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RBI Earmarks Rs. 2000cr to Fund Indian Startups In 2015

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RBI MOney

In an effort to bring back all the desi entrepreneurs from overseas and curb startups from move from Indian shores , the government has directed RBI to set aside Rs. 2000 crore for startups for Financial year 2014-15.

This is definitely the need of the hour. Most startup Indian companies prefer getting registered in Singapore or the US, courtesy tax relaxations and ideal infrastructure. Singapore has as many as 4100+ Indian startups. US is a startup haven for most tech entrepreneurs, especially Silicon Valley area, San Diego, Delaware, Austin, Seattle and Boston. Though the new companies law kicked in earlier this year, it can be termed as e-friendly rather than being startup friendly (ie, acknowledging and validating the e-technology which was absent in the Companies Act, 1956).

The Indian government now wants to raise a homecoming toast to all the foreign incorporated Indian startups. The RBI has chosen Small Industries Development bank of India (SIDBI) and Industrial Credit and Investment Corporation of India (ICICI) as it’s fund parkers. The fund will be kept with SIDBI and ICICI Bank, which will soon start catering to startup applications.

As the prime reason for the government allotting the Rs. 2,000 crores is to bring back  Indian startups, the startups using these fund will not have the luxury of using these funds to build operations abroad.

“The fund will operate in a co-investing model, whereby VC funds will have to put I n 70-90% of the investment and take 20-30% from the nodal bank,” a government official confirmed. The ratio of investment is yet to be confirmed by the government. Explaining further, the government official also informed that the startup fund will fund the startups for 7 years. Reasoning out with the 7 year time frame, an investor said, “An investment in a start-up takes about 5-7 years to give back returns, making things turn into a logjam”

A healthy government participation in the startup landscape ensures the newly born company’s survival. So this initiative by the government is hugely appreciated. Countries like Israel, Chile, Singapore and US have a great startup environment because the government is instrumental in funding startups.

The Yozma group of Israel is a mega VC funding vehicle and has managed $220million by funding 50 high potential companies, ever since the startup scenario in Israel has seen many startup successes. The technological and electrical innovations are top notch and quietly provide high end products that are all patented and given for use to many major corporate companies.

Chile, another emerging startup economy, is the largest startup ecosystem in South America, giving the startups $40,000 each and one year visa. With corporate tax rate at 20% and simplified laws, Chile is fast gaining the startup world’s attention.

Singapore is mostly described as the Asian entrepreneur’s paradise with the government willing to fund as much as 85%, lenient tax provisions, most Asian startups are born in this country. The Government started the SPRING (The standards, productivity, Innovation Board of Singapore) that is a VC that helps start-ups get funded easily. It also helps in availing loans and getting equity too. The Corporate tax rate here is 17%.

The new policy from our government is a great way to keep the entrepreneurs going back to their jobs and mostly shifting their base from India. So yes it’s a thumbs up from our side.

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  1. […] of weeks back, rumours were rife that the government has directed RBI to set aside Rs. 2000 crore for startups. It is expected that budget might bring much needed clarity on […]

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