SIDBI open to longer lifecycle AIFs under the 'Fund of Funds for Startups' scheme

The Small Industries and Development Bank of India (SIDBI) is looking at longer lifecycle funds for Alternative Investment Funds (AIFs) supported under The Fund of Funds for Startups (FFS) scheme, Sivasubramanian Ramann, Chairman and MD at SIDBI, told Yourstory.  

The government established the FFS scheme—managed and operated by SIDBI—in 2016 with a corpus of Rs 10,000 crore to enable startups access to domestic capital. 

Under the scheme, the bank contributes to the corpus of SEBI-registered AIFs. The AIFs—supported by the bank—are then required to invest a specified amount of their corpus in MSMEs/startups as per the mandate of the scheme.

Generally, the term of the AIF under the FFS scheme shall be 8-10 years from the date of the final closing of the fund.

“The AIF regulations do not disallow a perpetual fund. The investor wants his money back. That’s why the fund sizes are typically 7-8 years. Now there are enough institutions who are fine with 15 years also,” said Ramann during a fireside chat with YourStory Founder and CEO Shradha Sharma at TechSparks 2023. 

The pitch for longer lifecycle funds comes on the back of SIDBI’s interest in funding early-stage startups, which require capital to be locked in for a longer period.

Ramann also told YourStory that it has proposed a new FFS of Rs 5,000 crore to the government dedicated to early-stage startups, especially those building in deeptech and sustainability segment. 

Currently, the bank commits to AIFs out of three FFSs—Fund of Funds for Startup (DPIIT), ASPIRE Fund (MoMSME), and UP Startup Fund (Govt of Uttar Pradesh). 

The total corpus for FFS is Rs 10,000 crore, of which SIDBI has committed Rs 9,000 crore to 105 funds, which have further invested in 1,000 startups. The interest of investors in government supported-AIFs runs high as they pooled in almost 6X the amount the bank had committed into the fund. 

“Some of the early investors have already seen exits. We have got 3.5X of our share that was invested. Another six years, we could end up getting back Rs 20,000 crore of the Rs 10,000 committed, which we will put back into the startups,” Ramann said. 

Bringing informal MSMEs into digital system

The chairman also spoke about bringing the "seven crore informal entities or non-GST filing MSMEs" into the formal digital system via its Udham Mitra platform with the help of on-ground partners.

As part of the portal, banks and MFIs—which have touched the population of non-GST businesses—are collaborating to connect their data to SIDBI’s system.

"We are in for a long haul. Four crore entities will be onboarded on the platform in the next few months. With Account Aggregator setting in well, we should have the data and be in a position to provide them small amount of working capital on UPI via the Udyam app," he said.