The Fund of Funds for Startups, launched in 2016, has committed Rs 7,385 crore to 88 Alternative Investment Funds (AIFs) as on September 24 this year.

These AIFs in turn have invested Rs 11,206 crore in 720 startups.

Alternative Investment Fund (AIF) means any fund established or incorporated in India which is a privately pooled investment vehicle which collects funds from sophisticated investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors. 

Fund of Funds for Startups

• Startups face several challenges like limited availability of domestic risk capital, constraints of conventional bank finance, information asymmetry and lack of hand holding support from credible agencies. 

• A large majority of the successful startups have been funded by foreign venture funds and many of them are located outside the country to receive such funding.

• A dedicated fund for carrying out Fund of Funds operations would address these issues and enable flow of assistance to innovative startups through their journey to becoming full-fledged business entities. This would encompass support at seed stage, early stage and growth stage. 

• Government contribution to the target corpus of the individual fund as an investor would encourage greater participation of private capital and thus help leverage mobilisation of larger resources.

• The Union Cabinet approved the establishment of ‘Fund of Funds for Startups’ (FFS) in June 2016. 

• FFS was announced with a corpus of Rs 10,000 crore. The corpus is to be built up over the 14th and 15th Finance Commission Cycles (2016-2020 and FY 2021-2025) through budgetary support by the Department for Promotion of Industry and Internal Trade (DPIIT), under the ministry.

• Under FFS, support is extended to SEBI-registered AIFs, which in turn invest in startups.

• The FFS initiative has been playing a major role in mobilising domestic capital in the Indian startup ecosystem.

• FFS has not only made capital available for startups at early stage, seed stage and growth stage but also played a catalytic role in facilitating raising of domestic capital, reducing dependence on foreign capital and encouraging home grown and new venture capital funds.

• Collectively, the AIFs supported by FFS have a target corpus of over Rs 48,000 crore.

• Performing startups supported through FFS are showing valuation increase by more than 10 times with a number of them even achieving unicorn status (valuation of over $1 billion).

• The amount committed under FFS has seen a notable growth over the years, recording a CAGR of over 21 per cent since the launch of the scheme.

• Further, the Small Industries Development Bank of India (SIDBI), which is responsible for operationalising the scheme, has undertaken a series of reforms recently to enable AIFs assisted under FFS to avail accelerated drawdowns.

• FFS has helped anchor 67 AIFs out of 88 AIFs supported and 38 of these are first time fund managers, which is in line with FFS’s core objective of anchoring venture capital investments for Indian startups.

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