The Union Cabinet has given its approval on the establishment of the Start-up India Fund of Funds 2.0 in a total of 10,000 crores with the aim of enhancing innovation and reinforcing domestic risk capital. The move will further invest in its venture capital market, and help in entrepreneurship technology in all fields and geographies.
The second step in the larger Fund of Funds model introduced by the Startup India mission in 2016 was the new fund. Authorities claimed that the new tranche is based upon the achievements made during the first stage, and it contributed to the acceleration of the private investments and to the elimination of the important financing gaps among the young businesses.
The government says that FoF 2.0 aims at harnessing long term domestic capital into sunrise sectors, especially deep technology and advanced manufacturing sectors, where gestation period is longer and the private investor is more likely to be risk averse.
The programme will also support the businesses in the early period of growth that require a continued funding support to expand business.
In 2016 the target amount of the original fund was rolled out with the same ₹10,000 crore commitment, which was intended to offer seed money and get startups to make calculated risk.
The initiative has over the years played a major role in increasing access to capital by investing in Alternative Investment Funds registered by SEBI, which in turn invested the money in ventures that had potential.
The overall data of the government indicate that all the corpus in the first phase have been committed to 145 AIFs. The amount of money combined has invested over 25,500 crore in over 1,370 startups. The beneficiaries include a very broad group of industries such as agriculture, artificial intelligence, robotics, clean technology, education, fintech, health care, biotechnology, manufacturing and space technology.
According to the authorities, such architecture assisted in incubating first time founders, raising huge sums of private capital and creating a more established venture ecosystem in the nation.
Since India now hosts approximately 100 unicorns, policymakers think that the next jump will involve more capital, which will be larger and less impatient.
The FoF 2.0 has thus been designed to have a more segmented and focused strategy. It will focus on breakthrough innovation in high technology space which requires long term financial support in the long run.
In so doing, the government hopes to minimize early stage failures which mostly occur due to the startups becoming fund exhausted before their idea can become commercially viable.
The other significant objective is to make sure that there is a movement of capital outside of the set metropolitan centers.
The Centre is interested in ensuring that the emerging entrepreneurs in smaller cities and states are able to access institutional funding to ensure that innovation is distributed across geographical boundaries in lieu of being concentrated.
The scheme will operate through an Empowered Committee that will provide direction, review progress and make sure that investments are made on the provisions of national priorities, like self reliance, advanced manufacturing capability and technology leadership.
The success of the second fund is coupled with other reforms that are aimed at ensuring that the ecosystem becomes more inclusive. Recently the government has increased the number of recognition turnover to 200 crore to enable more companies to be eligible to receive benefits and policy support.
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Having new capital, an expanded mandate, and a more comprehensive learning curve acquired during the first phase, policymakers believe that Startup India Fund of Funds 2.0 will gain a central place in the next chapter of the entrepreneurial development history of India.
