Published On: Fri, Apr 8th, 2016

SIDBI signs MoU with LIC for Fund-of-Fund operations

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331114_10150992733752121_1505902230_oMumbai: Small Industries Development Bank of India [SIDBI] signed a Memorandum of Understanding [MoU] with Life Insurance Corporation of India [LIC],in the presence of Hon’ble Minister of State for Finance, Shri Jayant Sinha, for supplementing Government’s efforts under Fund-of-Fund operations for the Venture Fund industry. The MoU was executed for the purpose of establishing a fund with SIDBI by LIC for contributing to the corpus of MSME focused venture capital funds alongwith India Aspiration Fund [IAF] being managed by SIDBI.

SIDBI is the principal financial institution for the promotion, financing and development of Micro, Small and Medium Enterprises (MSME) sector and coordinating the functions of other institutions engaged in similar activities. SIDBI has been carrying out Fund-of-Fund operations since 1995 by contributing to the corpus of various MSME focused venture capital funds and has developed competence in carrying out Fund-of-Fund operations over the years. SIDBI has supported 90 Venture Funds including Social Venture Funds such as Samriddhi Fund (anchored by DFID, UK), Ankur Capital and also Funds focused on healthcare, agribusiness, Internet of Things etc. SIDBI has also supported Micro Venture Investment Fund focused on grassroot innovation set up by National Innovation Foundation. SIDBI also assisted the first Venture Debt Fund in India. Some of the Startups benefitted out of SIDBI’s direct and indirect initiatives include, Little Eye Labs (taken over by Facebook), Wildcraft, Smaash Entertainment etc.

In order to promote innovation driven entrepreneurship SIDBI supported setting up of incubation centres not only at prominent centres like IIT, Kanpur but also at underserved areas such as Bhubaneshwar.
As part of its Fund-of-Fund operations, SIDBI has set up IAF with a corpus of `2000 crore pursuant to budget announcement of 2015. ShriArunJaitley, Hon’ble Finance Minister formally launched IAF on August 18, 2015 to give boost to the Startup venture capital ecosystem in the country.

In order to bring in more professional outlook and design and to have wider acceptance on Fund operations by all the stakeholders, in consultation with Government of India, SIDBI constituted a Venture Capital Investment Committee (VCIC) comprising of following External Experts besides two senior officials from SIDBI for screening the proposals received from Fund Managers:
o Shri H K Mittal (Head, National Science & Tech. Entrepreneurship Dev. Board)
o ShriKiranKarnik (Ex NASSCOM Chief)
o ShriSanjeevBikhchandani (Founder,
o ShriSaurabhSrivastava (Co-Founder, NASSCOM and Indian Angel Network)
o Prof. R. Vaidyanathan (IIM, Bangalore)
o Shri T V Mohandas Pai (Ex CFO, Infosys)

VCIC so far has cleared proposals for an aggregate commitment of around Rs.1400 crore to 38 Venture Capital Funds.
Recently, SIDBI has also taken up management of Venture Funds of Governments of West Bengal and Maharashtra through its subsidiary viz. SIDBI Venture Capital Ltd. (SVCL) and are also in talks with other State Governments viz. Government of Karnataka, Kerala, Bihar, Rajasthan for supporting the Startup initiatives in the respective States.
LIC has been one of the domestic investors in Alternative Investment Funds. Inorder to scale up operations and bring in more long term institutional players LIC decided to establish a fund with SIDBI for contributing to the corpus of MSME focused venture capital funds alongwith IAF. LIC will be contributing upto 10% of the Fund size of IAF to be managed by SIDBI. The signing ceremony was held as a part of Startup Conclave 2016 organized by SIDBI wherein large number of domestic venture fund managers, startups, angel network were present.

Dr. KshatrapatiShivaji, CMD, SIDBI in his welcome address summarized the role being played by SIDBI as a proactive financial institution, addressing the gaps in the MSME eco system. He also emphasized the role of Startups and the transition. He added that SIDBI recently launched the web platform for connecting all the stakeholders in the ecosystem which was unveiled by Hon’ble President of India on March 17, 2016 at RashtrapatiBhavan. He added that the present Conclave is aimed at finding possible solutions for some of the issues concerning the Startup eco system. The signing of the MoU was preceded by two panel discussions viz. boosting supply of domestic capital – alternative structures; and raising debt for Startups.The panelists were professionals from the venture capital space and fund managers. SIDBI hoped that the recommendations by the panel comprising eminent persons viz. Prof. R. Vaidyanathan, IIM, Bangalore ; ShriKartik Reddy, Blume Ventures ; ShriVikram Gupta, IvyCapVentures ; ShriKunalUpadhyay, Infuse Ventures ; Ms.PadmajaRuparel, Indian Angel Network ; ShriSanjibJha, Intellegrow ; ShriNilesh Kothari, Trifecta Venture Debt Fund etc. would be taken to a logical conclusion.
Ms. RoopaKudva, in her address, complemented SIDBI on this initiative of starting a portal connecting the eco-system and expressed the hope that this will facilitate strengthening of the eco-system.
Hon’ble Minister of State for Finance while complimenting SIDBI and LIC on this initiative emphasized the need for more such initiatives by SIDBI to augment the sources of domestic capital to support venture funds with focus on Startups and growth stage MSMEs. He added that setting up of IAF has been a forerunner and also added that signing of the MoU comes in the aftermath of Action Plan unveiled byHon’ble Prime Minister of India,ShriNarendraModi, on January 16, 2016 under the Government of India’s Startup India programme. One of the key initiatives under the Action Plan is to provide funding support for development and growth of innovation driven enterprises and for achieving this objective Government has set up a Fund with an initial corpus of `2500crore and a total corpus of `10,000 crore over a period of four years. An amount of Rs.500 crore was already released for the Fund of Fund for Startups.

The Minister stated that as part of the Startup Action Plan, it was announced by Hon’ble Prime Minister to set up a Venture Debt Guarantee Fund. This new initiative was appreciated and as such innovative financing mechanism in very few developed markets.

The Minister further stated that the MoU between two major institutions in the country would alleviate to a great extentthe pain point of Fund managers in raising domestic resources as some of the Fund managers have ventured outside the country for raising resources. He complimented SIDBI for setting standards in successful operationalisation of IAF by constituting a committee of experts to screen various proposals in IAF.
Chairman, LIC while speaking on the occasion said that though it has been supporting venture funds for the past two decades, it was thought appropriate to assign supporting of smaller Funds to institution like SIDBI as LIC would be able to concentrate on larger Funds. He was confident that with the professional committee constituted by SIDBI to screen the proposals for supporting various Funds, the initiative would prove beneficial for the eco system.

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