Indian startup ecosystem is on the verge of zenith. The number of startups in India has already increased to 7,200. And this huge number now exhibits the need for funding. Capital is the pre-requisite of any successful startup.
In order to boost startups in India, venture firms including Kae Capital, Stellaris Venture Partners, Chiratae Ventures, and YourNest Venture Capital has collaborated to start a funding platform called the Funder’s Forum.
The abovementioned early to mid-stage venture capital firms collectively own assets of over INR 5,600 crores ($800 million). The platform will work as an angel networking platform like Indian Angel Network, Mumbai Angel Network, and several others.
The primary idea behind introducing a funding channel is to supply adequate resources to emerging startups in the country. These domestic venture firms will be closely interacting with the Reserve Bank of India and SEBI to fulfill its mission of competing with global investment firms like Sequoia Capital and Accel Partners.
“India has only two or three domestic institutional LPs, unlike in the west…One of the biggest needs for domestic funds is capital. That becomes paramount. This is an advocacy platform for domestic funds,” Rahul Chowdhri of Stellaris Venture Partners.
As per the current business model, venture capitalists follow a 2:20 approach in funding. Originally, 2 percent of AUM is charged for managing assets while 20 percent is charged from the profits that the fund makes beyond a certain mark. Since there are limited funds available in India compared to foreign countries, the standard approach could not cater to the needs of the Indian startups.
“Under the 2:20 fund structure, smaller funds aren’t a very viable proposition. The fee structure is so small that it is difficult to hire a good team. The disadvantage is that deal sourcing tends to suffer.” Mahendra Swarup, founder of Venture Gurukool, and a founding member of Funder’s Forum said in a media report.
Funding platform like Funder’s Forum will provide sufficient resources for increasing business operations. The idea is to create a common pool of resources, have a common deal flow thereby be able to write larger ticket size cheques to the companies and lead a funding round collectively, which they are not able to do so in the current structure in many cases.
The Funder’s Forum will further look to engage in ensuring better tax treatments for the same. The reports also suggest that the group will work on ensuring that the current restriction of 35% of a total corpus coming from government organizations be relaxed.