In its first term, the Modi government had initiated Startup India in 2016. The flagship programme was introduced mainly to shore up startups and generate employment in India. According to Startup India Status Report 2018, “14,036 startup applications have been recognised as startups by DIPP (Department of Industrial Policy and Promotion). The hub has mentored more than 660 startups for incubation, funding support on business plans, pitching support, etc. Startup India Online Hub was launched to serve as an online platform where all the stakeholders of the startup ecosystem can collaborate and synergize their efforts.”
Startup India could not Offer Decided Funds to VCs
Fundamentally, Startup India was launched to bring ease to new entrepreneurs in registering their startup companies, accessing tax benefits and complying with the government’s norms. Besides this, the programme facilitates startup companies in availing funds by its plan, Funds of Funds for Startups (FFS).
In essence, FFS does not directly invest in startup companies but instead, it issues funds to VCs, who need to invest twice of government’s offerings.
In Startup India Status Report 2018, it states, “A 'fund of funds' of INR 10,000 crores to support innovation-driven Startups has been established, which is being managed by SIDBI (Small Industries Development Bank of India).”
According to a recent media report, Startup India has fallen short of disbursing the decided target of INR 3,300-3,500 crore to venture capital firms.
Startup India primarily had a target of offering INR 3,300-3,500 to VCs by the cessation of the financial year 2019, as per SIDBI. However, surfaced data, which SIDBI currently accesses, shows that the government-led programme has granted in total INR 2,265 crore to venture capitalists till March 2019, as reported by daily news, The Economic Times.
After assessing disbursals till March, it is reported that a bit more than 22 per cent of funds were offered to venture capital funds, according to the cited media report.
By not meeting the allocation target, a loophole in the system has emerged, which the government needs to address earnestly.
A Positive Outlook by SIDBI
After the emergence of the precise number of disbursals that were being done in the last term, the government sets positive expectations with the funds' disbursals to VCs in the current financial year.
“With the robust pipeline in hand, we don’t foresee any problem in deployment of the corpus under FFS during the current financial year in a much more accelerated way,” a SIDBI’s spokesperson told the daily news, The Economic Times.
Further, the spokesperson has said that SIDBI has reached an amount of INR 3,000 crore without stating any time period. The fund is about to be executed during the 14th and 15th financial year, which will end in 2025.
More so, earlier this month, the re-elected government has planned to introduce tax sops for startups in relation to ESOP (Employee Stock Option Programme) in the upcoming Union Budget.
The fund overseeing body, SIDBI plans to reduce the timeline for venture capitalists to avail funds. Basically, it takes almost 4 to 5 months for a VC firm to avail funds under FFS, according to a cited media report.
By introducing the above-mentioned changes in the Startup India initiative, it will become easier for startups to access and avail benefits that the platform offers to early-stage companies. However, all eyes are set on the forthcoming Union Budget, which will show whether the government is concerned for startups or not.