1. Funds of funds for startups: DIPP seeks Rs 1600 cr from Finance Ministry this fiscal

Funds of funds for startups: DIPP seeks Rs 1600 cr from Finance Ministry this fiscal

The Department of Industrial, Policy and Promotion (DIPP) has sought Rs 1,600 crore from the finance ministry in the supplementary demand for grants for the fund-of-funds for start-ups in the current financial year.

Published: June 1, 2017 8:10 AM
Funds of funds for startups, DIPP, Finance Ministry, Narendra Modi, Start-up India, Fund of Funds, investment funds, alternate investment funds, SIDBI The fund-of-funds saw limited takers since its launch in January 2016.

Surbhi Prasad

The Department of Industrial, Policy and Promotion (DIPP) has sought Rs 1,600 crore from the finance ministry in the supplementary demand for grants for the fund-of-funds for start-ups in the current financial year. “We have sought Rs 1,600 crore from finance ministry… Around Rs 500 crore is backlog and we have also sought an additional Rs 1,100 crore for the fund-of-funds,” a senior official said.

In the Union Budget for 2017-18, the central government had allocated just Rs 1 lakh for the fund-of-funds. Prime Minister Narendra Modi had launched Start-up India in January last year and had unveiled several initiatives and schemes to boost entrepreneurship and build a strong ecosystem for nurturing innovation. Highlights included recognition as a ‘start-up’ based on certain criteria, tax benefits and a Rs 10,000-crore ‘Fund of Funds’, to be disbursed till 2025. The government has so far released Rs 600 crore to SIDBI while the remainder of Rs 10,000 crore will be received in tranches till 2025.

“It’s important to note that the fund-of-funds will be covered in two finance commission cycles (through 2025). So roughly, it comes to around Rs 1,100 crore per year. In the first year (2016-17), Rs 600 crore was given to SIDBI,” the official said. The fund-of-funds saw limited takers since its launch in January 2016, mostly due to the slow and fairly complicated procedure of raising and deploying funds by venture capital funds.

In March, the government approved long-sought-after changes to the conditions for sanctions from the fund-of-funds, which are likely to encourage more investors to tap government funding. The fund-of-funds was sanctioned for contribution to various alternative investment funds (AIFs) registered with the Securities and Exchange Board of India (Sebi). These AIFs were to extend funding support to start-ups and the move was in line with the Startup India Action Plan unveiled by the central government.

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In the year ended March, as many as 17 venture capital funds were sanctioned Rs 623.50 crore from the fund-of-funds corpus. These funds in turn invested in 62 start-ups, according to the data from the DIPP. The 62 start-ups, which were backed by VC funds where Small Industries Development Bank of India (SIDBI) acted as a limited partner, cumulatively raised Rs 186.84 crore in FY17.

Meanwhile, 1,006 start-up applications have been recognised as start-ups by DIPP as of May 15, of which 23 start-ups have benefited from the government’s decision to give income tax benefits since the launch of the scheme in January 2016. The benefits include tax holiday for three years in a block of five years, if they are incorporated between April 2016-March 31, 2019. Finance minister Arun Jaitley, in the Union Budget 2017-18, has increased this period of profit-linked deductions available to the eligible start-ups to seven years.

  1. P
    praveen
    Jun 1, 2017 at 9:22 am
    SIDBI's fund management processes & strategies much deviating it's core objectives, especially when they collaborate with VCs. All these complexities are kil the innovation & ideas and enthusiasm of startups. You can farm startups, job creation but innovation. Just like the marks scored is the main criterion even when our engineering education system is at poor ranking for it's quality, startups are seen based on the identify they make prior to finding and the innovation factor is 3r or 4th priority. Overhau this old machine will take years left for certain officials to retire.
    Reply

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