In a strategic move to bolster the Indian startup ecosystem, the Small Industries Development Bank of India (SIDBI) has unveiled an ambitious plan to create a Rs 5,000 crore Fund of Funds for Startups (FFS). This initiative is geared towards nurturing early-stage startups, with a particular emphasis on companies operating in the realm of deeptech.
Speaking at the TechSparks 2023 event, Sivasubramanian Ramann, Chairman and Managing Director of SIDBI, expressed his belief in the potential of Indian talents and urged them to explore opportunities within the country. Ramann highlighted the growing availability of capital in the Indian startup landscape as a compelling reason for homegrown innovators to stay and thrive.
He noted that discussions have been underway with the government regarding the establishment of a Rs 5,000 crore early-stage FFS. This fund would essentially function as an Alternate Investment Fund (AIF) but with a dedicated focus on deeptech startups. Deeptech, an area encompassing cutting-edge technologies like artificial intelligence, machine learning, and biotechnology, is increasingly gaining significance in the startup ecosystem.
One of the key objectives of this FFS initiative is to offer viable exit strategies for angel investors who seek to divest their holdings in early-stage companies. Ramann questioned, “The minute an angel wants to exit, where does the company go?” To address this gap, SIDBI aims to facilitate a more seamless transition for startups beyond their initial stages, helping them scale and prosper.
The proposed early-stage fund is designed to operate with an extended lifecycle, averaging around 12 years. This extended period allows for sustained support and investment in early-stage companies, enabling them to overcome critical hurdles and reach their growth potential.
The FFS Scheme, which was greenlit by the government and established in 2016 with an initial corpus of Rs 10,000 crore, is a critical component of the Indian startup ecosystem. Under this scheme, SIDBI acts as a Limited Partner (LP) and invests in SEBI-registered AIFs. These AIFs, in turn, deploy these funds into promising Indian startups through equity and equity-linked instruments.
Sidbi, a financial institution dedicated to supporting small and medium-sized enterprises (SMEs), boasts a diverse group of investors, with the Indian government holding a 20.8% stake. Other notable stakeholders include the State Bank of India and LIC (Life Insurance Corporation of India).
As part of its growth strategy, SIDBI has also disclosed plans to initiate a rights issue of Rs 10,000 crore in the upcoming financial year. This bold move aligns with SIDBI’s commitment to nurturing the Indian startup ecosystem and promoting innovation and entrepreneurship within the country.
In sum, SIDBI’s proposal for a Rs 5,000 crore Fund of Funds for Startups, with a strong emphasis on deeptech, represents a significant stride towards empowering early-stage startups and fostering innovation and growth in India. The initiative not only underscores the increasing availability of domestic capital but also reflects a concerted effort to provide comprehensive support for startups on their transformative journey.
