Domestic startup funds eye better share in startup investments against foreign funds, set up consortium

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Published: June 10, 2019 2:08:18 PM

YourNest, Chiratae Ventures, Kae Capital, Stellaris Venture Partners, Venture Gurukool are currently the founding members of Funder's Forum that aims to develop the homegrown venture capital ecosystem.

mutual fund, mutual fund investment, Modi 2.0, equity market, equity funds, SIP, investment strategy, maximise gainsCurrently, there are around 350 funds in AIF category 1 and 2 out of which around 130 are active domestic funds.

India’s domestic startup funds have come together to form a consortium called Funder’s Forum to help local fund managers have better access to capital from institutional investors and better investment deals in startups to ensure that that local fund managers’ community doesn’t lose out to foreign funds. Sequoia Capital, Matrix Partners, Accel Partners, Lightspeed Venture Partners are among leading global funds investing in India.

“There is a big gap in the availability of domestic institutional capital and this is where most work has to be done by the Funder’s Forum. The perception among entrepreneurs is that domestic funds don’t have enough capital to take their venture to subsequent funding rounds between various local fund managers. We want to convey that there is so much capital available even with domestic funds,” Sunil K Goyal, Managing Director, YourNest Venture Capital told Financial Express Online.

YourNest along with Chiratae Ventures, Kae Capital, Stellaris Venture Partners, Venture Gurukool are currently the founding members of Funder’s Forum. The forum essentially aims at developing the homegrown venture capital ecosystem as the majority of the funds raised by Indian investors are from overseas.

“85-90 per cent of the funds being raised by investors are from overseas LPs, primarily from the US while there is hardly any contribution of institutional investors from India,” Mahendra Swarup, Founder, Venture Gurukool told Financial Express Online.

The government should encourage Indian multinationals like Reliance, Goenka Group, Mahindra etc., by giving tax breaks to invest in the high-risk asset class like domestic alternate investment funds (AIF) that can change the whole scenario, according to Swarup.

Unlike domestic funds, foreign funds have access to institutional limited partners and India is part of their global fundraising. Hence they are able to spread the risk across different geographies that “certainly gives them the advantage,” Swarup said as domestic funds “lose out” to foreign funds over deal quality.

The forum also aims to educate insurance funds, pension funds and endowment funds that remain sources of capital to funds apart from government. Endowment funds are the likes of charitable trusts in India are not allowed by the Income Tax guidelines to invest in funds. Pension funds are still struggling to allow investment in AIFs while insurance funds are allowed up to 3-5 per cent of their corpus in AIFs but the industry hasn’t yet started allocating that money, according to Goyal.

Currently, there are around 350 funds in AIF category 1 and 2 out of which around 130 are active domestic funds, according to Funder’s Forum and it expects around 100 would become its members ahead.

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