SIDBI, the apex financial institution in the country for the MSME sector has, so far, contributed to the corpus of 88 venture capital funds which have catalysed the investment of more than $873 Mn (INR 5,600 Cr) to more than 472 MSMEs. Another interesting point is that the SIDBI’s venture capital arm, i.e., SIDBI Venture Capital Limited (SVCL), incorporated in 1999, has alone funded more than 82 MSMEs and startups through its seven funds.
Set up in 1990, through an act of Parliament, the SIDBI aims to aid the growth and development of micro, small and medium-scale enterprises in India. No wonder, the SIDBI has played a critical role in developing the MSME venture ecosystem in the country. SIDBI Venture Capital Limited (SVCL), an investment management company and a wholly owned subsidiary of SIDBI, through its venture capital arm focused on SMEs, SIDBI manages funds on different themes including startups/early-stage technology businesses, manufacturing SMEs, service entities, agribusinesses, financial inclusion companies, etc.
On the other hand, the idea behind SVCL funds is to identify strong and ethical leadership teams capable of executing innovation-based business models or robust scalable businesses. To achieve this, SVCL aims to partner with outstanding founders and leadership teams of small and mid-size Indian businesses across growth sectors.
The capital could be for:
- Any tangible and intangible investment which is considered critical for the growth requirement of the company. Intangible requirements could include marketing, brand building, the creation of distribution network, technical know-how, R&D, software purchase etc. which are not easily fundable through traditional sources.
- Each fund has clearly laid down investment objectives.
Of course, fund-wise amount, geography, and sectoral restrictions would be applicable. To understand them better, let’s take a look at the various funds under SVCL.
Disclaimer: The information has been collected from publically available resources and the official websites of SIDBI and SVCL.
The 7 SIDBI Managed Venture Capital Funds
Broadly, SVCL has floated seven funds catering to different geographies and sectors.
Maharashtra State Social Venture Fund (MS Fund)
Established: 15 September 2015
Fund Corpus: $31.2 Mn (INR 200 Cr)
Fund Tenure: Seven years.
Investment Size: Not more than $3.9 Mn (INR 25 Cr) per investee company.
Investment Tenure: Four-five years.
Target Sectors: Healthcare, education, renewable and non-conventional energy, agri ancillary, food processing, energy efficiency-transmission-distribution, cleantech, light engineering, information technology, medical devices, biomedical, water and related technologies, consumption-led sectors.
Maharashtra State Social Venture Fund (MS Fund), is an Alternative Investment Fund (AIF), and it works as a close-ended unit scheme of Maharashtra Laghu Vikas Trust. SVCL is the Investment Manager and SIDBI Trustee Company Limited is the sole Trustee of MS Fund. The primary investment focus of the MS Fund is to identify and invest in profitable and scalable business ventures including innovative business model or new products and technologies which would have potential to provide social benefits (economic and/or societal and/or environmental) to the people of Maharashtra.
Thus, the investee companies are expected to be socially relevant, economically viable, and sustainable and should provide access to the market to the common people as consumers, producers, employees or as entrepreneurs. The MS Fund invests in eligible companies by way of equity (unlisted securities) or convertible instruments.
Most notably, this April, the fund invested in the $5 Mn Series B funding round of Mumbai-based foodtech startup Holachef along with Kalaari Capital and India Quotient.
West Bengal MSME VC Fund (WB Fund)
Established: November 2015
Fund Corpus: $31.2 Mn (INR 200 Cr)
Fund Tenure: Six years.
Investment Size: Not more than $1.4 Mn (INR 9 Cr)
Investment Tenure: Reasonable time period.
Target Sectors: Sector-agnostic
The West Bengal MSME VC Fund (WB Fund) is a close-ended fund. Its focus is to invest in startups, emerging or early growth-stage investments in West Bengal MSMEs in both manufacturing and services. The fund is sector-agnostic, however, preference will be given to MSMEs promoted by women entrepreneurs.
Its investments include Capacloud (engaged in the business of installation of vertical gardens), Gibraltar Air springs, and Megaa Moda Private Limited (in the business of exporting seafood.)
India Opportunities Fund
Fund Corpus: $93.4 Mn (INR 600 Cr)
Fund Tenure: N/A
Investment Size: N/A
Investment Tenure: Reasonable time period.
Target Sectors: Sector-agnostic
The India Opportunities Fund is a venture capital fund and has been structured as a unit scheme to make primarily equity or equity-related investments in growth-oriented businesses established in India. The fund seeks a strategic stake in its funded companies with board representation and other rights as venture capital investor and will invest for a reasonable time period.
Its investments include Just4Kids Services, Avni Energy Solutions, Opal Luxury Time Products Private Limited, Pragmatix Services and Plazma Technologies among others. In January 2016, the fund invested in the $3 Mn funding round of Just4Kids Services (mycity4kids) along with YourNest Angel Fund. In March 2015, the fund invested an undisclosed amount in the Series B round of Mosambee, which deals in the mPOS segment along with Rajasthan Venture Capital Fund (RVCF).
