Sidbi to rate venture capital funds before investing in them through its FoF

A file photo of Sidbi chairman and managing director Kshatrapati Shivaji. (Livemint)

The Small Industries Development Bank of India (Sidbi) is developing an internal model to rate venture capital (VC) funds before investing in them through its fund of funds, a top official said. The idea is to ensure transparency, efficiency and lower subjectivity in making investing choices.

A fund of funds, like the one Sidbi has, invests in other funds, rather than buying individual stocks or bonds. As part of its Startup India Action Plan, the government set up a ₹10,000 crore fund of funds within Sidbi in 2016, to be deployed over the 14th and 15th Finance Commission cycles.

“Earlier, we used to appraise the funds and there was an element of subjectivity,” Mohammad Mustafa, chairman and managing director of Sidbi, said in an interview. “We are now introducing an internal rating model which will score the VC funds on the basis of various criteria like management quality, performance of the fund, their focus etc. If the firms are able to cross the threshold score, they will be eligible to receive funding under the fund of funds scheme,” Mustafa said.

As part of its Startup India Action Plan, the government set up a ₹10,000 crore fund of funds within Sidbi in 2016, to be deployed over the 14th and 15th Finance Commission cycles. Graphic: Mint

As part of its Startup India Action Plan, the government set up a ₹10,000 crore fund of funds within Sidbi in 2016, to be deployed over the 14th and 15th Finance Commission cycles. Graphic: Mint

This will introduce predictability in the deployment process and the VC funds will be able to know if they are eligible to get money under the fund of funds scheme or not, Mustafa added.

So far, an approximate sum of ₹1,500 crore has been deployed under the fund of funds scheme. “The total deployment is likely to touch ₹3,500 crore by the end of the current fiscal,” Mustafa said. Under the scheme, category I and II alternative investment funds (AIFs) are eligible to receive contribution from Sidbi. The funds are then required to invest at least twice the amount of contribution received.

Even as the development finance institution (DFI) is actively looking to back India’s startup ecosystem, it is also sharpening its focus on the social sector through the rating model.

Asked if a separate social impact fund is being planned, Mustafa said: “There is a lot of scope under the scheme (fund of funds) for allocation towards the social sector. While working on the rating tool, we will also be taking the deployment mechanism to the next level by deciding allocations for social impact funds, maiden fund raises and older venture capital firms.”

According to data provided by Sidbi, it has backed eight social impact funds, committing around ₹365 crore from its fund of funds. Aavishkaar Bharat Fund, Omnivore Partners India Fund II, Samridhi Fund and Menterra Social Impact Fund are some of the funds which have received funding from Sidbi.

The financial institution is also revamping its asset reconstruction company (ARC), India SME Asset Reconstruction Company. “We are restructuring the entire ARC. There has hardly been any activity there and it has been performing at a sub-optimal level. There was no clear focus so far,” he said. The firm has hired Deloitte India as a consultant to assist with the restructuring.

“The consultant has already submitted its study and has suggested moving from a pure play asset reconstruction model to asset management model. As per the plan, we will also be opening up the business for expertise from outside Sidbi. The proposal has been put forth for approval for other shareholders. Once approved, the plan will be implemented,” Mustafa said.

He added that a decision will be taken by the shareholders if a distressed asset fund will be set up as part of the restructuring process.

Shareholders of Sidbi’s ARC include Bank of Baroda, United Bank of India, Punjab National Bank, Dena Bank, Corporation Bank, Life Insurance Corp. of India and UCO Bank.

This article was first published on livemint.com

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.