FFS, demonstrating overall favorable impacts

Fund of Funds for Start-ups (FFS) launched by the government in 2016, facilitates the funding needs for start-ups. Although this SIDBI-managed fund is primarily focused on early-stage funding for young enterprises, as many as eighteen FFS’s start-up firms have already achieved unicorn status. The CRISIL report highlights the encouraging overall results from this initiative of the government.

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Funds of Fund for Start-Ups (FFS) is one of the flagship programs of the Department for Promotion of Industry and Internal Trade (DPIIT). It is part of the Startup India Action Plan, which was introduced by Prime Minister Narendra Modi in 2016. 

The FFS was launched with a focused objective of supporting the development and growth of ‘innovation-driven’ enterprises. It facilitates funding needs for startups through participation in the capital of SEBI-registered Alternative Investment Funds (AIF). It has an approved outlay of Rs 10,000 crore for contribution to various AIFs registered with SEBI. AIFs supported under FFS shall invest at least twice the contribution out of FFS, in Startups as defined by the Government of India under the Startup India, Standup India scheme. The scheme does not provide direct investments in startups. The capital is provided to SEBI-registered AIFs, known as daughter funds, who in turn invest money in growing Indian startups through equity and equity-linked instruments. 

The impact assessment report for the Fund of Funds for Startups (FFS) has recently been made public by the Small Industries Development Bank of India (SIDBI). CRISIL, the leading analytics firm in India carried out the scheme’s third-party assessment.

The report called Prabhaav unveils the positive outcomes of this initiative of the Government of India in areas that include higher capital flow, innovative solutions, diversity and inclusivity in startup coverage, development of the startup funding ecosystem in India’s hinterlands, wealth creation and improvement of governance.

Key highlights of the report

According to the CRISIL assessment report ‘Prabhaav’, with Rs 17,534 crore invested in 938 firms, the Fund of Funds for Startups (FFS) has enabled investments of around four times the amount taken. As of November 30, 2023, as many as 129 AIFs (alternative investment funds) have been sanctioned out of FFS across segments.

Even though the SIDBI-managed fund is primarily focused on early-stage funding for young enterprises, as many as eighteen FFS’s start-up firms have already achieved unicorn status.

The scheme has also directed investments in startups in the rapidly emerging sectors including deep tech, agri and agri solutions, sustainability, health tech, and financial services.

The report states that an investment of about Rs 1,590 crore has been allocated to 129 companies situated in cities, not in Tier 1 locations.

Rising support for women-led enterprises and women-led fund managers was another positive development, as noted in the report.

As part of the assessment, CRISIL also conducted a survey. As per the survey, 89% of the participants confirmed that support provided by the FFS was crucial in securing funding for their projects.  

The scheme has revolutionized the venture capital sector as well and has become a hallmark of approval for fund managers. The assessment points out that of the AIFs supported, 35% are managed by first-time fund managers, which will strengthen and expand the AIF/VC funding ecosystem.

Based on the data available on the program’s website, under the Startup India programme the Department for Promotion of Industry and Internal Trade (DPIIT) has recognized more than 1.20 lakh startups as of February 9, 2024. 

Under the Startup India initiative, the startups registered with the Commerce Ministry’s DPIIT, are entitled to an array of tax benefits, easier compliance*, IPR fast-tracking, and other benefits. (*Startups can self-certify compliance with six labour laws and three environmental laws).

About 2,978 startups, under the initiative, have received tax exemptions so far.

The report was presented to Dr. Vivek Joshi, Secretary, Department of Financial Services, Ministry of Finance, GoI; Rajesh Kumar Singh, IAS, Secretary, DPIIT; and Sanjiv, IRS, Joint Secretary, DPIIT, Ministry of Commerce & Industry by S. Raman, Chairman and Managing Director SIDBI, and S. P. Singh, CGM Venture Finance.

The initiatives and progress demonstrated by SIDBI in managing the scheme and the outcomes achieved thus far have been appreciated by the Secretary, DFS and Secretary, DPIIT. (In addition to FFS, the SIDBI also oversees state-focused Funds of Funds for Uttar Pradesh and Odisha as well as the ASPIRE Fund of Funds of the Ministry of MSME, which focuses on Agro and Rural Enterprises).

About SIDBI: The Small Industries Development Bank of India, established in 1990, is the Principal Financial Institution for executing the ‘triple agenda’ of promotion, financing and development of the MSME sector and coordination of the functions of the various Institutions engaged in similar activities. It has been playing a significant role in developing the financial services for the MSME sector through various interventions including Refinance to Banks, Credit Guarantee programs, Development of the MFI sector, Contribution to Venture capital/AIF funds, MSME ratings, promoting digital lending ecosystem, etc.