Up until last month, the conditions for raising capital from the Rs10,000 crore Fund-of-Funds, which was meant to invest in local venture capital (VC) funds that would, in turn, back early-stage companies, were seen to be far too restrictive and discouraged investors.
The slow and often complex process of raising and deploying of funds by VCs (it may be years between a VC raising capital and making its first investment) also made it seem like the government scheme had failed to make a meaningful impact.
However, data released by the Small Industries Development Bank of India (Sidbi) and Department of Industrial Policy and Promotion (DIPP), the first full-year comprehensive analysis of the Funds-of-Funds scheme, throws up a rather optimistic picture.
In the year ended March, as many as 17 VC funds were sanctioned Rs623.50 crore from Fund-of-Funds corpus. These funds in turn invested in 62 start-ups.
According to the data, all of the 62 start-ups—backed by VC funds where Sidbi acted as a limited partner—cumulatively raised Rs186.84 crore in FY17.
These funds included Mumbai-based VCs Kae Capital and Orios Venture Partners, led by Sasha Mirchandani and Rehan Yar Khan respectively, early-stage investor Unicorn India Ventures, Ideaspring Capital, Pi Ventures and Stellaris Venture Partners, among others.
Kae Capital led the stack by investing Rs50 crore from its Rs300-crore Fund II across 16 start-ups.
It backed Truebil, a used-cars marketplace run by Paix Technology, shopping portal Fynd (Shopsense Retail Technologies), lending platform Loanzen, second-hand products marketplace ListUp (Gijutsu Solutions) and supplements maker Innovcare Lifesciences, among others.
Saha Fund, a venture capital fund focused on women entrepreneurs, invested Rs18 crore across 10 start-ups including fitness app Fitternity, food ordering platform InnerChef and women’s apparel maker Kaaryah.
Furniture rental portal GrabOnRent and Ideope Media Pvt. Ltd, the company behind online news publisher Inc42, were among the start-ups backed by Unicorn India Ventures, part of nine firms that received total of Rs13.64 crore. GrabOnRent also raised capital from IvyCap Ventures, which invested Rs21 crore in home services aggregator Taskbob (Crenovative Ideas Pvt. Ltd) that shut down earlier this year.
Stellaris Venture Partners—which in February announced a partial close of its maiden $100 million fund—invested Rs6.20 crore in Wydr, a business-to-business marketplace for industrial goods, while Pi Ventures picked up a stake in four start-ups (three in the health-tech space) for Rs13.35 crore.
To be sure, a VC fund can raise only up to 30% of its fund corpus from Fund-of-Funds. The amount is committed by Sidbi—after getting approval from an investment committee comprising entrepreneurs—and drawn by the venture capital fund at a later stage as and when an investment opportunity comes by.
From the Rs623.50 crore committed, the 17 VC funds had drawn Rs33.63 crore from Fund-of-Funds till 31 March, the data showed.
The government has so far released Rs600 crore (Rs 500 crore in March 2016 and another Rs100 crore in March this year) to Sidbi while the remainder of Rs10,000 crore will be received in tranches till 2025.
Last month, the government approved long-sought-after changes to the conditions for sanctions from the Fund-of-Funds, which are likely to encourage more investors to tap government funding.
It allowed VCs to invest only double the amount raised from the government, which can be anywhere from 10-60% of VC fund corpus, in start-ups (as defined by the government). The earlier stipulation was to invest 100% of the corpus in start-ups.
Moreover, follow-on investment in portfolio companies has been allowed, even after the business ceases to be a start-up (either grow beyond five years or exceed Rs25 crore in annual revenue).
Deputy managing director Ajay Kumar Kapur said he expects Sidbi to accord “significantly higher" commitments in the currently financial year, as compared to the capital sanctioned in FY17.