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.

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Frequently Asked Questions

Common questions about Fund of Funds for Startups.

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 innovative, entrepreneurial ventures. It aims to address the challenge of access to finance faced by startups in India, which often lack a track record or collateral to secure funding from traditional sources.

The startup fund has an initial corpus of Rs.2500 crores, and the Government has pledged to contribute Rs.2500 crores each year for a total corpus of Rs.10000 crores over a four-year period.

The Rs.10000 crore startup fund will be set up as a "fund of funds," which means it will not directly invest in startups. Instead, it will invest in Venture Capital Funds, Incubator Funds, Angel Funds, and other entities that invest in startups. These funds will then use the capital to invest in innovative startups.

The startup fund will support a broad mix of businesses across various sectors, including manufacturing, agriculture, health, education, and others, as long as the startups are working on innovative projects with the potential for growth and job creation.

The management of the Rs.10000 crore startup fund will be overseen by a Board of Professionals from the industry, academia, and successful startups. Additionally, the Life Insurance Corporation (LIC) will be a co-investor in the fund of funds.

To receive investment from the Rs.10000 crore fund of funds, an applicant fund (such as a Venture Capital Fund or Angel Fund) should have already raised a minimum of at least 50% of its stated fund size. The fund of funds will contribute the remaining 50% or less.

If a fund receives investment from the Rs.10000 crore fund of funds, the fund of funds will have representation on the governance structure or board of the recipient fund, based on the contribution made.

By providing capital to Venture Capital Funds, Incubator Funds, and Angel Funds, the startup fund aims to support innovative and entrepreneurial ventures that may have difficulty securing funding from traditional sources. This can foster innovation, job creation, and economic growth in India.

The article does not explicitly mention a specific focus on any particular stage of startups for funding. It suggests that the fund will support a broad range of innovative and entrepreneurial ventures across various sectors and stages.

The establishment of the Rs.10000 crore startup fund is part of the Startup India Action Plan announced by Prime Minister Narendra Modi. It is one of the key programs announced to boost the startup ecosystem in India, along with other measures such as tax exemptions and fast-tracking patent applications.