Startups get Rs 1.3K Cr funding boost from govt in the first half of 2019, expect more from upcoming Budget
The BJP manifesto had promised to increase the Startup Fund to Rs 20,000 crore. Will Finance Minister Nirmala Sitharaman follow through on that promise and increase the Funds size in the Union Budget 2019?
The Startup India initiative, launched by the Modi government in 2016, disbursed over Rs 1,300 crore to Indian startups in the first half of 2019. It took the total disbursement to more than 30 percent (Rs 3,123.7 crore) of the Rs 10,000 crore corpus that was supposed to be deployed over 14th and 15th Finance Commission cycle.
The Startup India fund, known as Fund of Funds for Startups (FFS), disbursed Rs 515 crore during the three months of the calendar year to various VC funds for further downstream investment into startups. In the April-June quarter, the FFS disbursed Rs 856 crore.
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Some of the prominent startups that have secured funds from VCs backed by FFS include bike rental startup Vogo, Mumbai-based edtech startup Toppr, used car marketplace Truebil (run by Paix Technology), task management app Dunzo, Bengaluru-based Curefit, home rental platform Nestaway, and others.
According to data from Small Industries Development Bank of India (SIDBI), the total allocation from the Rs 10,000 crore corpus stands at Rs 2,265.70 crore as on March 31, 2019, up from Rs 1,750.70 crore as on December 31, 2018.
SIDBI also said in a mail that the commitment under FFS as on June 30, 2019, stood at Rs 3,123.70 crore, up from Rs 2,265.70 crore as on March 31, 2019.
However, it did not disclose the number of VC funds that secured funds from FFS as on June 30, 2019. But as of March 31, 2019, the total sanctioned amount has been allocated to 40 VC funds (Alternate Investment Funds), which in turn have invested part of this amount across 218 startups as on March 31, 2019.
Slow and steady
A news report in December 2018, quoted Mohammad Mustafa, Chairman and Managing Director of SIDBI, saying the FFS will close financial year 2019 with about Rs 3,300 crore allocation to VCs. But the pace of investment has not been as fast as targeted by SIDBI, and it fell short by about Rs 1,000 crore as of March 31, 2019.
However, investors and VCs backed by the FFS YourStory spoke to are happy about the pace of funding.
Navin Honagudi, MD, Kae Capital (one of the AIF that has secured funds from FFS), said, the government has to invest wisely and cautiously.
“It shouldn’t rush. They need to get back their money. So even if there is a lag, it is good for the ecosystem,” he said.
Another investor who preferred to remain anonymous, said, “The government has also given a free hand to VCs as far as the selection of startups for funding is concerned. It doesn’t interfere in the process, and of late, I have been seeing that even government representatives from SIDBI don’t sit in the investment committee of VCs”.
Of Budget hopes
Both the investors are now hoping the upcoming Budget will increase the corpus of FFS, as promised by the BJP in its manifesto.
Before the elections, the ruling BJP promised creating a ‘Seed Startup Fund’ worth Rs 20,000 crore. Even after the elections, there were reports that the Department for Promotion of Industry and Internal Trade (DPIIT) is planning to set up an ‘India Startup Fund’ with an initial amount of Rs 1,000 crore. It said the new fund would be offered to startups involved in priority areas such as high-tech and cutting-edge technology.
The Indian startup community has also been bullish ever since the President Ram Nath Govind's address at the joint sitting of Parliament, when he said the government will take steps to further improve the startup ecosystem in the country with an aim of having 50,000 such enterprises by 2024.
As for the upcoming Budget, Kae Capital’s Navin expects the government to set up something with a similar framework for working capital requirement of startups, just like it has set up FFS for equity capital requirements of startups.
He said, “Working capital often is the limitation to scale, and there are no institutions that provide the same to startups. Also, since startups are generally asset-light companies, they face difficultly to get working capital from financial institutions who ask for collaterals.”
The FFS background
The FFS was set up at SIDBI, which contributes to various Alternative Investment Funds (AIF). It is registered with the Securities and Exchange Board of India (SEBI), which in turn extends funding support to startups. The government, at the time of launching FFS, had envisioned to create employment for about 18 lakh people.
According to SIDBI data, some of the VCs that have secured funds from FFS include Kae Capital, Orios Venture, Idea Spring, Pi Ventures, IvyCap, TVS Shriram, and others. Sabre Partners, Zephyr Peacock, Avaana Capital, Endiya Partners, and TVS Shriram are few of the VCs that have been sanctioned at least Rs 100 crore from FFS.