Currently, the number of startup firms in India has increased to 7,200, which now exhibits the need for funding. Funds are a prerequisite for establishing a startup company as well as expanding it. In order to shore up startups in India, numerous homegrown investment companies namely, Kae Capital, Stellaris Venture Partners, Chiratae Ventures and YourNest Venture Capital are collaborating to start a startup funding platform, called the Funder’s Forum.
These firms are originally early stage to mid-stage venture capital companies and collectively own assets of over $800 million, as per daily news, The Economic Times.
A Move to Support the Indian Business Ecosystem
This funding platform--Funder’s Forum, is believed to be working as an ideal angel networking platform, just like Indian Angel Network, Mumbai Angel Network and others. The primary idea behind introducing a funding trust is to supply adequate resources to the startups, thus, offering more funds and leading a wider round of funding.
Besides constructing Funder’s Form like other domestic angel networking platforms, the group of partnered venture capitalists also want to compete with Silicon Valley-based investment firms such as Sequoia Capital and Accel Partners. Furthermore, the domestic VC firms will be interacting with the central bank, the Reserve Bank of India and Sensex board, SEBI, according to a media report.
“India has only two or three domestic institutional LPs, unlike in the west…One of the biggest needs for domestic funds is capital. That becomes paramount. This is an advocacy platform for domestic funds,” Rahul Chowdhri of Stellaris Venture Partners, said in a media statement, as reported by the daily news, Inc42.
How will Funder’s Forum Bring Ease to Startups
Presently, venture capitalists as well as private equity companies, follow a 2:20 approach in funding. The approach is an ideal fee arrangement which is practised in hedge niche and also, by venture capitalists and PE firms.
Originally, “two” means 2 per cent of AUM (assets under management), which is charged for managing assets by the hedge fund. While “twenty” refers to an incentive fee of 20 per cent paid from profits that the fund makes beyond a certain mark.
There is a limited amount of funds available in India as compared to the foreign economy. By following the standard 2 and 20 approach small funds were provided, which could not cater to the needs of startup companies.
“Under the 2:20 fund structure, smaller funds aren’t a very viable proposition. The fee structure is so small that it is difficult to hire a good team. The disadvantage is that deal sourcing tends to suffer.” Mahendra Swarup, founder of Venture Gurukool, and a founding member of Funder’s Forum said in a media report.
So, by creating funding platforms like Funder’s Forum, adequate resources will be available for increasing business operations as well as business expansion.
Foreign Investment Companies Encroaching in India
Recently, California-based seed accelerator, YCombinator picked 15 firms in India which is far more than the previous count of firms that it had chosen from the country. Besides this, another foreign investment firm, Sequoia Capital initiated its own accelerated programme named Surge in India as well as in other parts of SouthEast Asia.
These kinds of programmes try to accelerate startups by funding them and further, receive control within those companies.