SME Growth Fund
Fund Corpus: $77.8 Mn (INR 500 Cr)
Fund Tenure: Eight years, fully divested.
Target Sectors: Software, biotech, pharma, design, R&D and outsourcing sectors.
The SME Growth fund has been structured as a unit scheme to primarily make equity or equity-related investments in growth-oriented businesses having significant business activity in India. The fund provides risk capital to innovative and high technology businesses in emerging sectors such as software, biotech, pharma, design, R&D and outsourcing sectors. The fund is fully invested and is presently in the divestment stage.
Its investments include Carzonrent India Private Limited, Mudra Lifestyle, Basil Communications Private Limited among others.
National Venture Fund for Software And Information Technology (NFSIT)
Fund Corpus: $15.57 Mn (INR 100 Cr)
Fund Tenure: 10 years; fully divested
Target Sectors: Software and IT
National Venture Fund for Software and Information Technology is a liquidated private equity fund. In the total corpus of INR 100 Cr, SIDBI has contributed INR 50 Cr, Ministry of Information Technology, Government of India contributed INR 30 Cr, and INR 20 Cr was contributed by IDBI. The fund is almost fully divested.
The TEX Fund
Established: June 2014
Fund Corpus: N/A
Fund Tenure: Seven years
Investment Size: Not more than $467K (INR 3 Cr)
Investment Tenure: Reasonable time period
Target Sectors: Powerloom and related textile sectors
The TEX Fund is a close-ended fund. The primary objective of the fund is to contribute to the development of the power loom and related textile sectors. Its focus is on early and growth-stage investments in small enterprises, with each investment limited to $467K (INR 3 Cr). The TEX Fund shall look for investing in companies involved in new and emerging fields in the textile industry and allied products and services such as the development of textile production machinery and automation, technical textiles for various applications, coated textiles, textiles for defence applications, sportswear, weaving and garment-making.
Related products and services such as chemicals and materials also offer scope for venture investment. Its investments include Malegaon Industrial Services, Shree Sauparnika Exports, Airwill Home Collections Private Limited.
Fund Corpus: $66.95 Mn (INR 430 Cr)
Fund Tenure: Six years
Investment Size: $778K (INR 5 Cr)-$6.22 Mn (INR 40 Cr)
Investment Tenure: Reasonable time period
Target Sectors: Water & sanitation, affordable healthcare, agriculture & allied services, clean energy, financial inclusion (including MFIs), education and skill-building, etc.
The Department for International Development (DFID), UK, in association with the Small Industries Development Bank of India (SIDBI), created the Samridhi Fund to provide capital to social enterprises which can deliver both financial and social returns, in Bihar, Uttar Pradesh, Madhya Pradesh, Odisha, Chattisgarh, Jharkhand, Rajasthan and West Bengal. The focus of the Samridhi Fund will be to provide financial assistance by way of equity or equity-linked instruments (like convertible debentures, preference shares etc.) to companies with developmental impact in the above-mentioned eight states of India. The investment will be in the range of $778K (INR 5 Cr)-$6.22 Mn (INR 40 Cr) from a fund corpus of INR 430 Cr.
Investments include Annapurna Microfinance, Caspian Impact Investments Private Limited, Glocal Healthcare Systems, Gramco Infratech, Hello Health Services, and Oriano Clean Energy among others. In March this year, Oriano Solar, a Mumbai-based startup that specialises in turnkey solar solutions, has raised Series A funding worth $3 Mn (INR 20 Cr) from the fund.
Funds In Which SIDBI Is A Co-Investor/Manager/Contributor
Besides the seven funds mentioned above, SIDBI also manages and co-invests in many other funds with entities such as the government, LIC, and SAARC. These comprise over 90 Venture Capital Funds (including the seven funds described above) in which SIDBI has contributed till April 2017.Here’s a quick look at some of the prominent ones among these funds.
Here’s a quick look at some of the prominent ones among these funds:
Fund of Funds for Startups
In April 2017, the Union Cabinet, chaired by PM Narendra Modi, approved the establishment $1.4 Bn (INR 10, 000 Cr) corpus for a ‘Fund of Funds for Startups (FFS) proposed by the government in June 2016. This fund was sanctioned for contribution to various Alternative Investment Funds (AIF) registered with the SEBI. These AIFs were to extend funding support to startups and the move was in line with the Startup India Action Plan unveiled by the Government in January 2016.
The Fund of funds was created under the Startup India Action Plan. In May 2015, the Reserve Bank of India allocated $1.55 Bn (INR 10,000 Cr) to the SIDBI in order to set up a VC fund to attract private capital for startups. About 67 startups have reportedly received funding from various AIFs under this fund. Read more about its journey here.
