Union Cabinet approves establishment of Fund of Funds for Startups under SIDBI

June 23, 2016

The Union Cabinet has approved setting up of Fund of Funds for Startups (FFS) under Small Industries Development Bank of India (SIDBI) for extending support to Startups.
This 10,000 rupees corpus fund will be established in line with the Start up India Action Plan, an initiative of Department of Industrial Policy & Promotion (DIPP) which was unveiled by Union Government in January 2016.
Key Facts

  • The FFS will be used for the contribution of various Alternative Investment Funds (AIF) registered with Securities and Exchange Board of India (SEBI) to extend funding support to Startups.
  • Allocation of Resources: It will be built up over the 14th (2015-2020) and 15th (2020-2025) Finance Commission cycle. However it will be subject to progress of the scheme and availability of funds.
  • An amount of 500 crore rupees already has been provided to the corpus of FFS in the fiscal 2015-16 and 600 crore rupees has been earmarked in the fiscal 2016-17.
  • Further provisions will be made as grant assistance through Gross Budgetary Support by DIPP which will monitor and review performance in line with the action plan.
  • Execution and Monitoring: The day to day operations of the FFS will be managed by the expertise of SIDBI.
  • The monitoring and review of performance of startups would be linked to the implementation of the action plan to enable execution as per timelines and milestones.
  • Potential of FFS: The corpus fund can be the nucleus for catalyzing 60,000 crore rupees of equity investment and twice as much debt investment.
  • It would provide a predictable and stable source of funding for the start-up enterprises and thereby facilitate large scale job creation.

Comment

  • The FFS will play an important role in accelerating innovation driven entrepreneurship and business creation through Start-ups which is crucial for large-scale employment generation in the country to tap the demographic dividend.
  • The Fund of Funds operations will help to address the various challenges faced by start-ups such as limited availability of domestic risk capital, information asymmetry, constraints of conventional bank finance and lack of hand holding support from credible agencies.
  • The Fund would also encourage greater participation of private capital and thus help leverage mobilization of larger resources to build highly scalable businesses from startups.
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