Startups Stare At Fund Crunch Despite ‘Sops’

These proposals are good but are not adequate. The problem for startups is that funding climate is very tough now. So, these incremental steps will not have major impact on the startups - V Balakrishnan, co-founder, Exfinity Venture Partners, and former CFO of Infosys, tells Bizz Buzz

Bengaluru: India needs higher allocation of funds towards supporting the growth of its startup ecosystem though the proposals in the Union Budget 2025 that will help in easing the funding constraint currently faced by the new age companies.

Fund managers are of the opinion that additional allocation of Rs10,000 crore, extension of tax exemption for startups along with creating a deeptech fund are steps in the right direction.

“The measures proposed in the budget will definitely support the growth of Indian ecosystem. More funds for supporting startups, new deeptech funds and other measures are welcome moves. However, we feel that the allocation of Rs10,000 crore more towards Fund of Funds meant for startup may not be adequate as the Indian startup ecosystem has grown a lot in past years. Therefore, more fund allocation is need of the hour given the funding constraint faced by the startups,” Dinesh Goel, Partner at Siana Capital Management, a private equity fund, told Bizz Buzz.

This year’s budget has proposed to allocate additional Rs10,000 Fund of Funds towards startups.

“The Alternate Investment Funds (AIFs) for startups have received commitments of more than Rs91,000 crore. These are supported by the Fund of Funds set up with a government contribution of Rs10,000 crore. Now, a new Fund of Funds, with expanded scope and a fresh contribution of another Rs10,000 crore will be set up,” Nirmala Sitharaman said announcing the Union Budget in Parliament last Saturday.

The budget also proposes that a new scheme will be launched for 5 lakh women, Scheduled Castes and Scheduled Tribes first-time entrepreneurs. This will provide term loans up to Rs2 crore during the next five years.

Government has also announced that loan limit to startups will be enhanced. For startups, from Rs10 crore to Rs20 crore, with the guarantee fee being moderated to 1 per cent for loans in 27 focus sectors important for Atmanirbhar Bharat.

Importantly, the budget proposes to increase the provisions of 80-IAC for startups by another five years. Section 80-IAC, introduced in April 2017, allows eligible startups to claim 100 per cent tax deductions on profits for any three consecutive years.

A Deeptech Fund of Funds will also be explored to catalyze the next generation startups as a part of this initiative.

Some other experts also said that though the funding to startups is a welcome move, it will not help in easing current funding winter.

“By the time, this fund is distributed and allocated, it will be a year. Then the funds have to identify companies and invest. So, it is not going to solve your immediate problem. These proposals are all good things but are not adequate. The problem for startup is funding climate is very tough now. So, these incremental steps will not have major impact on the startups,” V Balakrishnan, co-founder and Chairman of Exfinity Venture Partners, and former CFO of Infosys, told Bizz Buzz.