In October 2016, the Ministry of Micro, Small, and Medium Enterprises (MSME) launched ASPIRE Fund with a total corpus of $9 Mn (INR 60 Cr) that aims at the promotion of entrepreneurship in rural India. The funds launched are again administered by SIDBI. ASPIRE stands for “A Scheme for Promotion of Innovation and Rural Entrepreneurship (ASPIRE),” an initiative which aims to promote rural entrepreneurship through technology business incubators. The funds will be administered for supporting venture capital funds registered with the SEBI for investing in startups in the agro and rural space. An amount of $3 Mn has already been deployed to two venture capital funds, Ankur Capital and Omnivore Partners.
India Aspiration Fund
The government launched the India Aspiration Fund in August 2015 with the intention of providing equity investments to startups and micro and small enterprises and boosting employment. The fund, with an initial corpus of $305 Mn, was set up under the SIDBI. In December 2015, the SIDBI had cleared $140 Mn from the fund to support venture capital funds. At the time, Chairman and MD, SIDBI, Shivaji Kshatrapati said, “Proposals from 24 venture capital funds for an aggregate commitment of $145 Mn (INR 930 Cr) have been cleared in principle by the venture capital investment committee (VCIC). Out of which sanction letters have already been issued to 16 VCFs with an aggregate commitment of INR 482 Cr ($75 Mn), where documentation is in progress.”
In April 2016, the SIDBI approved about $150 Mn (INR 1,000 Cr) to 30 venture funds through the government-financed India Aspiration Fund in order to support startups in early stages. The SIDBI also signed a memorandum of understanding with the Life Insurance Corporation of India, under which the government-owned company would contribute 10% of the fund as a co-investor. However, the fund was given no provision in the latest Union Budget of 2017. It had been allocated just $15 Mn for the current financial year. It reportedly found no place in the upcoming fiscal year. At the time of announcing the India Aspiration Fund, the government also announced the
SIDBI Make in India Loan for Enterprises (SMILE) fund in line to cater funding for startups and to aid small enterprises in India.
SIDBI Make in India Loan For Enterprises (SMILE) Fund
Under the SMILE fund, which is a debt-fund, SIDBI will carter soft-term loans to MSMEs to meet debt-to-equity norms and pursue growth opportunities. The SIDBI has set aside an initial corpus of $1.4 Bn (INR 10,000 Cr) under the SMILE fund. Focused on the 25 sectors under PM Modi’s Make in India vision, SMILE will offer quasi-equity and term-based short-term loans to Indian SMEs with less stringent rules and regulations. New enterprises in the manufacturing, as well as services sector, can apply under this scheme. Existing enterprises undertaking expansion, modernisation, technology upgradations or other projects for growing their business will also be covered.
SAARC Development Fund
In April 2016, SIDBI and SAARC Development Fund (SDF) entered into a Memorandum of Understanding (MoU) for mutual cooperation and collaboration. The MoU envisaged SDF and SIDBI to work together in co-funding projects in Indian MSMEs on a risk-sharing basis in identified sectors. It included the development of suitable financial products for SME financing for MSMEs of other SAARC states. It also called for technology transfer and making available software to MFIs regarding loan tracking systems in other SAARC states. Along with it, was included a proposal for the capacity development of SDF/SIDBI and SME funding institutions in SAARC countries.
How Can Startups Apply For The SIDBI Funds
SIDBI looks for a strong, committed management team, established performance record and a high degree of integrity, sustainable competitive advantage, and scalability of operations in startups. In addition to that, it looks for potentially above-average profitability leading to attractive returns on investment and prefers unlisted companies, preferably MSMEs that can provide availability of exit route for venture capital investment. Startups can send an email on the respective email ids of the funds, forwarding a copy of the executive summary of their business plans including the profile of management team, historical and future financials, and industry information.
The process of evaluation involves scrutiny of a business plan, detailed due diligence including a visit to existing facilities/operation site, reference check, feedback from clients etc. All proposals are reviewed by an Investment Committee (IC) which also involves a presentation by the promoters.
On an average, it takes between 8-12 weeks for completing this full cycle, depending on the availability of information with the promoters and the speed with which additional information is furnished. Once chosen, investment is made by way of equity and equity-type instruments. Financial structuring is done on a case-to-case basis keeping in view factors like risk perception, growth potential, equity base and market conditions.
SIDBI also co-invests with other VC funds and does not take a majority stake in a company. It does act as a partner in its investee companies and insists on a Board seat. The Board seat is primarily to ensure transparency of operation and acting as a sounding board during key business decisions.
As the apex financial institution for the MSMEs in the country, the SIDBI has provided finance to many a startup. One only needs to look at the list of startups in various sectors ranging from healthcare to cleantech to textiles to biomedical to software to pharma to startups run by women entrepreneurs to gauge the depth of work done by the SIDBI in bolstering the MSMEs. Hence, for startups and MSMEs, SIDBI is a great source of “smart money.”
Because, apart from finance, it provides networking and management support as well to help make the company grow rapidly. Additionally, it also assists investee companies to attract more investment from other venture capitalists in subsequent rounds of financing. For startups looking to raise money in the early-stage and growth-stage, the above-mentioned SIDBI funds are a great starting point to fast track their way from execution to setting scalable businesses.