The government on Saturday announced a host of measures such as setting up of a new Fund of Funds Scheme (FFS) with Rs 10,000 crore corpus; and extension of period of incorporation by five years with a view to promote growth of budding entrepreneurs.
In 2016 also, the government had launched a similar scheme, with a corpus of Rs 10,000 crore, with contribution spread over the 14th and 15th Finance Commission cycles.
The scheme was set up to catalyze venture capital investments and is operationalised by Small Industries Development Bank of India (SIDBI), which provides capital to Securities and Exchange Board of India (SEBI)-registered AIFs, which in turn invest in startups.
Finance Minister Nirmala Sitharaman said that the Alternate Investment Funds (AIFs) for startups have received commitments of more than Rs 91,000 crore.
These are supported by the Fund of Funds set up with a government contribution of Rs 10,000 crore, she said.
"Now, a new Fund of Funds, with expanded scope and a fresh contribution of another Rs 10,000 crore will be set up," the minister added.
AIFs in a meeting with the Department for Promotion of Industry and Internal Trade (DPIIT) had demanded infusion of more funds under the scheme.
Prominent AIFs of leading startup investment firms supported under FFS are Chiratae Ventures, India Quotient, Blume Ventures, IvyCap, Waterbridge, Omnivore, Aavishkaar, JM Financial, and Fireside Ventures.
AIFs supported under FFS are required to invest at least two times the amount committed under FFS in startups.
As on October 31, 2024, a total of Rs 20,572.14 crore has been invested by the FFS-supported AIFs in startups.
According to the DPIIT, the additional capital of Rs 10,000 crore will enable further public-private capital infusion in the startup ecosystem, promoting an increase in new ventures and the development of high-growth entities.
"The fresh contribution will allow the government to explore more avenues and instruments of funding for startups to further promote liquidity and flexibility in funding," it said.
To improve access to credit, the credit guarantee cover will be enhanced for startups, from Rs 10 crore to Rs 20 crore, with the guarantee fee being moderated to 1 per cent for loans in 27 focus sectors important for Atmanirbhar Bharat.
The rationalisation of guarantee fee for startups in focus startups will encourage the infusion of debt capital for such units, which is cheaper than equity capital and important as many times startups may not be able to dilute equity further through equity-linked instruments.
Besides, a Deep Tech Fund of Funds will also be explored to catalyze the next generation startups as a part of this initiative.
The move will enable patient capital for deep tech startups which have high gestation period and carry higher risk. Besides the decision will also mobilize capital of greater ticket size as deep tech requires intensive research and development.
Further, the Finance Minister has proposed to extend the period of incorporation by five years to allow the benefit available to start-ups, which are incorporated before April 1, 2030.
With an intent to build a strong ecosystem of the country for nurturing innovation and promoting startups, the government launched the Startup India initiative on January 16, 2016.
As per the government's eligibility conditions, entities are recognised as 'startups' under the Startup India initiative by the department. As of October 31, 2024, a total of 1,52,139 entities have been recognised as startups across more than 55 industries.
These units are eligible to avail tax and non-tax incentives under the Startup India action plan.
The government under the Startup India initiative, through its flagship schemes Fund of Funds for Startups (FFS), Startup India Seed Fund Scheme and Credit Guarantee Scheme for Startups, has provided financial assistance to eligible recognised startups across sectors and through various stages of their business cycle.
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