The Hindu Business Line: December 5, 2018

In a booster dose for the local fund management ecosystem, the Centre has now allowed funds of electronic development fund (EDF) to get funding from other Fund of Funds (FFS) operated by different central government Ministries including the DIPP’s Rs. 10,000-crore FFS for start-ups.

The Centre has hitherto restricted the daughter funds of EDF from taking commitment from the ‘Fund of Funds’ being managed by SIDBI for start-ups. The Indian Private Equity and Venture Capital Association (IVCA) has welcomed the removal of this restriction, stating that it provide a fillip to the local fund management ecosystem.

“The IVCA welcomes the clarification which now permits the funds of EDF (by the Ministry of Electronics and Information Technology) to avail funding from other Fund of Funds being operated by different Ministries including DIPP’s FFS for start-ups,” Rajat Tandon, President, IVCA told BusinessLine here. Tandon highlighted that there is no change to the earlier norm that stipulated that aggregate contribution from central and State government managed institutions cannot exceed 35 per cent of the fund’s corpus.

A prominent venture capital industry player, who did not wish to be identified, said that it is very encouraging to see sovereign money being deployed into venture funds. This is critical to develop an ecosystem that is not overly dependent on foreign capital.

However, venture capital industry honchos see the Centre’s stipulation requiring EDF funds to park at least 50 per cent of the investible corpus in Electronic System Design and Manufacturing (ESDM) and nano-electronics as a thorny issue. “Placing such restrictions on funds hurts the fund managers and constrains the flow of money from other Limited Partners,” a VC industry player said.

‘Expand ESDM’

The IVCA has now knocked the doors of Ministry of Electronics and Information Technology (Meity) to expand the definition of ESDM to cover ‘embedded software’.

It is being felt that bringing ‘embedded software’ within the scope of ESDM will boost venture capital fund flows into India. Sunil Goyal, Partner, Yournest, a deep tech venture fund, said that the government is taking multiple steps to ignite the local fund management ecosystem. The well-known Rs. 10,000 crore FFS for start-ups managed by SIDBI is now being supplemented by funds like EDF of Meity. The EDF has Rs. 950 crore that can be allocated to venture funds seeking to build patent-led electronic (IOT/robotics/drones) start-ups from India.

These start-ups will help save on the country’s electronics import bill and spawn new revenue streams, Goyal said.