Indian industry body proposes $3.3b state VC fund for start-ups

SAI, a non-profit organization that claims to connect start-ups to investors and policymakers, wrote a letter to Piyush Goyal (center), India’s minister of commerce, requesting the creation of a fund that can help companies suffering from liquidity-related issues due to the ongoing coronavirus pandemic.

It follows a similar letter penned a month earlier by more than 80 start-up founders and representatives of India-based VC firms that called on the government to launch a relief package. They wanted rent waivers, contributions towards salary payments, and tax benefits, as well as financial guarantees to make it easier to source low-cost financing from lenders.

Over the weekend, the government announced it would extend a six-week nationwide lockdown by an additional two weeks following reports of a surge in infections. However, restrictions on economic activity and curbs on individual movement have been relaxed in less affected areas. 

While start-ups have suffered during the lockdown, with many reporting steeps declines in revenue as India struggles to find a way to get back to work, so far there has been little government support. Last month, the state-backed Small Industries Development Bank of India (SIDBI) launched a working capital facility targeting small and medium-sized enterprises (SMEs) and start-ups. But VC investors says the minimum requirements preclude a majority of start-ups from applying.  

According to SAI, SIDBI currently runs an INR100 billion ($1.3 billion) fund-of-funds program that has not been fully deployed. It proposes rolling the capital into a new vehicle and committing additional funds. “The government’s contribution can come over a period of three years as the sponsor of the fund and this fund will have the ability to become a $10 billion fund over this period by raising money [from] both domestic and foreign institutional investors and sovereign funds,” states the letter.

Despite their desire for action, India-based VC executives concede that the government likely has more pressing coronavirus-related issues at hand. Aside from the pandemic itself, there is an unemployment crisis affecting migrant workers and low-income workers, most of whom were retrenched by employers as they are often hired on an informal basis. Policymakers must also address a disrupted agricultural supply chain and a liquidity squeeze within the non-banking financial sector.

In addition to the relief measures, SAI has requested that start-ups be exempted from a recent government amendment that requires prior approval for any investment made by funds with links to China. The Indian Venture Capital Association (IVCA) has also called for the regulation to be modified to ease foreign VC investment flows into the country.

The amendment, as currently understood, will affect investments by funds that may count Chinese investors as LPs or even those funds domiciled in locations like Taiwan, Macau and Hong Kong. Further guidelines are expected to be issued in the coming weeks that could offer more clarity. SAI specified its view in the letter that investments made by Hong Kong-based venture funds, in particular, should not have to seek government approval.

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• Topics
• South Asia
• Regulation
• Venture
• India
• SIDBI Venture Capital
• Venture