Exclusive: India’s $1 bn Innovation Fund Nears First Close [Investment Thesis & Details]

The Rs 5,500 cr (~ $1 bn) India Inclusive Innovation fund which was proposed by the National Innovation Council is waiting cabinet approval to apply for approval from the Securities and Exchanges Bureau of India (SEBI) to begin operations.

Government EmblemThe Indian Government’s $ 1 billion investment fund for innovation is nearing its first close with a total commitment of Rs 475 cr and a pipeline of over 300 target investments, according to documents seen by NextBigWhat*.

The proposed innovation fund is targeting a first close of Rs 500 cr with the government chipping in Rs 100 cr.

The Rs 5,500 cr (~ $1 bn) fund which was proposed by the National Innovation Council is waiting cabinet approval to apply for approval from the Securities and Exchanges Bureau of India (SEBI) to begin operations, according to a June 2013 presentation on the council’s website.

The council, headed by the Prime Ministers adviser Sam Pitroda, will manage the fund that will focus on innovation that addresses India’s developmental challenges in Healthcare, Nutrition, Energy, Water, Livelihoods and other areas.

It will also create an innovation ecosystem through partnerships and training programs, the Government said. In total, the Government will invest 20% in the fund with a life of 9 years (extendable by up to 2 years) with a target internal rate of return of 12% before taxes and management charges.

“Fund would be professionally managed by successful serial entrepreneurs and experienced fund managers, aligned with fund thesis” An investment committee with professionals experienced in entrepreneurship, investment, management and domain experts will be formed to oversee investments.

Objectives of India Inclusive Innovation Fund

  • Drive Inclusive Growth
  • Mobilise Capacity
  • Create an ecosystem
  • Balance social and financial returns
  • Employment / livelihood creation
  • Mentor, develop skills, build capacity
  • Pool innovators and entrepreneurs focused on the bottom of the pyramid

Details of India Inclusive Innovation Fund

Earlier this month, the Government of Karnataka announced that it will set up a Rs 15 cr angel fund to back technology startups. (Read more on Karnataka government’s Angel fund)

This is amazing! But…

If executed correctly, this fund could do miracles to India’s entrepreneurial ecosystem. Take the case of Israel, a hot bed of innovation and entrepreneurship. As Dan Senor & Saul Singer explain in their book Start-up Nation, the government played an active role in creating such an ecosystem. Sometime in the 90s, under a scheme called Yozma, the Israeli government decided to invest $100 mn in 10 venture capital funds, each represented by trained venture capitalists, a foreign venture capital firm and an Israeli investment bank. Another $20 mn fund invested directly in technology companies. Foreign investment was matched one and a half to one. This brought in foreign investors as the government took risks and passed rewards to Venture Capitalists. The book points out: In five years between 1992- 97, Yozma funds raised $200 mn with the help of government funding. Those funds were bought out or privatised and today they manage nearly $3 bn of capital and support hundreds of new Israeli companies**.

*Hat tip: Mathangcito

** P 206, Start-Up Nation, The Story of Israel’s Economic Miracle, Dan Senor & Saul Singer.


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