Government to launch fund to encourage start-ups

Government to launch fund to encourage start-ups
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First Published: Mon, Apr 30 2007. 12 08 AM IST
Updated: Mon, Apr 30 2007. 12 08 AM IST
In an attempt to boost entrepreneurship among start-up companies in India, the government will launch the Fund for Accelerating Start-ups (FAST), a joint fund that will have equal contribution from the ministry of science and technology and the Indian Venture Capital Association, a private association formed with the mission to encourage private equity investment.
If approved by the Planning Commission, this will be the first such public-private initiative in the high-stakes, competitive world of venture finance. The purpose of the fund, said a ministry official on condition of anonymity, is primarily to help entrepreneurs who have invented commercially viable products and need help with scaling up their operations. Currently, venture capitalists in India prefer investing in companies which already have customers, and are still partial to information technology and ITES (information technology enabled services) firms, said Arun Natarajan, founder and chief executive officer, Venture Intelligence, a research and consultancy firm tracking venture capital firms in India.
Start-up funds are typically categorized as seed, early and growth. Seed funds comprise the initial capital required to develop a product, and meet initial establishment costs. “Seed funds are in the range of $1 million (Rs4.1 crore), which is still too big for most product innovators,” said Natarajan. Too big, because the venture capitalist putting his money expects a minimum return, over a period.
Currently, innovators with bright ideas can approach the government’s Technopreneur Promotion Programme (TePP), where they get Rs10 lakh to build prototypes and file for patent rights—an expensive proposition that could involve over Rs3 lakh if patents are filed in more than two countries. “We’ve had quite a few cases of entrepreneurs with good ideas who could not sustain their companies,” said A.S. Rao, who heads TePP. “If they had about Rs30-40 lakh, maybe things would have been different.”
A case in point being Simputer, a low-cost Personal Digital Assistant (PDA) invented at the Indian Institute of Science, Bangalore, that was claimed to bridge the digital divide between urban and rural India.
However, in spite of receiving a fair amount of angel funding—individual investors putting in money to help develop a product—venture capitalists shied away.
“One of the biggest reasons that Simputer didn’t work was because it wasn’t adequately supported in its growth stages,” said Joyojeet Pal, a researcher at the University of California, Berkeley, who has documented the story of Simputer’s failure.
FAST could potentially prevent Simputer-like projects from choking midway. Though details of the fund haven’t been formalized yet, what is known is that a series of smaller or ‘baby’ funds will be carved out of the public-private corpus to be set up.
It’s the baby funds that will finance the capital-seekers, inspired from the Israeli government’s Yozma programme, a similar venture launched in 1998 that financed start-ups via baby funds.
As far as the government is concerned, it will moot an option of preferential shares in the start-up, via which it can recover its investment, said the ministry of science and technology official.
Indian Venture Capital Association chairman Saurabh Shrivastava sait it was too early to comment on the matter.
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First Published: Mon, Apr 30 2007. 12 08 AM IST
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