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Government approves establishment of Rs 10K cr dedicated ‘fund of funds’ for startups

Government approves establishment of Rs 10K cr dedicated 'fund of funds' for startups
Image Source: B-Plan Experts

After doing away with ‘Angel Tax’ for investors funding startups, the Union Cabinet has given formal consent to establishment of a Rs 10,000 crore ‘fund of funds’ to provide financial support to venture capital firms, who will further invest in domestic startups.

The earmarking of funds is a part of Prime Minister Narendra Modi’s “Startup India, Standup India” measures announced earlier this year in a ceremonial event in Vigyan Bhawan of the national capital along with an all-inclusive action plan to promote ventures that would boost employment generation and wealth creation.

The government is hopeful that a corpus of Rs 10,000 crore could potentially be the nucleus for catalysing Rs 60,000 crore of equity investment and twice as much debt investment. “This would provide a stable and predictable source of funding for startup enterprises and thereby facilitate large-scale job creation,” it stated in a government note.

Further, the government expects the investment to generate employment for 1.8 mn persons on full deployment. Reportedly, the government has contributed Rs 500 crore to the fund in 2015-16 while another Rs 600 crore is set to be contributed for 2016-17.

The ‘fund of funds’ will be established under the Small Industries Development Bank of India (SIDBI) which would back alternative investment funds registered with capital market regulator Securities and Exchange Board of India (SEBI).

The corpus will be built over the 14th and 15th Finance Commission cycles subject to availability of funds. Additional grant assistance will be provided through gross budgetary support through Department of Industrial Policy and Promotion (DIPP) which will be responsible for monitoring and performance review aligning with Startup India Action Plan.

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