In line with the vision of Prime Minister of India Mr. Narendra Modi, the Finance Minister, announced creation of a Fund of Funds (FoF) for Micro, Small and Medium Enterprises (MSMEs) under the Atmanirbhar Bharat package on the 13th May 2020, to address severe shortage being faced by MSMEs in securing growth capital. Consequently, NSIC Venture Capital Fund Limited (NVCFL), a 100% subsidiary of The National Small Industries Corporation Limited (NSIC), a Mini-Ratna Corporation of Government of India under Ministry of Micro, Small and Medium Enterprises (MoMSME), Government of India, was incorporated.
The ‘Self Reliant India (SRI) Fund’ is launched as the first scheme of NVCFL.SRI Fund will employ a ‘Fund-of-Fund’ investment strategy wherein the Fund shall invest in SEBI registered Category I and Category II Alternative Investment Funds (“Daughter Funds”), which shall in turn invest in MSMEs. The Daughter Funds shall invest at least 5 times the amount of capital contribution received from SRI Fund (net of fees and expenses) in MSMEs, defined as per the MSMED Act.
The anchor investor of the Fund is the Government of India, through the Ministry of Micro, Small and Medium Enterprises
SRI Fund has been sponsored by The National Small Industries Corporation Ltd. (a mini-Ratna Corporation of the Government of India under the Ministry of Micro, Small and Medium Enterprises) anchored by its wholly owned subsidiary, NSIC Venture Capital Fund Limited. The overall Fund Corpus is Rs. 10,006 crore.
The Investment Manager for SRI Fund is SBICAP Ventures Limited and Legal Advisor is Khaitan & Co
Tenure of the Fund shall be 15 years which maybe extended as per AIF guidelines and subject to approvals from NVCFL and contributors.
Investment Period for SRI Fund is 13 years.
SRI Fund, in the form of Fund of Funds (FoF), will be oriented towards providing funding support to the Daughter Funds for onward provision to MSMEs as growth capital, in the form of equity, quasi-equity and debt, as may be permitted under SEBI guidelines, for:
No. SRI Fund can provide funds/ capital only to the Daughter Funds for onward investment in MSMEs and the investment in MSMEs will be done by the Daughter Funds only.
Daughter Fund would be a Category I or Category II Alternative Investment Fund (AIF) registered with SEBI, who in turn shall invest in MSME units
Yes, subject to provisions mentioned in point no. 11 below.
Commitment sought from SRI Fund should be minimum Rs. 25 crore and in multiples of Rs. 5 crore thereafter. Maximum commitment from SRI Fund would be lower of i) 20% of the Target Corpus or ii) Rs. 2,000 crore, as illustrated below:
*Provided that for prospective Daughter Fund which has availed commitments from any of the Fund of Funds of the Government of India (Central Government) or any funding support has been received by it from other Fund of Funds of Government of India (Central Government), the same will not be included in the 80% funds to be mobilized from outside investors. Provided that in case the prospective Daughter Fund has availed commitments from any of the Fund of Funds of the Central Government of India, investments that qualify as MSMEs for the purposes of complying with the requirements of SRI Fund, shall be excluded from being counted in end use requirement of any other Government of India (Central Government) Fund of Fund Scheme.
The commitment given by the SRI Fund will be valid for 18 months during which the eligible funds are required to do the first close, failing which commitment done by Mother Fund will be re-evaluated (For the purpose of this point, first close will mean the first close after commitment by SRI Fund).
Empanelled Daughter Funds shall raise 80% additional funds from outside sources like Banks, FIs, HNIs, VCs/PEs/Institutional Investors, PSUs, Pension Funds, Foreign Developmental Institutions etc.
Daughter Funds, after being empanelled with the Fund, will mobilize funds and for each 4 units of funds so mobilized, they will be eligible to solicit 1 unit of fund, proportionately from the SRI Fund, which shall be released on a back-ended basis.
As minimum fund that can be provided by SRI Fund is Rs. 25 crore, the minimum Fund corpus of a Daughter Fund has to be Rs. 125 crore, of which they have to raise Rs. 100 crore from outside sources.
The Daughter Funds shall invest at least 5 times the amount of capital contribution received from SRI Fund (net of fees and expenses) in MSMEs, defined as per the MSMED Act, as amended from time to time.
