A seed funding for start-ups will soon be launched by a group of successful businessmen based in Kerala.
The fund is being raised by the Kochi-based TIE Kerala (The Indus Entrepreneurs), part of an international organisation pioneering the cause of entrepreneurship.
A few of the 500 members of TIE Kerala have already cobbled up funds to aid budding entrepreneurs. The initiative is part of the organisation’s pet project of nurturing enterprise through incubation and mentoring exercises.
Seed funding would be an ideal platform to attract ‘venture capitalists’ and ‘angels’ to invest in start-ups, said John Paul, president of the Kerala chapter of TIE Kerala. While his organisation would extend aid to small enterprises that require a few lakhs of rupees to begin with, avenues will be open for angel investors who can invest crores in innovative projects envisioned by upcoming entrepreneurs.
Angel funding was happening in a small way in Kerala though not as explicit as in other States, said Murali Gopalan, president of RP Techsoft Private Limited, and a mentor of start-ups at Startup village, Kalamasserry.
There are people who lend support to start-ups by investing a few thousands to a few lakhs of rupees. Such investors spend time for fostering the start-up, which is often more valuable than money. Nevertheless, the network of investors forming the angel fund company is absent in Kerala. Compliance with SEBI norms had been dissuading Keralites from forming a true angel fund, he said.
TIE is keen on setting up an angel funding entity, but the Kochi-based angel fund will be different from the other angel funds available in States such as Tamil Nadu, Karnataka and Maharashtra. Angel investors have formed groups in Chennai, Bangalore and Mumbai and are supporting projects that require investment in crores of rupees. Many such projects are in software, but the Kerala-based initiative would foster startups in other sectors too, according to Mr.John.
N.R.Panicker, founder and Chairman of Accel Frontline Limited, an IT and media services company, said there were various modes of operation for angel funding. The funding agency could be formed as a not-for-profit company, he said.
The established form of angel funding, with a minimum capital of Rs.5 crore, is done in accordance with SEBI guidelines. The Kochi-based angel group may not conform to the SEBI guidelines initially, but would function as a not-for-profit organisation. The shareholders will not be allowed to withdraw the shareholding, but the profit or loss would be accrued to the original capital, he said.
The seed fund will be of immense help to students passing out of technical and engineering colleges who need aid worth a few lakhs of rupees to put their ideas into practice, according to K. Chandrasekhar, Executive Director of TIE Kerala.
TIE would request the entrepreneurs to pump back the money to the original fund once they become successful in the venture, so that other prospective entrepreneurs would benefit. “Incubation is happening in a big way in Kerala,” he said, hinting at the prospect of scores of innovative projects requiring investment in the years ahead.
Venture capital fund
Interestingly, Kerala State Industrial Development Corporation Limited (KSIDC) had floated a venture capital fund Kerala Venture Capital Fund (KVCF), a 10-year, close-ended venture capital fund of Rs.20 crore, in 2000. The fund was operated in collaboration with Kerala Financial Corporation (KFC) and Small Industries Development Bank of India (SIDBI). Though there was immense response to the fund, there were not many projects that could fit the bill. Only about Rs.6 crore could be disbursed in the absence of enough projects that received clearance from an expert evaluation committee set up by the fund managers.
KSIDC has started a new venture capital fund with a corpus of Rs.250 crore, Cheraman Financial Services, recently. The fund is envisaged to be Shariah compliant, in the Islamic banking mode, according to sources in the industry. KSIDC has 11 per cent share while the rest is owned by private entities such as Galfar. Islamic banking forbids investment in certain sectors such as liquor manufacturing. The fund will be available to select small companies intending to raise capital to upscale business.