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Fund of Funds for Startups (FFS) Scheme


Fund of Funds for Startups (FFS) Scheme

In the Startup India Action Plan, Prime Minister Shri. Narendra Modi announced a slew of measures to boost the Startup ecosystem in India. From tax exemptions to fast-tracking patent applications, the Startup India Action Plan had numerous programs and initiatives that went far beyond the expectations of the Startup community. Among the key programs announced at the event is the setting up of an Rs.10000 crore startup fund. In this article, we look at the startup fund in detail.

Fund Objective

A key challenge faced by Startups in India is access to finance. Startups find it hard to raise funds from banks as they mostly do not have a track record or collateral and are left to bootstrap. However, many of such startups are working on projects that are innovative in nature, which has the potential to create a lot of employment and a successful business. Hence, the objective of the Rs.10000 crore startup fund set up by the Government is to provide funding support for the development and growth of innovation-driven enterprises.

Amount of Funds Allocated

The Startup fund would set up with an initial corpus of Rs.2500 crores and a total corpus of Rs.10000 crores over a four year period. The Government has pledged to provide Rs.2500 crores each year. The fund will be used to support a broad mix of businesses in sectors such as manufacturing, agriculture, health, education, etc., on investments into businesses that are very innovative.

Disbursement of the Funds

The Rs.10000 crore startup fund would be set up as a “fund of funds”, meaning it will not directly invest into startups, but rather invest in funds (Venture Capitals Funds / Incubator Funds / Angel Fund, etc.,) that invest into Startups. Hence, over the next four years, many of the VC or Angel funds will have more money to invest in startups.

The Management of the Rs.10000 crore startup fund will be through a Board of Professionals from the industry, academia and successful startups. It has announced that the Life Insurance Corporation (LIC) would also be a co-investor in the Fund of Fund.

For a VC or Angel or Incubator Fund to receive investment from the Rs.10000 crores fund of funds set up by the Government, the applicant fund should have raised a minimum of at least 50% of the stated fund size and the balance 50% or less would be contributed by the fund of funds. In case a fund takes investment from the fund of funds, then the fund of funds would have a representation on the governance structure/ board of the venture fund based on the contribution made.