India To Launch Its Seed Fund

TiE will rope in VC funds and angel investors.

After witnessing a rush of early-stage venture capital (VC) funds and angel investors into the country, the government is taking steps to float a fund to make available seed capital — the earliest stage of funding a business — to entrepreneurs with innovative ideas.

This is part of an effort to have a broad programme to foster innovation and take it to global markets. For this, the government is putting together a framework for setting up an innovation promotion council. The fund’s initial corpus of Rs 75 crore will come from the Ministry of Science and Technology.

According to information, the Centre is expected to engage The Indus Entrepreneurs (TiE), a network of early-stage VC funds and angel investors with associations in the sub-continent, and Indian School of Business (ISB), Hyderabad.

The candidates for funding will be selected by all three. The ISB will be a forum where ideas will be examined and nurtured while TiE will bring in VC and angel funds which can take over once the Department of Science & Technology’s role is over.

AS Rao, adviser, Department of Scientific & Industrial Research (DSIR), said the fund would focus on product innovation and intellectual property-based solutions. “We intend to finalise the framework by March 2008,” he said.

The Centre will fund ideas at the laboratory or the proof-of-concept stage, that is, before the idea goes to the prototype or beta (testing) stage.

“If the idea goes forward, early-stage VC or angel investors will have the confidence to invest further. As and when these people take up positions to guide the company further, the Centre’s role will diminish,” Rao said.

According to industry analysts, the idea seems to have been inspired by the Israel government’s Chief Scientist model, which encompasses incubator and R&D programmes, besides investment grants.

“The aim of the government VC programme in Israel was to establish professionally managed VC funds. It was a $100-million programme to try and create an industry of seed- and early-stage VC funds,” said an early-stage investor.

Israel’s programme offered $8 million to any fund that met the criteria of other funds raised, professional management and focus. The funds had a five-year option to buy out the amount at predetermined conditions. The programme quickly established 10 such funds, of which eight exercised the option and bought out the government.