The Union Cabinet has approved the "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 as part of the much-hyped Rs.10,000-crore fund envisaged under the Start up India Action Plan by the government in January 2016.
But the corpus of Rs.10,000 crore will be built up over the 14th and 15th Finance Commission cycles (10 years) subject to its progress and availability of funds, said a statement. It said, "An amount of Rs.500 crore has already been provided to the corpus of FFS in 2015-16 and Rs.600 crore earmarked in the 2016-17."
Future allocations for the fund 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, it said.
The FFS emanates from the Start up India Action Plan under the Department of Industrial Policy & Promotion (DIPP) and SIDBI has been roped in to execute it, while a monitoring panel will review the performance. Earlier, an expert committee on Venture Capital (VC), has recommended the plan saying, "India has the potential to build about 2,500 highly scalable businesses in the next 10 years, and given the probability of entrepreneurial success that means 10,000 Start ups will need to be spawned to get 2,500 large scale businesses."
Start-ups face challenges such as limited availability of domestic risk capital, constraints of conventional bank finance, information asymmetry and lack of hand holding support from credible agencies. A large majority of the successful Start-ups have been funded by foreign venture funds and many of them are located outside the country to receive such funding.
"A dedicated fund for carrying out Fund of Funds operations would address these issues and enable flow of assistance to innovative Start ups through their journey to becoming full fledged business entities," said the statement.