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Here’s one more way startups may raise funding as government likely to take this step soon

Equity-based funding is the defacto route for startups raising capital from venture capital investors who secure money from a pool of limited partners including foreign pension funds.

Here’s one more way startups may raise funding as government likely to take this step soon

Indian startups may soon have a new set of investors to raise capital as the government will be mulling on having Indian pension funds to invest in them. The inter-ministerial discussions will be initiated by the government to understand if the small share of pension and insurance funds could be allowed to invest in startups, IANS reported citing DPIIT Secretary Guru Prasad Mohapatra as saying on Saturday. Equity-based venture capital funding is the defacto route for startups raising capital from a pool of limited partners which also include foreign pension funds while venture debt has started to become another viable source of fundraising.

Mohapatra said that the idea seems very attractive opportunity at a level since it brings a lot of funds as pension funds and insurance funds are huge in India. “Industry has presented to the government that if foreign pension funds can invest in Indian startups, why not Indian pension funds,” he said. The idea, according to him, was highlighted by the industry before the minister and at the Startup India Global Venture Capital Summit in Goa that was held on December 6-7, 2019.

Also read: Modi’s Startup India to give funding, incubation, more to these many women-run businesses

Foreign pension funds are unable to attract interest rates as good in their respective countries as they are able to in India, according to Mohapatra. However, since such funds are a sensitive issue given that they are the lifetime savings of the working class and there is a lot of conservatism there; so they put money in government bonds that guarantee returns, he said.

Moreover, the government is looking to set up Startup Review Council with which startups will engage once in two months, Mohapatra told ET Now. “The (commerce) minister announced that he will chair a high-level committee which will engage with startups as well as venture capitalists, initially it will start on a two-monthly basis and thereafter quarterly which will comprise all senior secretaries of relevant departments, senior representative from the regulatory bodies and taxation bodies like CBDT,” he said.

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