Venture Capital in India during COVID

Venture Capital Prospectus in India during COVID-19:

The mainstay of the start-up ecosystem is the venture capital mechanism that plays a very crucial role in the operations of a business. The sudden outbreak of COVID-19 pandemic has created an upsurge to be digital for every business in the world.

When it comes to the start-up ecosystem in India, it just has initiated an escalation of the job-creating process while incorporating digitalization in the corporate world and venture capital provides the option to make the business more technologically advance and global. But with the cash crunch and shortage due to the pandemic worldwide, has put the primary threat on the venture capital for now.

Venture Capital

Many global investors have taken back step in large deals that have been set prior to the pandemic. With the ease of doing business, even the venture capital deals and activities in India were quite healthy and on rising before this pandemic situation started and a large number of venture capital fundraising was recorded with extensive participation of corporate venture capital in the start-ups in India.

Current position of venture capital and Start-up Ecosystem in India:

The COVID-19 pandemic has been a challenging aspect for the corporate world and has presented hard times for the governments all around the world while they have been continuously making an effort to control this major crisis.

The Central and the state governments in India are making proper efforts to minimize the risk of the pandemic and its impact over the masses. Several measures have been taken by them in the medical as well as economical terms to stabilize the country amid this pandemic.

In a situation like this, the Small Industries Development Bank of India (SIDBI) has identified certain priorities that are to be fulfilled for increasing the venture capital in India. These priorities that have been outlined by SIDBI are as follows-

  1. Developing start-up ecosystem in India
  2. Making and providing equipments for fighting this pandemic.

Role of SIDBI in the capital venture for Indian Start-up Industry:

For supporting the start-up culture in the country and promoting the growth of the entrepreneurs in their whole business journey, Small Industries Development Bank of India (SIDBI) plays a keen role. It has provided with various schemes for the businesses for increasing the venture capital. These schemes are as follows-

  1. Aspire Fund
  2. Fund of Funds for Start-ups
  3. Incubation Centre
  4. India Aspiration Fund
  5. SIDBI Startup Mitra
  6. TIFAC-SRIJAN Scheme

In this list, the latest scheme namely COVID-19 Start-up Assistance Scheme (CSAS) has been added by SIDBI. It is an initiative and measure for providing assistance immediately to the innovative start-up ideas that has proven to adapt to the economic impacts of the pandemic and also provides financial stability as well as employee safety.

The major features of the COVID-19 Start-up Assistance Scheme (CSAS) that can help achieve proper venture capital for the businesses are as follows-

  1. An interim financial support of up to Rs. 2 Crore will be provided under the scheme to the start-ups at an interest rate as low as 10.5% per annum. But for taking the benefits under this scheme, the start-ups must have a cash flow and liquidity that has been affected by the COVID pandemic adversely.
  2. The tenure of the assistance loan will be up to 36 months which will include the maximum moratorium period of 12 months i.e. 1 year.
  3. The businesses availing the loan amount are required to repay the same in maximum of 24 installments.
  4. The financial assistance can be used by the businesses for different purposes and other requirements of working capital such as wages, salaries, payment to be made to vendors, purchases, administrative expenses, rent etc.

In a latest report provided by SIDBI, it has been stated that about 80 applications has been received so far under the CSAS scheme after its launch out of which a total of 10 applications has been sanctioned the loan amount and others are still in the processing and verification mode.

It has also stated that about 80 companies have been assisted so far for medical equipment supplies to fight the pandemic. Under the Fund of Funds Scheme, approximately, Rs. 4800 Crore has been committed by SIDBI for 48 capitalists as venture capital and other purposes. Venture capital can be raised by the businesses through venture capitalists and any further financial assistance can be asked by the start-ups from SIDBI.

SIDBI has clearly mentioned the expectations it has from the Venture Capitalists amid the pandemic regarding the venture capital investments in India. These are as follows-

  1. They should support the funding process by not stopping investments in the start-ups.
  2. As part of their portfolio and to show their dedication towards the world in this pandemic time, they must encourage venture capital in the medical and healthcare mechanism.

Future of Indian Venture Capital Industry:

For the sake of the Indian economy’s forefront, SIDBI has always encouraged the small businesses and MSME registrations. It is one of the major institutions that have attracted venture capital in the country and has always proven to be instrumental in making the business culture in India more suitable and adaptable.

 The stats show that the venture capital in India is increasing at a continuous rate day by day without a hitch. In spite of the pandemic it hasn’t stopped rising, however, the increase has slowed down a bit but has reached a very respectable position in the global world.

As for the future of the Indian venture capital, SIDBI has stated that the industry is required to focus on businesses that are IP-based and their further growth.

Facts about the Indian Economy and venture capital in it:

Venture capital has played an important role in the economic growth of the country. Other factors that can prove beneficial for further growth of the economy and can help businesses to overcome the challenges of doing business in India are as follows-

  1. The increasing consumer demand: Since, the population in India is high, the chances of working of a valuable idea in the Indian market are also high as the demand and consumption rate is always at stable increase.
  2. IP-based business: SIDBI has already stated that the new businesses and start-ups must start focusing on the IP-based operations.

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    Author: Anil Agrawal
    EZYBIZ India Consulting LLP, New Delhi. The firm is business and tax consultancy firm providing consultancy in Taxation, Regulatory, Transfer pricing, Valuation, Corporate funding and Business set up matters. He may be reached at 9899217778 or anil@ezybizindia.in.
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