SIDBI Will Now Fund Venture Capital Firms After Rating Them

Small Industries Development Bank of India (SIDBI) is now working on an internal model to rate the venture capital firms before investing in them via its flagship $1.35 Bn (INR10,000 Cr ) Fund-of-Funds for Startups (FFS) scheme.

Mohammad Mustafa, chairman and managing director of SIDBI, said in an interview that the idea is to ensure transparency, efficiency and lower subjectivity in making investing choices.

For the uninitiated, launched in  2016, the Fund-of-Funds for Startups aimed to spend a staggering fund of $1.35 Bn and to support and catalyse 10,000 startups in course of next 12 years. This aimed to create 18 lakh jobs in the country.

How the FSS scheme works is that the Department of Industrial Policy and Promotion (DIPP) disburses the funds to SIDBI which in turn gives them to venture capital funds (also called Alternate Investment Funds or AIFs) who create a corpus fund which has participation from other investors and the money raised is then used to invest in startups.

Mustafa said, “Earlier, we used to appraise the funds and there was an element of subjectivity. 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.”

With this, SIDBI looks to introduce predictability in the deployment process, as the VC firms will be able to know if they are eligible to get money under the fund of funds scheme or not.

Till date, an approximate sum of $202.75 Mn (INR 1,500 Cr) has been deployed under the fund of funds scheme. “The total deployment is likely to touch $473.08 Mn (INR 3,500 Cr) by the end of the current fiscal,” Mustafa said.

At the same time, SIDBI is also focusing on social impact funds and revamping its asset reconstruction company (ARC), India SME Asset Reconstruction Company.

[The development was reported by Livemint.]

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