The startup fund of funds (FFS) was introduced in 2016, for contribution to various alternative investment funds (AIF) registered with the capital market regulator Sebi.
The FFS, managed by the state-controlled Small Industries Development Bank of India (Sidbi), has invested more than Rs 9.4 billion in 86 IDAs (the regulatory term for PE and VC funds).
Sidbi is the country’s largest limited partner (LP) or investor contributing capital to VC and PE funds.
In a letter dated April 29, 2022, Sidbi told the AIFs that he would allow “accelerated withdrawals” of money committed by the FFS while fund managers achieve an internal rate of return (IRR) above the hurdle rate: the minimum return that a fund has. to register before profits can be shared between investors and the fund manager.
“These are concrete steps to ensure that FFS investments in eligible Indian IDAs can have better commercial terms in terms of management fee, accrued interest for qualified fund managers and assets, while extending more flexibility to fund managers back in the day. -Operations per day. Sidbimanaged FFS has been one of the largest domestic institutional investors in Indian venture capital funds and the liberalization of many existing onerous terms in investment agreements will help bring those terms in line with those prevailing globally,” said Tejesh Chitlangi, main partner of IC Universal Legal. .
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Since AIFs often take a long time to mobilize capital from other investors, faster withdrawal of the money committed by the FFS will allow AIFs’ ability to do business to be unhindered.
The ‘carry’ or profit sharing (once the IRR of the fund crosses the minimum rate) is usually in a ratio of 80:20, with 20% for the manager. The FFS is now ready to transfer 25% of the incremental returns (above the new IRR) if the IRR exceeds 25%. The share of carry would be 30% (of the incremental return) if the fund achieves an IRR of more than 30%.
The FFS, according to Sidbi’s letter, will consider paying a higher management fee after having an overview of total expenses, and if a fund is female-led, it focuses on female-led startups, priority areas, sector agro-rural, financial. inclusion, and is committed to investing in level 2 and -3 centers. The FFS is also open to investing in funds above Rs 1,000 crore as long as the investment manager of a fund is a domestic entity, the key individuals or managers have managed funds that Sidbi has engaged with in the past and the exposure is capped at the same level as that applicable for a fund with a corpus of Rs 1,000 crore.