The Walmart-Flipkart deal may come as a boost for the startup ecosystem in India, but the NDA government’s Rs 10,000-crore Fund-of-Funds for Start-ups (FFS) — launched 28 months ago as part of the Start-up India Action Plan to boost startups — is struggling to make progress.
SIDBI has so far committed Rs 1,285 crore to 27 local venture capital funds under the FFS scheme, of which Rs 141 crore —only about 11 per cent — has been disbursed to these funds till April 2018. The funds are then expected to route the money to startups.
In the wake of poor offtake under the scheme, the Department of Industrial Policy and Promotion (DIPP) is learnt to have undertaken before a Parliamentary panel that it will not make any releases to fund manager SIDBI (Small Industries Development Bank of India) during FY18 and FY19. The decision to curtail funding to the state-owned SIDBI, which manages the FFS and acts as a limited partner in these venture capital funds (also called Alternate Investment Funds or AIFs) that draw capital from the FFS, has been taken by the department citing “unspent balance”.
In response to a specific query from The Indian Express on the DIPP’s undertaking before the House panel that “no releases” of funds is expected during 2017-18 and 2018-19, SIDBI said that alongside the Rs 600 crore that it has received from DIPP so far, it has also got an assurance letter authorising it “to make further commitments of Rs 1,600 crore to AIFs”. On the actual drawdown by AIFs, SIDBI said: “The decisions are entirely on the investment managers of the Funds and SIDBI has little say in their decisions. The disbursements to the AIFs are based on their request for investment in investee companies”.
Under the FFS, money is routed to startup entities via participating AIFs. SIDBI makes contributions to AIFs that vary between 10 and 20 per cent of the target corpus of each AIF while the balance 80-90 per cent funds are raised from other contributors for investing in equity and equity-linked instruments of startups. Of the Rs 141 crore disbursed to early-stage ventures till end-April, some 124 start-ups have been reported as beneficiaries.
The 27 AIFs that have received funds under the scheme include Mumbai-based early-stage investor Kae Capital and Saha Fund, a venture capital fund focused on women entrepreneurs. Kae Capital has investments in about 16 startups, including Truebil, a used-car marketplace owned by Paix Technology; peer-to-peer business loan marketplace startup Loanzen; second-hand products marketplace ListUp promoted by Gijutsu Solutions and shopping portal Fynd run by Shopsense Retail Technologies.
Saha Fund’s investment targets include including fitness application Fitternity, online food platform InnerChef and women’s garment venture Kaaryah. Some of the other AIFs are Mumbai-based Orios Venture Partners, early-stage investor Unicorn India Ventures, Ideaspring Capital, Pi Ventures and Stellaris Venture Partners.
So far, Rs 600 crore has been released by the DIPP to SIDBI, of which Rs 500 crore was released in FY16 and Rs 100 crore in FY17. In a deposition before the Parliamentary Standing Committee on Commerce that was tabled both Houses on March 14, the DIPP stated that there would be no releases to SIDBI during 2017-18 and 2018-19 due to unspent balances.
In its response to a specific query from The Indian Express on the slow disbursement, SIDBI said: “the funding dynamics of venture capital industry.. is very much different from the normal lending. Under FFS of Rs 10,000 crore, which is a 10-year programme (2 financial cycles of 5 years each) funds are routed to startup entities through AIFs (venture capital funds). SIDBI makes contributions to AIFs which generally vary from 10 – 20 per cent of target corpus of each AIF. Balance 80-90 per cent funds are raised from other contributors (Limited Partners) and an AIF normally takes 1-2 years to raise the targeted corpus of the Fund. After raising the funds AIFs have a window of 4-5 years to find support-worthy start-up deals and to make investment commitments to them. Therefore, actual flow of funds from AIFs to start-up entities may take up to 3-5 years from the time they start raising funds and it is entirely up to the investment managers of these AIFs to select suitable deals and release funds to their selected start-ups which are normally milestone based without any influence of contributors to fund.”
It said that while Rs 141 crore is the drawdown from SIDBI, “a total of Rs 588 crore has been invested in these startups by the AIFs”. In addition to the Rs 1,285 crore committed to 27 funds under the FFS, SIDBI said “there are a few more proposals from AIFs, involving contribution amount aggregating to around Rs 600 crore”, under various stages of process at SIDBI. The Bank claimed that it “is confident of making total commitments of Rs 2,200 crore to AIFs by the end of FY19 which is very much in line with the target of Rs 1,000 crore per year”.
SIDBI said that “given the normal pace of drawls from AIFs so far and expected pick-up in speed of drawls, it expects actual disbursement of another Rs 400-450 crore out of the committed amount to AIFs during the balance period of FY19”.