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Small Industries Development Bank of India (SIDBI) is planning to introduce an internal assessment model to rate the venture capital firms before investing in them through its flagship Rs.10,000 Cr Fund-of-Funds for Startups (FFS) scheme.
Since the allocation of funds was done on an estimated basis, Mohammad Mustafa, chairman and managing director of SIDBI, in an interview said that “the idea behind the rating system is to ensure clarity and efficiency and lowering the level of subjectivity in making investing decisions.”
“We are now introducing an internal rating model which will score the VC funds on the basis of various criteria like management quality, the performance of the fund, their focus etc. If the firms are able to cross the threshold score, they will be eligible to receive funding under the fund of funds scheme,” Mustafa said.
Adding to this he said, “The rating model will also take into account allocations with a sharpened focus on providing for social impact funds, maiden fundraises and older venture capital firms.”
Besides this, the financial institution is also planning to revamp its asset reconstruction company (ARC) and hired Deloitte India for consultancy services for the same.
“We are restructuring the entire ARC. There has hardly been any activity there and it has been performing at a sub-optimal level, there was no clear focus so far,” Mustafa added.
For those of you who don’t know about the FFS scheme for start-ups: it is basically a funding system set up by the Government of India within SIDBI, as a part of the Startup India Action Plan unveiled by our Prime Minister Shri. Narendra Modi.
Launched in 2016, the Fund-of-Funds for Startups (FFS) scheme aims to invest a staggering fund of $1.35 Bn (Rs. 10000 Cr) to support and catalyze 10,000 startups in the course of next 12 years, leading to a creation of more than 18 lakh jobs in the country.
Therefore, the objective of the Fund is to provide funding support to Startups.
However, the modus operandi at SIDBI is more of a facilitator than of an investor. As the name suggests, the funding will be in the nature of ‘Fund of Funds’, which means that it will not invest directly into Startups, but shall contribute to the corpus the capital of venture capital firms (also called AIFs or Alternate Investment Fund) registered with SEBI, the money raised is then used to invest in startups.
Created as a sector agnostic scheme, FFS allows investments in a wide range of startups including medical, agriculture, healthcare, etc. Till date, an approximate sum of $202.75 Mn (INR 1,500 Cr) has been deployed under the funds of funds scheme, which has been invested in over 70 startups through 17 AIFs. The total deployment is likely to touch $473.08 Mn (INR 3,500 Cr) by the end of the current fiscal.
Introduced with the primary objective of fostering development and growth of innovation-driven enterprises, AIFs have been able to create large corpora under the Fund-of-Funds Scheme. As a result, the number of startups continues to grow at an exponential rate, giving us no reason to believe why the vision of creating an Rs 1,00,000-crore corpus for the Indian startup ecosystem cannot be realized much before its intended timeframe.