Mumbai: The ministry of science and technology, which recently announced a Rs75 crore seed fund to promote technology product start-ups, wants to bring in angel investors to mentor the funded companies in product development and potentially invest in them at a later date.
The department of industrial and scientific research (DSIR), which will operate the fund, is experimenting with this new model to ensure that product innovation in the country leads to businesses.
“In many cases, start-ups work for years to build a product, but are unable to take it to market, due to lack of direction and further funding,” says A.S. Rao, adviser, DSIR. “We want to change that.”
The department has partnered with organizations such as The Indus Entrepreneurs (TiE), India Angel Network and the Indian School of Business (ISB), which include angel investors such as outsourcing firm Xansa India Ltd founder Saurabh Srivastava, venture capital firm Canaan Partners executive director Alok Mittal, and MphasiS BFL Software Ltd founder Jerry Rao.
Each start-up will be assigned two mentors to advise them on the market space and business prospects for the products. Mentoring is voluntary and does not involve financial commitment from the angels. By fostering a relationship between the angels and innovators at an early stage, the department wants to “pave the way” for further rounds of funding for the start-up and generate more deal flow for angels, explains Rao. The ministry expects to begin investing in the next quarter.
Seed, or very early stage funding in the range of $50,000-250,000 (Rs19.7-98.5 lakh) , is not easily available to start-ups in India, especially those developing products or intellectual property (IP)-heavy services.
A number of angel networks and smaller sized funds, such as the India Angel Network, Mumbai Angels, Seedfund and Erasmic Venture Fund, have sprung up to plug the gap. In addition, industry body Nasscom (National Association of Software and Services Companies) announced a $25 million innovation fund this year along with ICICI Knowledge Park for start-ups in the IP space. Nasscom, which is in the process of finalizing anchor investors for the fund, will bear up to 15% of a company’s project cost.
DSIR’s fund differs from these initiatives in that the ministry does not pick up equity in the companies it invests in. Instead, the capital will be a combination of grants and soft loans, typically in the range of Rs50-60 lakh per company. DSIR will raise the total amount of Rs75 crore over a five-year period.