Fund of Funds for funding support to Start-ups

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By IE&M Research

The Union Cabinet has approved the establishment of “Fund of Funds for Startups” (FFS) at Small Industries Development Bank of India (SIDBI) for contribution to various Alternative Investment Funds (AIF), registered with Securities and Exchange Board of India (SEBI) which would extend funding support to Startups. This is in line with the Start up India Action Plan unveiled by Government in January 2016.

The corpus of FFS is `10, 000 crore, which shall be built up over the 14th and 15th Finance Commission cycles subject to the progress of the scheme and availability of funds. An amount of `500 crore has already been provided to the corpus of FFS in 2015-16 and `600 crore earmarked in the 2016-17. The Fund is expected to generate employment for 18 lakh persons on full deployment.

Further provisions will be made as grant assistance through Gross Budgetary Support by Department of Industrial Policy and Promotion (DIPP) which will monitor and review performance in line with the Start up India Action Plan.

The FFS emanates from the Start up India Action Plan, an initiative of Department of Industrial Policy & Promotion (DIPP). A corpus of `10,000 crore could potentially be the nucleus for catalyzing `60,000 crore of equity investment and twice as much debt investment. This would provide a stable and predictable source of funding for Start up enterprises and thereby facilitate large scale job creation.

An expert committee on Venture Capital (VC) has opined that “India has the potential to build about 2500 highly scalable businesses in the next 10 years, and given the probability of entrepreneurial success that means 10000 Start ups will need to be spawned to get 2500 large scale businesses”. A dedicated fund for carrying out Fund of Funds operations would address these issues.

About the author: IE&M Team

Indian Economy & Market is an Indian media and information platform producing data-backed news and analysis on all the vital elements at the intersection of the economy, stock markets, mutual fund, insurance, commodities, currency, technology, startups and business.

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