The $1.5B Indian startup fund puzzle

Prime Minister Narendra Modi's ambitious 'Startup India, Standup India' went down as a star-studded jamboree of entrepreneurs (click here for what he announced and here for the devil in the detail). Those who followed the measures more closely acknowledge the biggest steps revolve around ease of doing business right from forming a startup and getting the initial footwork.

Interestingly, the Rs 10,000 crore ($1.5 billion) fund-of-funds for boosting venture capital investments—what was the big ticket aspect—has now turned out to be the most mysterious part. And no one seems to be too keen on clarifying this even a week after the party was over.

IT industry body NASSCOM that was one of the key agencies involved in organising the event along with department of industrial policy and promotion (DIPP which is part of the commerce ministry) itself is unclear on the status of this 'startup' fund.

To be sure, the government had announced a similar fund of funds of the same size to support startups and small enterprises in its mid-term Budget in July 2014.

Last year, there were some updates on the previous MSME fund where state insurance behemoth LIC was made a co-investor. Interestingly, LIC has also been named as a co-investor in the latest 'startup' fund.  Separate emails sent to LIC, the finance ministry and DIPP to get clarity on this did not elicit any response till the time of posting this article.

Bishakha Bhattacharya, senior director – policies, NASSCOM, said: “This is something the government needs to answer—whether this fund is new or old—as the number seems to be the same. In some way, I think the government re-stated what's been in discussion and or in motion. Rs 10,000 crore is huge amount and without utilising it, to keep announcing more and more funds is not going to help anyone, unless we have something actionable.”

However, Anwar Shirpurwala, executive director, MAIT, which is an IT hardware industry body, disagrees.

“In the 2014 Budget, the fund was for MSMEs which means both startup and existing company. This announcement is specifically for startups,” he said.

MN Vidyashankar, president of India Electronics and Semiconductor Association (IESA), said: “The centre had announced two funds—the Rs 10,000 crore fund for MSMEs in Budget 2014 and the Rs 10,000 crore Electronics Development Fund last year. Rs10,000-crore corpus, announced on January 2016, is for creating a fund for startups, distinct from the above two funds." The EDF aims to boost electronics manufacturing in the country, and CanBank Venture Capital Fund had already been asked to manage this fund.”

Saurabh Srivastava, chairman, IAN (Indian Angel Network), asserted, “The Rs 10,000 crore for MSMEs that was announced in 2014 is already been operationalised, and is called India Aspiration Fund (IAF). Even though I don't have much clarity on this, yet I imagine some amount from the new Rs 10,000 crore will go towards that IAF because all these are oriented towards funding of startups. However, both are separate money.”

“The fund (IAF) has a professional investment committee, and I am a member of that committee. The government had already allocated Rs 2,000 crore, and also sanctioned Rs 1,000 crore to go to venture funds,” he shared.

On the other hand, MAIT's Shirpurwala said, “The funds are there, but no one has any idea where in the system they are held. We had checked with the MSME ministry seven-eight months after the Budget announcement, and got to know that that money was still not allocated to the ministry. The process is long. But, when the government has made an announcement, then the process should be set clearly in terms of disbursement. The fund is a little grey area for me also.”

He added, “We expect the upcoming Budget will speak out everything specifically.”