The Union Cabinet
chaired by the Prime Minister Shri Narendra Modi has approved the
following proposals with regard to the Fund of Funds of Start-ups (FFS)
which was established in June, last year with a corpus of Rs. 1,000
i. Alternate Investment Funds (AIFs) supported by FFS shall invest at
least twice the amount of contribution received from FFS in Start-ups
qualifying as per the Gazette Notification G.S.R.180 (E) dt. 17/02/2016.
Further, if the amount committed for a Start-up in whole has not been
released before a Start-up ceases to be so, the balance funding can
ii. It was also decided that operating expenses for carrying out due
diligence, legal and technical appraisal, convening meeting of Venture
Capital Investment Committee, etc. would be met out of the FFS to the
extent of 0.50% of the commitments made to AIFs and outstanding. This
will be debited to the fund at the beginning of each half year; i.e.
April 1 and October 1.
The Union Cabinet in its meeting held on 22/06/2016 had approved the
proposal to establish a Fund of Funds for Start-ups (FFS) with a total
corpus of Rs.10000 crore, with contribution spread over the 14th & 15th
Finance Commission cycles based on progress of implementation and
availability of funds. It was decided that the FFS shall contribute to
the corpus of Alternative Investment Funds (AIFs) for investing in
equity and equity linked instruments of various start-ups at early
stage, seed stage and growth stages.
The FFS is being managed and operated by Small Industries Development
Bank of India (SIDBI). FFS contributes to SEBI registered Alternative
Investment Funds (AIFs) that may go up to a maximum of 35% of the corpus
of the AIF concerned.
The Cabinet on 22.06.2016 had decided that the corpus of Fund of Funds
along with counterpart funds raised by the AIFs in which FFS takes
equity would be invested entirely in Start-ups. It has been pointed out
to the Department during its interactions with various stakeholders that
investors in the AIFs would prefer that the portfolio of AIFs is
adequately diversified to manage the investment risks appropriately and
if the entire pool of funds of the AIF is invested in Start-ups, it
poses unacceptable risks to the investors of such AIFs.
The other issues raised by stakeholders were that the process of funding
of Start-ups by AIFs is long drawn which starts from pitching by a
Start-up, commitment by the AIF and then release of funds in tranches.
Thus it is possible that before release of the final instalment the
turnover of the Start-up crosses Rs. 25 crores but it still needs funds
to meet its growth requirements. Besides, Start-ups need access to funds
through various stages of their life cycle, viz. early stage, seed stage
and growth stage.
It was also pointed out to the Department by SIDBI that the present
provisions don’t provide for SIDBI to get compensated for activities
done post sanction to AIFs.
These decisions have been taken to in the backdrop of the above