PE, VCs eye slice of Rs 50k-cr MSME fund

BENGALURU: Private fairness (PE) and enterprise capital (VC) companies are eyeing a possible slice of the Rs 50,000-crore fund of funds for fairness investments into micro, small and medium enterprises (MSMEs) with “growth potential” introduced by finance minister Nirmala Sitharaman on Wednesday.
While the federal government is predicted to contribute Rs 10,000 crore for the fund, Rs 40,000 crore is predicted to be raised from exterior events.

This is a mannequin much like the startup fund of funds run by Sidbi, which has been in a position to leverage Rs 3,798 crore of authorities contribution to boost 5-6 instances the quantity at near Rs 20,000 crore. This has been achieved by way of the contribution of 10-20% to the corpus by dozens of unbiased VC funds, which then mobilise more cash from different backers and put money into startups.

Government is seeking to repeat the success of that fund for MSMEs. “For that to happen, family offices, insurance companies, provident funds and various other pools of capital will need to participate. We are keen to work closely with the government to ensure this happens,” stated Rehan Yar Khan, co-chair, Venture Capital Council, IVCA, & managing associate, Orios Venture Partners.

As a component of the fund of funds initiative, the federal government additionally plans to encourage MSMEs to be listed on the primary board of inventory exchanges. The authorities has introduced a change within the definition of MSMEs, which embrace corporations which have a turnover of as much as Rs 100 crore and capital funding of as much as Rs 20 crore.

“This money will end up in the hands of younger startups that are below the revenue threshold as they are service MSMEs effectively, and will have to register that way,” added Khan, saying that abroad capital for startups is prone to stay gradual over 1-2 years.

But if the fund stays restricted to simply SMEs and doesn’t embrace startups, will probably be laborious to leverage exterior buyers, added different VC buyers monitoring the event. The fund had been within the works earlier than the Covid-19 pandemic. But many query if will probably be in a position to leverage capital if the definition excludes startups. “If equity investment in SMEs was an attractive asset class, then there would be several funds dedicated to it already,” stated a VC fund supervisor briefed on the matter.

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