In order to give a boost to startups, the Union Cabinet has revised Alternate Investment Funds (AIFs) norms. As per the revisions, AIFs supported by a Fund of Funds for Start-ups (FFS) shall invest at least twice the amount of contribution received from FFS in start-ups. Besides, the government also approved Rs 1,000-crore initial corpus for the FFS.
The union cabinet also decided that operating expenses for carrying out due diligence, legal and technical appraisals and convening meeting of Venture Capital Investment Committee, among others, would be met out of the FFS to the extent of 0.50 per cent of the commitments made to AIFs and will be debited to the fund at the beginning of each half year, that is April 1 and October 1. Earlier, the cabinet had decided that the FFS shall contribute to the corpus of AIFs for investing in equity and equity-linked instruments of various start-ups at early stage, seed stage and growth stage.
The decision was taken after stakeholders raised certain issues related with AIFs. They said that the process of funding of start-ups by AIFs is long drawn, which starts from pitching by a start- up, commitment by the AIF and then release of funds in tranches. The FFS is being managed and operated by the Small Industries Development Bank of India (SIDBI). It contributes to SEBI-registered AIFs that may go up to a maximum of 35 per cent of the corpus of the AIF concerned.