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SIDBI Clears New Fund To Help Startups

Small Industries Development Bank of India has sanctioned around Rs 200 crore from the Rs 2,000-crore India Aspiration Fund launched in August

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Small Industries Development Bank of India (SIDBI) has cleared another round of fund-of-funds for venture capital funds (VCFs). This time it has sanctioned around Rs 200 crore from the Rs 2,000-crore India Aspiration Fund (IAF) launched in August.

"The Rs 200-crore fund has been screened and found suitable to support six venture capital funds out of 12 proposals seeking contribution of around Rs 450-crore," Kshatrapati Shivaji, Chairman and Managing Director of SIDBI, told BW Businessworld.

"Another Rs 300-400 crore proposals from six fund managers are in the pipeline which are being scanned by SIDBI’s panel of experts and will be cleared soon," he added.

Till last month, SIDBI had cleared cumulatively Rs 930 crore fund of funds to support 24 VCFs. The total amount that has been supported in principle by SIDBI now stands at Rs 1,130 crore.

For IAF, SIDBI’s contribution is between 15 to 25 per cent of the fund corpus. Rest of the amount the VCs raise from conventional investors who are mostly overseas such as family offices, foundations, insurance companies, pension funds.

"The Rs 930-crore of government resource was able to mobilise nine times the amount from private sector as the target corpus of the 24 funds that were supported was around Rs 9,650-crore. This is the most capital efficient financial architecture that will set Indian economy on the fast growth path,” Shivaji said.

"The challenge with foreign capital is they prefer to invest in late stage risks. So, this fund is providing domestic capital to domestic funds to increase investment in startups," said Saurabh Srivastava, cofounder of Indian Angel Network who is also a part of SIDBI’s expert panel for IAF.

"SIDBI's fund of fund is a leg up for VCs in India as government's involvement will add more credibility to the fund corpus and make it easier for VCs to raise money overseas," said Karthik Reddy, MD of Blume Ventures.

An India-focused fund will also help in increase in investment in companies that solve also India-specific problems using indigenous technology, for instance companies in agri-tech, solar technology space amongst others, he added.

"What the government can do is to reduce the long term gain to encourage domestic investors to invest in the fund-of-funds so VCs don't have to go to overseas markets," Reddy said.

Some of the funds supported by SIDBI through IAF are Blume Ventures, Orios, Yournest, Ivy cap, Infuse Ventures, all of which focus on start ups and early stage units.

"The major criteria for selecting the Fund is that the venture fund should invest minimum 50 per cent of the fund corpus in MSMEs. Apart from that, SIDBI’s support under fund of fund operations is sector and stage agnostic,” Shivaji said.

SIDBI follows two-stage process for screening the venture funds. All the applications are first screened by the venture capital investment committee (VCIC), an experts’ panel formed by SIDBI. The panel comprises of professionals such as Mohandas Pai, Chairman of Manipal Global Education, Sanjeev Bikhchandani of, Saurabh Srivastava of Indian Angel Network, former President of Nasscom Kiran Karnik, Prof Vaidyanathan of IIM, Bangalore and Harkesh Mittal, DST of Government of India, plus two senior executives from SIDBI. Subsequently the proposal is put forth for sanction to the executive committee of the SIDBI’s board.

"It is the only government fund where investment decisions are taken by not just government employees, but also an investment committee which predominantly comprises of professionals who are experts in different domains," said Srivastava of Indian Angel Network.

"The government has told us once Rs 2,000-crore gets exhausted they will provide fresh capital and increase the amount of the IAF," he said.