In her Budget, the finance minister acknowledged the value created by government-backed funds such as NIIF and Sidbi fund of funds, by providing scale capital and creating a multiplier effect. “For encouraging important sunrise sectors such as climate action, deep-tech, digital economy, pharma and agri-tech, the government will promote thematic funds for blended finance,” Nirmala Sitharaman said.
According to her, the government will limit its share to 20% in the new funds, which will be managed by private fund managers.
Fund of funds invests in other funds, instead of putting the money directly in shares or bonds. In blended finance, development finance is used for the mobilisation of additional funds. One of the demands of the startup ecosystem to the government was to facilitate channelling of more domestic capital to promote and foster entrepreneurship.
“The choice of fund themes in emerging areas like climate transition and deep-tech are very critical for this country’s future,” said Gopal Srinivasan, chairman of TVS Capital and a board member of the Indian Venture Capital Association.
In the last 12 months, domestic pools of capital have been competing with global capital to get a meaningful share of India’s new economy companies. Funds such as Alteria Capital, Chiratae Ventures, Blume VC, 3one4 Capital, Trifecta Capital, Stride Ventures, IIFL, Edelweiss and Stellaris Partners have raised large rupee funds in the past year, capitalising on a record liquidity rush into the startup ecosystem.
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“This is a good move as it will spur more interest in certain sectors which clearly need more capital. The participation from government entities to provide up to 20% of the corpus will be helpful, especially for entrepreneurial fund managers who have expertise in these sectors,” said Vinod Murali, managing partner at Alteria Capital, a homegrown venture debt fund.
“The broad-based fund of funds programme is also quite effective as it has helped numerous domestic entrepreneurial fund managers raise capital over the last few years,” said Murali.
