The government has released a meagre one-fifth of the amount from the Rs 10,000-crore corpus promised for promoting Indian startups about five years ago.
Under the 'Fund of Funds for Startups' scheme, the Department for Promotion of Industry and Internal Trade was tasked by the government to provide funding support to the Small Industries Development Bank of India (SIDBI) which, in turn, had the task of further lending to venture capital fund industry to support startup communities.
Currently, Mumbai-based Alteria Capital, founded by Murali and Ajay Hattangdi for providing debt solutions to startups, has got the highest funds under its debt scheme. Alteria's group-level portfolio companies include some of the big names like BharatPe, Lendingkart, Toppr, and Zest. The other beneficiaries of SIDBI's scheme are the debt funds of Trifecta Venture, JM Financial, IAN Fund and Chiratae Trust.
The Fund of Funds for Startups scheme was started with an initial corpus of Rs 10,000 crore for encouraging Indian startups at a time when startups were globally creating a disruption in the market.
Unlike the US and China, there was not much support to Indian startups from domestic financial institutions. Startups like Byju's, Paytm, Zomato, Swiggy, PhonePe and others have become unicorns by getting funding support from foreign private equity and venture fund players.
The government's scheme also offers new learnings for SIDBI, which is the principal financial institution dealing with the Micro, Small, and Medium Enterprise (MSME) sector. While it has expertise in assessing traditional MSMEs, the space of venture capital funds or alternative investment funds (AIFs), which deal with startups, is new for it.
However, the financial institution has set certain conditions for private funds under the Fund of Funds scheme. These funds are required to invest a minimum of twice the amount received from SIDBI under the scheme.
As per the data available with SIDBI, the private funds have invested Rs 5,648 crore as of March 31, 2021 in various startups from their funds. Based on SIDBI's direct investment of less than Rs 2,000 crore, the private funds have invested 2.82 times the amount in startups.
The likely reason for low disbursement by the government to SIDBI is the post-pandemic period when the government finances got severely constrained.
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