BENGALURU: The new Rs 10,000 crore Fund of Funds (FoF) for start-ups, proposed by finance minister Nirmala Sitharaman in the budget, will attract more domestic capital into start-up ecosystem, as currently major capital still flows from foreign venture capitalists. The new FoF is expected to support 500 start-ups in the next five years.
Experts said this will boost the ecosystem and also encourage innovation. Established in 2016 with a corpus of Rs 10,000 crore, the FoF for Start-up scheme enables access to domestic capital and it is operationalised by Small Industries Development Bank of India (SIDBI).
At a time when global VC investments are slowing down, the government-backed funding is becoming even more critical to sustaining momentum in the start-up ecosystem, said Somdutta Singh, founder and CEO Assiduus and investor with Karma Holdings.
Unlike direct grants, the funds don’t go straight to start-ups but are routed via alternative investment funds (AIFs), which specialise in funding high-growth companies. These funds back start-ups that struggle to get private investment, especially in deep tech, AI, clean energy, and space tech, where risks are high but the potential is huge.
Secretary, Department of Financial Services, M Nagaraju said in a post-budget interaction with industry leaders on Monday that only limited funding is available to early-stage start-ups and there is not much equity available for these start-ups.
“We would like to have both equity and debt under new funding mechanism. With banks’ co-financing, we will have Rs 20,000-Rs 25,000 crore funds in next five years and will support 500 well-capitalised start-ups via this fund,” he said. Over the past a few years, several start-ups have moved overseas, but many are now returning to India due to favourable conditions.
Many start-ups now returning to India
Over the past few years, several start-ups have moved overseas, but many are returning to India due to favourable conditions. With less than 15% of start-up funding coming from domestic sources, the budget provides capital support, said Siddarth Pai, founding partner, CFO, 3one4 Capital.