Fund of Funds for funding support to Start-ups: Civil Services Mentor Magazine: September - 2016

Fund of Funds for funding support to Start-ups

In order to boost entrepreneurship in the country government came up with the start up India programme earlier this year. Startup India aims at promoting bank financing for start-up ventures to boost entrepreneurship and encourage start ups with jobs creation. A startup is an entity that is headquartered in India which was opened less than five years ago and has an annual turnover less than ?25 crore. The Start Up India campaign is focused on to restrict role of States in policy domain and to get rid of "license raj" and hindrances like in land permissions, foreign investment proposal, environmental clearances. It was organized by Department of Industrial Policy and Promotion (DIPP). Start up India mission includes:

  • Launch social ventures in a way that they can scale
  • Scale social ventures in a way that they generate impact
  • Seed first-generation social entrepreneurs in last-mile communities
  • Catalyze the influence and resources of business, government and media towards fostering many more social ventures

Despite the startup India campaign, startups is India face several challenges. Important among them are given below:

  • 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 locating outside the country to receive such funding. In order to solve or reducethe problem of startup funding government has come up with aa fund of funds for the strat ups. The Union Cabinet has approved the establishment of "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. This is in line with the Start up India Action Plan unveiled by Government in January 2016.

The corpus of FFS is Rs.10,000 crore which shall be built up over the 14th and 15th Finance Commission cycles subject to progress of the scheme and availability of funds. 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. The Fund is expected to generate employment for 18 lakh persons on full deployment.

Further provisions 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. The FFS emanates from the Start up India Action Plan, an initiative of Department of Industrial Policy & Promotion (DIPP). The expertise of SIDBI would be utilized to manage the day to day operations of the FFS. The monitoring and review of performance would be linked to the implementation of the Start Up Action Plan to enable execution as per timelines and milestones.

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