Amid SVB crisis, SIDBI's FoF gets into action to support start-ups

Small Industries Development Bank of India (SIDBI) has begun groundwork through its Fund of Funds (FoF) to provide timely financial support to start-ups in the country, following the shutting down of US-based Silicon Valley Bank (SVB).

There is fear that the funding from global sources may decline in the near term due to the flight of money to the United States (US) because of safe haven bets in the coming few months, against the backdrop of a series of American banks shutting down on liquidity concerns.

SIDBI executives said this FoF would work with over 100 active alternate investment funds (AIFs) which invest in start-ups to bridge the gap due to any delay in the flow of money from international sources.

Fund of Fund for start-ups (FFS) managed by SIDBI’s venture capital arm has given money to AIFs, which are in turn supporting over 800 start-ups. FFS was unveiled by the prime minister on January 16, 2016, in line with the Start-up India Action Plan. It has an approved corpus of Rs 10,000 crore for contribution to various AIFs registered with the Securities and Exchange Board of India.

“SIDBI, as an Indian limited partner, is flush with funds and would be ready to support as much needed within prudential norms. At present, there is no problem and in the past few days, nobody has approached the institution for more drawdowns,” said a senior SIDBI executive.

“The drawdowns from the FFS in normal course are increasing. Proposals are coming through the pipeline. There have been large drawdowns this year of about Rs 900 crore and the cumulative drawdown is a little over Rs 4,000 crore. The FFS has committed (approvals for drawdown) of over Rs 9,000 crore. Some money, disbursed earlier, is coming back, indicating the worthiness of investments made,” the SIDBI executive said.

International investors may have got impacted not necessarily by their deposits with SVB but because many of their investments also went through a slowdown and the general feeling that start-ups have not been doing all that well.

The top panel of the Indian Banks’ Association (IBA) next week is likely to discuss a mechanism to support the start-up ecosystem in the country and cash in on the opportunity in disguise following the collapse of the California-based SVB.

Indian banks, especially public sector banks, have little penetration in the start-up ecosystem. They need to work on risk management, talent development, and funding pool to service start-up clients and increase their presence in this space for a meaningful business.