Centre Tweaks Alternate Investment Fund Norms To Boost Startups
AIFs must invest at least twice the amount they receive from a SIDBI-operated Rs 10,000 crore fund in startups.
Alternate Investment Funds (AIF) will now have to invest at least twice the amount they receive from a Small Industries Development Bank of India (SIDBI)-operated Rs 10,000 crore fund in startups, giving a boost to entrepreneurs.
The decision was taken at a meeting of the Union Cabinet chaired by Prime Minister Narendra Modi on Wednesday, the government said in a statement.
Last year, the Centre had approved the proposal to establish a Fund of Funds for Startups (FFS) with a total corpus of Rs 10,000 crore.
It was also decided that operating expenses for carrying out due diligence, legal and technical appraisal, convening meetings would be met out of the FFS to the extent of 0.5 percent of the commitments made to AIFs and outstanding.
"This will be debited to the fund at the beginning of each half year, that is April 1 and October 1," the government’s statement said.
Earlier, it was decided that the FFS shall contribute to the corpus of AIFs for investing in equity and equity-linked instruments of various startups at early stage, seed stage and growth stage. FFS contributes to SEBI-registered AIFs that may go up to a maximum of 35 percent of the corpus of the AIF concerned. It said that stakeholders have raised certain issues related with AIFs.
They have said that the process of funding of startups by AIFs is long-drawn, which starts from pitching by a startup, commitment by the AIF and then release of funds in tranches.
As a result, it was possible that before release of the final instalment the turnover of the startup crosses Rs 25 crore but it still needs funds to meet its growth requirements. Besides, startups need access to funds through various stages of their life cycle – early, seed and growth stage.
It was also pointed out to the Department of Industrial Policy and Promotion by SIDBI that the present provisions do not provide for the latter to get compensated for activities done post sanction to AIFs.
"These decisions have been taken to in the backdrop of the above concerns," it added.
The Startup India Action Plan is a flagship initiative of the government for nurturing innovation and promoting budding entrepreneurs.