Getting right funds for business ventures

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By Himanshu Yadav

Despite the global slowdown, India remains one of the preferred destinations for foreign investers. The industry however believes that while there is no dearth of funds for large scale projects, small and mid sized companies struggle to attract investments. For startups too, growing to the next level remains a painful experience. Local banks and state owned financial institutions offer support to a certain extent, but it is believed that this support is not enough.

Bankers, venture capitalists, angel investors and representatives of central and state governments, during a panel discussion held at EFY Summit on ‘Investing in India: Where to Invest and How to Attract Investments’, thus highlighted the fact that there is no dearth of funds and there are several government funding schemes for small and mid sized firms and startups.

India has tremendous potential in terms of technological advancement, which can be channelised into development activities. But if there are opportunities there are challenges as well. As P Venkatram, consultant, ICT, says, “There are three major challenges—lack of infrastructure, high energy cost in terms of electricity or fuel required for material transportation through the value chain and the cost of money. In order to promote small and medium sector enterprises (SMEs), the cost of money needs serious consideration. The cost of money depends on the repo rate at which the Reserve Bank of India borrows money from banks and the interest rate at which banks lend money to borrowers, which is significantly high in India as compared to the West or China. We need to look at all options available in technology incubation schemes for SMEs and government funding programmes.”

Government funding

Different businesses have different needs, and to facilitate startups and SMEs, various government agencies such as Department of Science and Technology (DST), Department of Scientific and Industrial Research (DSIR), Ministry of Micro Small Medium Enterprises (MoMSME), Ministry of Communication and Information Technology (MIT), Ministry of New and Renewable Energy (MNRE), Small Industries Development Bank of India (SIDBI), National Research Development Corporation (NRDC) and Council of Scientific and Industrial Research (CSIR) offer financial supports.

DSIR, a part of the Ministry of Science and Technology, which supports SMEs to develop globally competitive technologies of high commercial potential, catalyse commercialisation of lab scale R&D, strengthen industrial consultancy and technology management, offers various schemes to promote innovative ideas and business ventures.

Explaining further, Dr PK Dutta, member-secretary, Technopreneur Promotion Programme (TePP), DSIR, said, “A mind to market journey has three distinct phases—proof of concepts, lab to buyer’s demonstration and commercialisation. At an ideal stage, we provide grants up to Rs 60 lakh in installments.” Highlighting various types of support being provided under DSIR’s TePP scheme, Dutta said, “It is an innovative scheme that has provided financial support to individual innovators since its inception in 1998. Grants for innovators is provided under Micro Technopreneurship Support (MTS), under which up to Rs 75,000 is offered for converting an idea into laboratory model or process. Grants-in-aid up to Rs 15 lakh are provided to develop actual working models or process demonstration under the innovation incubation programme, while under Supplementary TePP Fund (STF) grants-in-aid up to Rs 7.50 lakh are extended to successful TePP innovators to refine their technology and improve marketability—under both these programmes maximum support may not exceed 90 per cent of the total project cost. In Seamless Scale-up Support for TePP projects (S3T), grants-in-aid up to Rs 45 lakh are provided to successful TePP innovators or entrepreneurs adopting rural technologies (with high social impact) to market their R&D projects at the pre-commercial stage. Under this programe, maximum 50 per cent of the total project cost is provided.”

Till now, TePP has funded more than 500 technological innovations right from the idea stage. The norms to apply to this programme are simple—an applicant should be a citizen of India and should have an innovative idea (no age bar, no qualification required). “So far, we have received more than 8,000 applications. Of which, we will screen 2,000, and only 1,400 innovators will get the funding. Till now, we have 140 successful projects to our credit,” says Dutta.

The department’s Technology Development and Demonstration Programme (TDIP) is directed towards SMEs. Dutta explains, “Under this programme, we give 50 per cent grant and expect 50 per cent to be contributed by the industry. This is a returnable grant and we charge some amount on the returned fund depending upon the commercial production.” Till now, the programme has supported 150 projects with approximately Rs 40 crore fund.

Micro Small and Medium Enterprises (MSMEs) are great generators of innovative ideas. Thus various schemes are being offered to them. Arun Kumar Jha, director, MSME, said, “Funding programmes like Credit Guarantee Scheme provides guarantee to the loan sanctioning institution on behalf of the enterprise to procure loan without a collateral. The maximum guarantee amount is Rs 100 lakh per unit and till now 85 per cent of the guaranteed loans have been sanctioned.” Credit Linked Capital Subsidy Scheme (CLCSS) is another scheme to facilitate technology upgradation of MSEs. It provides 15 per cent capital subsidy on eligible institutional loan of up to Rs 100 lakh and covers up to 48 products or sub sectors. Under this scheme, 7,810 MSEs have been disbursed subsidy of nearly Rs 339 crore till October 2009.

Lean Manufacturing (LM) scheme is for better production of goods by eliminating non value added activities. Under this scheme, ‘mini clusters’ of 10 units with a total project cost of Rs 35 crore for 100 mini clusters (initially) can be created. Marketing Assistance Plan Scheme, implemented by NSIC, provides marketing support to micro and small enterprises through domestic and international trade fairs, exhibitions, buyer-seller meets, etc, at subsidised rates.

Besides, there are public and private sector banks like Axis Bank, State Bank of India and ICICI who have established venture funds, private equity groups and venture capital firms. As Venkatram put it, “Unlike 90s when fund exchange was a very precious commodity and balance of trade issues were horrendous, a lot of policy amendments have taken place now. With so many schemes offered by the government and banks, it is much easier for businesses or startups to grow and diversify. However, it is essential that they need to be promoted well among the masses and people should leverage them for their benefit and the society’s.”

Funding Schemes for Start-ups:

Organisation/ sub-department or committee

Scheme

Funding amount

Target

Small industries Development Bank of India (SIDBI)

SME Growth Fund

Rs 2-25 crore

SMEs

Department of Science and Technology/ Technology Development Board

1. Technology Development Board

2. Guidelines

Depends on project size

Entrepreneurs/ industry / institutions

National Innovation Foundation

Micro Venture Innovation Fund

Up to Rs 10-15 lakh

Innovator /entrepreneur

World Bank & ICICI Bank collaboration/Technology Finance Group (ICICI Bank)

Sponsored Research & Development Programme

Rs 10 lakh to Rs 5 crore, 6% interest, 1.5-2 yrs moratorium period

Private companies conducting research in partnership with public R&D institutes

Department of Scientific & Industrial Research

Technology Development and Demonstration Programme

Grants /loans, subject to maximum of Rs 250 lakh

Start-ups possessing protected / licensed IP

Ministry of Communication and Information technology

Support International Patent Protection in Electronics and IT

50% or up to Rs 15 lakh for filling international patent

MSMEs, institutes, incubators

SIDBI

Direct finance

Rs 10 lakh and above

Entrepreneurs, SMEs

Ministry of Micro Small Medium Enterprises/National Manufacturing Competitiveness Council

Assistance for Grant on Patent/ GI Registration

Rs 25,000 for domestic patents and Rs 2 lakh for foreign patents

MSMEs

Angel Networks

1. Indian Angel Network

2. Mumbai Angels

Rs 50 lakh to Rs 5 crore

Entrepreneurs

Venture Capitalists

1. Indian Venture Capital Association

2. SEBI List of VCs in India

Rs 5 crore and above

Entrepreneurs, SMEs

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