SIDBI proposes Rs 5,000 Cr fund of funds for early-stage startups

Small Industries Development Bank of India (SIDBI) has proposed setting up a Rs 5,000 crore Fund of Funds for Startups (FFS). The FFS will invest in early-stage companies, especially in deeptech, said Sivasubramanian Ramann, Chairman and Managing Director of SIDBI.

“I do not see any reason why the bright minds of India should not come back from the US because there is a lot of capital getting raised here,” he said in a conversation with Shradha Sharma, Founder and CEO of YourStory at TechSparks 2023.

“We have been talking with the government for about a Rs 5,000 crore early-stage FFS. The idea is to create another set of AIF (Alternate Investment Fund) with a focus on certain areas like deeptech,” he said.

Ramann told YourStory that the fund will focus on giving exits to angel investors who wish to exit early-stage companies. 

“The minute an angel wants to exit, where does the company go?,” he asked. “We need to fill that gap. The idea is to get more money into the early-stage, but not incubation. They will have an idea about where the revenue will be coming from or has revenues trickling in but you need to scale up, you may need equity or debt,” he said.

The early-stage fund will look at longer lifecycle AIFs with an average of 12 years so as to provide the necessary support to early-stage companies.

The FFS Scheme was approved by the government and established in 2016 with a corpus of Rs 10,000 crore to enable the Indian startup ecosystem to get access to domestic capital. Under FFS, SIDBI invests in SEBI-registered AIFs as a Limited Partner (LP) who in turn invest money in growing Indian startups through equity and equity-linked instruments.

The Indian government owns a 20.8% stake in SIDBI, while other prominent investors include the State Bank of India and LIC. This month, SIDBI said that it plans to float Rs 10,000 crore rights issue in the next financial year.