India announces $1.6b fund to support start-ups
The Indian government has pledged to support local start-ups by launching a INR100 billion ($1.6 billion) fund-of-funds.
The fund is one of a raft of proposals put forward by Finance Minister Arun Jaitley on Thursday with a view to boosting entrepreneurship and encouraging small enterprises, as part of the Union Budget for 2014-2015.
According to the Jaitley's budget speech, the fund will serve as a catalyst for attracting private capital by providing equity, mezzanine capital, soft loans and other risk capital to start-ups. However, as of yet, there is no more detail on how the fund will be allocated.
Plans were also unveiled to establish a technology center to promote innovation, entrepreneurship and agro-industry accompanied by a fund with a corpus of INR2 billion. The government added that it will put aside other smaller pools of capital for early-stage investment, including a INR1 billion for a "Start Up Village Entrepreneurship Program" for rural youths.
Jaitley said there was a need to "examine the financial architecture" of the micro, small and medium enterprises (MSME) sector. He proposed appointing a committee of representatives from the Finance Ministry, the Ministry of MSMEs and the Reserve Bank of India (RBI) to make recommendations on how the sector can be better financed.
He also proposed that the definition of MSME be reviewed to provide for a higher capital ceiling, which will give companies easier access to credit.
Some of the proposals are broadly in line with suggestions put forward by Indian angel fund YourNest earlier this week; among them are the fund-of-funds and a call for a clearer definition of a small business.
Other key issues for venture capital and private equity investors alike included: clarity over taxation; the opening up of domestic capital pools for PE and VC by lifting regulatory constraints on institutions, such as pension funds, insurers and endowments; and removing hurdles to PE and VC exits that arise due to the lock-in provisions.
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