The Daughter Fund shall ensure that all its investee MSMEs obtain Udyam Registration. In case the same is not obtained, the investment in such investee company shall not be considered as meeting the criteria of an investment in MSME.
Daughter Funds shall have a maximum tenure (including extensions, if any) which is co-terminus with the remaining tenure of the SRI Fund, as permitted under the AIF regulations from time to time.
Investment Period for the Daughter Funds shall be a maximum of 6 years from the date of final close of the respective Daughter Fund.
Target Return for Daughter Fund should be higher of i) gross IRR of 12% per annum or ii) the highest rate in Indian Rupeesoffered to any other contributor in the Daughter Fund.
IRR shall be calculated using the XIRR function provided in Microsoft Excel software.
The preferred Hurdle Rate for Daughter Fund should be higher of i) 8% per annum or ii) the highest rate offered in Indian Rupees offered to any other contributor in the Daughter Fund, Hurdle Rate should be calculated on an annual compounded basis.
Management fees for Daughter Fund should be lower of i) 2% per annum or ii) the lowest rate offered by any other contributor in the Daughter Fund.
The target group for SRI Fund, through the Daughter Funds would be MSMEs, who have a marked potential to grow, but are unable to do so because their requirement for growth capital remains unfulfilled. Funds from SRI Fund should be dispersed to create an impact across the Nation and entities in farthest regions of the country can access this funding
The funding (via the Daughter Funds) would be aimed at all existing and interested MSMEs which, after assessment, are found viable, whose growth trajectory is positive, and who have a defined business plan for growth indicating positive funds flow. Previous 3 years CAGR will be considered and due weightage will be given to the respective MSMEs potential to grow.
The Fund will also factor in non-monetary aspects, in terms of employment, reduction in regional disparity, overall economic development and establishing supply chains with depth and resilience.
Non Profit institutions, NBFCs, financial inclusion sector, micro credit sector, SHGs and financial intermediaries shall not be eligible for consideration.
MSMEs, defined as per the MSMED Act, as amended from time to time, shall be eligible for consideration, provided they have Udyam registration.
Fund is to be invested in diverse sectors (e.g. traditional MSME, agriculture, pharma, auto, chemicals, etc.), forensuring healthy mix of manufacturing, services and agriculture businesses to give impetus to companies in respective segments/ industries. The scheme is aimed at promoting maximum income and job creation, across the country.
The capital contributions made by the SRI Fund to any Daughter Fund shall not be used by such Daughter Fund for making investments in gambling, creation of obscene content, any illegal or unlawful activities and funding any non-banking financial institutions (NBFC), non-profit organisations, micro credit sector, financial inclusion sector, self-help groups and other financial intermediaries
Illustrative other terms and conditions to be satisfied by Daughter Funds shall include:
No. Only direct applications to SRI Fund are required from prospective Daughter Funds. No placement fee should be payable for funds mobilised from SRI Fund. Also, no Placement Agents have been appointed by SRI Fund.
Legal due diligence shall be carried out by the Legal Advisor. Due diligence on financial, tax and integrity aspects, and any other assessment, as may be recommended/ suggested by the Investment Committee, shall be carried out by the Investment Manager through appointment of third-party agency. Any cost towards such due diligences shall be paid by the Daughter Fund directly.
A flowchart depicting the broad investment process* is as below.
* Submitting information towards the application for SRI Fund does not guarantee commitment from SRI Fund.
The Fund/ Investment manager has created a technology platform for managing all investment related activities of SRI Fund online. In case the Fund has submitted any information for SRI Fund in manual form or over emails, the Fund shall be required to update the information on the technology platform as may be required by SVL. Daughter Funds empaneled with SRI Fund shall be required to pay fee towards access of such technology platform.
A prospective Daughter Fund can express its interest in raising funds/ seeking investment from SRI Fund by accessing application form through technology platform.
Click here to access online application for prospective Daughter Funds – https://srifund.sbicapventures.com/sbi_webform/
The Daughter Fund will be given an opportunity to present their proposal to the Investment Committee. The format of the presentation shall be provided to the prospective Daughter Funds.
Any future application from such fund for raising commitments from SRI Fund can only be initiated after a period of 6 months from date of intimation of rejection.
Reporting requirements shall cover matters including but not limited to: