Venture Capital Financing:-
Venture funds are recognized globally as the most suitable form of providing risk capital for the growth of innovative & high technology businesses. Innovative SME units are expected to play a catalytic role in the post liberalized economic environment in the country. Keeping in view the level of dispensation of venture finance to the SME thus far, the new fund with its size of Rs 500 crore is a significant milestone. It is a unique initiative sponsored by SIDBI jointly with major public sector banks. Besides formal commitments of Rs 225 crore so far from SIDBI, Punjab National Bank & Union Bank of India, several other major nationalized banks are also expected to participate in the fund. The entire corpus is expected to be tied up within six months.
Duly registered with SEBI as a venture capital fund, the fund shall invest in domestic SME units having superior growth potential, rapid scalability, a strong committed team & enjoying unique & sustainable long term competitive advantage. The fund will identify unlisted SME entities in various growing sectors such as life sciences, retailing, light engineering, food processing, information technology, infrastructure related to services such as health care, logistics & distributions etc.
Small Industries Development Bank of India (SIDBI), as the apex Financial Institution for the Small Scale Sector, has been playing a very active role in the evolution of Venture Capital financing in the country to support the risk capital requirements of the sector. SIDBI has been following a three tier approach in this regard. To this end, the Bank has been investing in several Venture Capital Funds for onward investments in the SME sector. These include several prominent funds such as India Leverage Fund, India Advantage Fund, India Development Fund. Recently, SIDBI has partnered with Small Entreprise Assistance Fund, US and Kotak Mahindra Bank ltd. in setting up India Growth Fund. Bank has also invested in a number of state level VC funds in collaboration with local institutions. The sanctions of the bank relating to Venture Capital operations aggregate Rs 463 crore through various routes, making it one of the largest VC players in the country. SME GROWTH FUND distinguishes itself as the largest VC fund dedicated to the SME.
Management of the SME GROWTH FUND has been entrusted with SIDBI Venture Capital Ltd. (SVCL), a wholly owned subsidiary of SIDBI. Set up in 1999, SVCL has been managing the prestigious Rs 100 crore National Venture Fund for Software and Information Technology (NFSIT). With the setting up of the new fund, it shall be be able to serve various other focus sectors besides the software & IT. Currently based in Mumbai, the company plans to expand its network by opening an office in Delhi to serve North India & another in Chennai or Banglore to cater to the South.
Looking at the demand for the venture capital activities in the SME sector in IT as well as other growth sectors, it is expected that SME GROWTH FUND shall be able to invest its entire corpus over next 3-4 years. The fund will aim at achieving attractive risk-adjusted returns through long term capital appreciation by investing in equity or equity-linked capital instruments of the investee projects. Besides, as a unique feature, it shall also endeavour to provide mentoring to the investee companies through a network of industry experts. Being of limited life, it would target exit from its investments within a reasonable period through a variety of avenues such as strategic sale, mergers & acquisitions, an IPO or buyback.
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