Third-party funding

This article is written by Sarvesh Sawant. This article has been edited by Ruchika Mohapatra (Associate, Lawsikho).

This article has been published by Sneha Mahawar. 

Introduction 

Venture capital (VC) is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. A private venture capitalist invests in organizations that have high potential or pay back substantial returns. Startups or founders from socially and economically backward classes face difficulty in accessing the resources required to grow their commercial venture. Due to a lack of business expertise and resources, these innovative ideas are either lost or underutilized. 

The Government of India through the Ministry of Social Justice and Empowerment has launched various funds to help innovative ideas from a socially and economically backward class of society convert into successful business ventures.  Ambedkar Social Innovation and Incubation Mission (ASIIM) is a scheme launched under Venture Capital Fund for Scheduled caste. This scheme is launched with a view to promote innovation and enterprise in students of SC communities studying in higher education and technology institutions. The objective is to encourage SC youth to engage in entrepreneurship rather than becoming job-seekers.

Venture capital fund for scheduled castes

As per the Census 2011, the SC population is 20.13 crore, which constitutes approximately 16% of the total population of India. There is huge potential for such a large community to prosper, hence there is a greater demand for providing concessional finance to such entrepreneurs for the upliftment of their businesses and community. 

The Venture Capital Fund for Scheduled Castes is an initiative by the Ministry of Social Justice and Empowerment (MSJE) and the Government of India to promote entrepreneurship among the scheduled caste population by providing finance to them at a concessional rate. The objectives of the fund are to promote entrepreneurship opportunities amongst the scheduled caste population who are ambitious and driven towards innovative technologies, thus increasing direct and indirect employment generation of the SC population and leading to the upliftment of the Scheduled Caste population. SC entrepreneurs willing to set up projects or units in the manufacturing or service sector and ensure asset creation out of the funds deployed shall be considered under this scheme. Moreover, SC women entrepreneurs should be given preference. The total corpus of the fund is 606 crores. The Industrial Finance Corporation of India acts as the sponsor, settler, and asset management company to operate the scheme. 

Venture capital fund for the backward classes

“Backward class” is a term used to classify castes that are socially and educationally disadvantaged. The Government of India is determined to uplift and develop the backward class community. The Venture Capital Fund for the Backward Classes is a fund launched by the Ministry of Social Justice and Empowerment to provide financial assistance at a concessional rate to companies promoted by entrepreneurs from the backward classes of the country. The objective of the fund is to promote entrepreneurship amongst the backward class population, to increase the financial inclusion of BC entrepreneurs and motivate them for further growth of the backward communities. Manufacturing or service units, as well as startups with the potential to create jobs, will be eligible for funding under this scheme.Preference shall be given to women and disabled entrepreneurs of the backward class. Financial assistance ranging between Rs. 20 lakhs and Rs. 5 crore shall be provided, including an 8-year moratorium period.

Ambedkar Social Innovation and Incubation Mission

The Ambedkar Social Innovation and Incubation Mission (ASIIM) was launched in 2020 by the Ministry of Social Justice and Empowerment (MSJE) in order to promote innovation and entrepreneurship among SC students studying in higher educational institutions. The main objective of the scheme is to develop entrepreneurship among SC/Divyang youth and enable them to become “job-givers” instead of “job-seekers”. 

Under this scheme, 1000 SC youth with start-up ideas will be identified through the Technology Business Incubators (TBIs) in the next 4 years. The main objective of the scheme is to support these 1,000 innovative ideas till 2024 through the TBI set up by the Department of Science and Technology. Initial funding of Rs. 30 lakhs will be provided for 3 years as equity funding to convert their startup into commercial ventures. Successful ventures would further qualify for venture funding of up to Rs. 15 crore from the Venture Capital Fund for Scheduled Castes. 

Eligibility under ASIIM 

The following SC youth or SC Divyang youth would be eligible for support under ASIIM. 

