Government Announces Key Measures To Boost Startup Ecosystem With Extended Benefits

Government Announces Key Measures to Boost Startup Ecosystem with Extended Benefits

The government has introduced a series of measures aimed at promoting the growth of budding entrepreneurs. A new Fund of Funds Scheme (FFS) with a corpus of ₹10,000 crores has been set up, alongside an extension of the period of incorporation for startups by five years. These moves are designed to stimulate venture capital investments and encourage the development of innovative businesses.

The government had initially launched a similar scheme in 2016, with a ₹10,000 crores corpus, contributing across the 14th and 15th Finance Commission cycles. This initiative was set up to catalyze venture capital investments and is operationalized by the Small Industries Development Bank of India (SIDBI). SIDBI provides capital to Securities and Exchange Board of India (SEBI)-registered Alternative Investment Funds (AIFs), which, in turn, invest in startups.

Finance Minister Nirmala Sitharaman highlighted that AIFs for startups have already secured commitments exceeding ₹91,000 crores, supported by the ₹10,000 crores Fund of Funds.

Now, the government has decided to establish a new Fund of Funds, expanding the scope with an additional ₹10,000 crore contribution. This new fund will address the demand from AIFs, which had sought more funding support from the government. Leading AIFs, such as Chiratae Ventures, India Quotient, Blume Ventures, IvyCap, Waterbridge, Omnivore, Aavishkaar, JM Financial, and Fireside Ventures, are among the prominent firms benefiting from the Fund of Funds.

As of October 31, 2024, FFS-supported AIFs have invested a total of ₹20,572.14 crores in startups. The additional ₹10,000 crores capital infusion will further promote public-private capital infusion into the startup ecosystem, encouraging new ventures and fostering high- growth entities.

The government also aims to enhance access to credit for startups by increasing the credit guarantee cover from ₹10 crores to ₹20 crores. The guarantee fee will be reduced to 1% for loans in 27 sectors crucial for Atmanirbhar Bharat, encouraging more debt capital infusion.

This will benefit startups, especially those unable to dilute equity further. Additionally, a Deep Tech Fund of Funds will be explored to support the next generation of startups, focusing on deep tech innovations with high research and development requirements and longer gestation periods. This initiative will mobilize capital for deep tech startups, which often carry higher risks.

To further bolster the startup ecosystem, the government has proposed extending the period of incorporation by five years, allowing startups to benefit from government schemes if incorporated before April 1, 2030.

Since the launch of the Startup India initiative on January 16, 2016, the government hasrecognized 1,52,139 startups across over 55 industries as of October 31, 2024. These entities are eligible for various tax and non-tax incentives under the Startup India action plan. Through flagship schemes such as the Fund of Funds for Startups (FFS), Startup India Seed Fund Scheme, and Credit Guarantee Scheme for Startups, the government has provided significant financial assistance to eligible startups at different stages of their business journey, aiming to nurture innovation and foster a thriving startup ecosystem in India.