crore, so we would concentrate more on smaller investments.” However, that does not stop the VC fund from making some large investments opportunistically.

According to Kaul, in the current times of economic slowdown, sectors that are focused on the domestic demand in India are expected to do well. He said, “I feel that most of the units that are not into export and are in the domestic market have not really been affected by the slowdown and will continue to do well.”

He views sectors like the agro food processing, warehousing, logistics and healthcare as the less recession impacted sectors.

The firm also has a Rs 2,000 crore risk capital fund which was announced in the union budget. The Reserve Bank of India (RBI) has allocated Rs 1,000 crore towards this fund as a loan. Kaul is managing the risk capital fund as well. 

While SIDBI VC’s first fund is fully committed, its second fund, which is an SME growth fund, has only enough funds left for the investments in the second rounds of funding of the existing portfolio companies.

SIDBI VC's first fund was called the National Venture Fund For Software and IT Industry, which was a Rs 100 crore fund. While parent SIDBI has contributed Rs 50 crore to the fund, the ministry of information technology and IDBI had contributed Rs 30 crore and Rs 20 crore each.

Its second fund, which is an SME growth fund, has a targetted corpus of Rs 500 crore and a life size of 8 years. “The fund life is also coming to an end in September 2012 so we are really not looking at investments where we can’t get the exits before 2012,” Kaul told VCCircle.

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