Launches SME GROWTH FUND - a Rs. 500 crore Venture Capital fund
In Participation With Major Commercial Banks
October 25, 2004
Small Industries Development Bank of India
has today launched SME GROWTH FUND, a new venture capital
fund with a large corpus of Rs. 500 crore, dedicated to the SME
sector. The 8-year life Fund is being established with an
objective to meet the long-term risk capital requirement of innovative
and technology oriented units in this sector.
Venture Funds are recognised globally as the most suitable form
of providing risk capital for the growth of innovative and high
technology businesses. Innovative SME units are expected to
play a catalytic role in the post liberalised economic environment
in the country. Keeping in view the level of dispensation of venture
finance to the SME thus far, the new Fund with its size of Rs. 500
crore is a significant milestone. It is a unique initiative sponsored
by SIDBI jointly with major public sector banks. Besides formal
commitment of Rs.225 crore so far from SIDBI, Punjab National Bank
and Union Bank of India, several other major nationalised banks
are also expected to participate in the Fund. The entire corpus
is expected to be tied up within six months.
Duly registered with SEBI as a venture capital fund, the Fund shall
invest in domestic SME units having superior growth potential, rapid
scalability, a strong committed team and enjoying unique and sustainable
long term competitive advantage. The fund will identify unlisted
SME entities in various growing sectors such as life sciences, retailing,
light engineering, food processing, information technology, infrastructure
related to services such as health care, logistics and distributions,
Small Industries Development Bank of India (SIDBI), as the apex
Financial Institution for the Small Scale Sector, has been playing
a very active role in the evolution of Venture Capital financing
in the country to support the risk capital requirements of the sector.
SIDBI has been following a three tier approach in this regard. To
this end, the Bank has been investing in several Venture Capital
Funds for onward investments in the SME sector. These include several
prominent funds such as India Leverage Fund, India Advantage Fund,
India Development Fund. Recently SIDBI has partnered with Small
Enterprise Assistance Fund, US and Kotak Mahindra Bank Ltd. in setting
up India Growth Fund. Bank has also invested in a number of state
level VC funds in collaboration with local institutions. The sanctions
of the Bank relating to Venture Capital operations aggregate Rs.
463 crore through various routes, making it one of the largest VC
players in the country. SME GROWTH FUND distinguishes itself
as the largest VC fund dedicated to the SME.
Management of the SME GROWTH FUND has been entrusted with SIDBI
Venture Capital Ltd. (SVCL), a wholly owned subsidiary of SIDBI.
Set up in 1999, SVCL has been managing the prestigious Rs. 100 crore
National Venture Fund for Software and Information Technology (NFSIT).
With the setting up of the new fund, it shall be able to serve various
other focus sectors besides the software and IT. Currently based
in Mumbai, the company plans to expand its network by opening an
office in Delhi to serve North India and another in Chennai or Bangalore
to cater to the South.
Looking at the demand for the Venture Capital activities in the
SME sector in IT as well as other growth sectors, it is expected
that SME GROWTH FUND shall be able to invest its entire corpus
over next 3-4 years. The fund will aim at achieving attractive
risk-adjusted returns through long term capital appreciation by
investing in equity or equity-linked capital instruments of the
investee projects. Besides, as a unique feature, it shall also endeavour
to provide mentoring to the investee companies through a network
of industry experts. Being of limited life, it would target exits
from its investments within a reasonable period through a variety
of avenues such as strategic sale, mergers and acquisitions, an
IPO or buyback.