The creation of a State-wise Fund of Funds (FoF) has been proposed as one of the measures that could be adopted by the Government of Karnataka to further boost the thriving start-up ecosystem in the State.
The proposal was made in a report titled ‘Karnataka’s Decade: Roadmap to $1 Trillion Economy’ prepared by the Planning, Programme Monitoring, and Statistics Department and Federation of Indian Chambers of Commerce and Industry.
The report analyses several sectors, including agriculture, manufacture, technology, start-ups, tourism, health, and education among others, and suggests steps that could help put the State on track to achieve a trillion-dollar economy.
Unicorn hotspot
India is the third largest start-up base in the world and Bengaluru constitutes about 40% of the Indian start-up ecosystem. Housing 45 of the 105 unicorns from India, the city is the largest unicorn hotspot in India, the report notes.
With a thriving start-up base, the country has also seen a healthy private investment ecosystem which constitutes more than 250 accelerators and incubators, over 500 institutional investors, and 2,000+ active investors.
In Bengaluru alone, in the fiscal year 2021, 551 deals were closed in which start-ups raised a cumulative $21.3 billion. “This was nearly half of India’s total of $49 billion,” the report points out.
“It is also home to the largest number of venture capital funds in India, beating both the national capital, Delhi, and the financial capital, Mumbai. This cements it as the undisputed innovation capital of India,” reads the report.
However, it also notes that that Indian capital is only a small part of the investment in the country.
Domestic capital
“Foreign giants are increasingly capitalising on India’s exponential growth. Merely 10% of total inbound capital is estimated to be domestic. With foreign players owning most of Indian data and platforms, there is an urgent need for more domestic capital to be infused into the system. This is where governments like Karnataka’s can have meaningful impact,” it says.
As a solution, the report proposes the creation of a ₹5,000 crore FoF and suggests it could be a significant step in encouraging the ecosystem. “An ₹5,000 crore FoF could provide a solid foundation for Indian start-ups to grow,” it says.
The report also suggests a few focus areas for the FoF and these include startups from sectors such as fintech, IT, enterprise tech, deep science start-ups in health, water, agriculture, semiconductors, and other fields, and logistics and supply chain start-ups.
“Karnataka has a rich history of supporting entrepreneurship. The Karnataka State Financial Corporation has helped grow global giants such as Infosys, Biocon, and MTR Foods. This could be a useful model for the state to re-adopt, providing interest-free or low-interest loans and FoF grants to help accelerate the start-up ecosystem,” the report says.
Karnataka, the first state to come up with a dedicated startup policy in 2015, currently has more than 15,000 startups. The state has been topping NITI Aayog’s India Innovation Index every year since 2019.