  • Youth who have been identified by TBIs, Atal Incubation Centers (AICs), Technology/Industrial Parks, Science and Technology Parks of India which are promoted by the Department of Science and Technology (DST) or other than DST, any other incubation center supported by the Government of India. 
  • Youth who have been identified for incubation by private TBIs can qualify for the scheme.
  • Students who have been awarded under the Smart India Hackathon or Smart India Hardware Hackathon conducted by the Ministry of Education are directly eligible. 
  • Students with innovative ideas for the socio-economic development of society as identified by the TBI’s can also benefit from this scheme. 
  • Startups which are supported and nominated by corporates under the Corporate Social Responsibility (CSR) fund. 

Search and selection process

To identify potential SC entrepreneurs, the TBI’s set up under the DST must be contacted and informed about the potential young SC entrepreneurs to avail assistance from VCFSC funds to kick-start their innovative ideas. 

Search 

  • A potential SC entrepreneur must be identified and informed by TBI.
  • On the recommendation of TBIs, a potential SC entrepreneur shall be identified to avail assistance from VCFSC to pursue their innovative ideas.
  • In addition to TBI’s, young potential entrepreneurs working in incubation centres can also be identified and informed about other technology and management schools.

Selection 

  • The startup ideas of SC and SC Divyang that are selected by TBI will be automatically selected for incubation. 
  • Other applications/proposals received from various scheduled castes and SC Divyang Start-Ups will be taken up as per the guidelines of the fund. 

Provision of equity 

  • The identified innovative ideas of SC students will be provided equity assistance with respect to TBI accommodation costs, hardware, software, fellowship, travel & marketing, IP filing, tool-room expenses, co-workers, etc. 
  • The innovative idea of the SC entrepreneur identified by TBI shall be provided with equity assistance of Rs. 30 lakhs over a period of 3 years under the VCFSC scheme.
  • During the three-year incubation period, the entrepreneurs will not be required to make any financial contributions to the company.
  • Expenses required for forming a company shall be borne by entrepreneurs or TBI.
  • Financial assistance shall be released to the entity promoted by the SC entrepreneur. 

Motivate youth

To motivate the SC youth to avail the benefits under the ASIIM scheme, wide publicity shall be done to seek the interest of potential candidates. As per the guidelines of the scheme, publicity shall be done in the following manner at least twice a year.

  • Connecting with students on all higher education campuses
  • promoting the scheme through social media, television and other media platforms.
  • Working with industry clusters and associations
  • Reaching out and interacting with various technology and management schools

General facts about ASIIM

How can an eligible person get funding under the scheme

  • In order to receive funding under ASIIM, the eligible SC entrepreneur must have a 51% holding in the private limited or limited company and also be associated with TBI.

What is the amount of funding under ASIIM

  • Companies owned by SC entrepreneurs and affiliated with TBIs are eligible for funding of up to Rs. 30 lakhs over a three-year period, i.e. Rs. 10 lakhs per year.

The funds infused by IFCI Ventures under ASIIM will constitute what percentage of the shareholding in the incubatee company?

  • The funds invested in the incubatee company must be in the form of equity shares, convertible preference shares, or mandatory convertible preference shares.The maximum conversion rate of convertible preference shares into equity shall be 49%.After three years of receiving funding, the conversion will take place.

What is the tenure of financial assistance under the scheme

  • 10 years starting from the date of the first disbursement of funding.

What projects are covered under ASIIM

  • Innovative ideas in manufacturing and service sectors are eligible under ASIIM.

Are proprietorships, partnerships, one-person companies (OPC) and limited liability partnerships (LLP) eligible to receive funding under ASIIM

  • Perpetuities, partnerships, one-person companies (OPC), limited liability partnerships (LLP), or any other form of establishment should convert itself into a private limited company or public company before getting assistance under ASIIM.

Conclusion 

Scheduled castes are those castes/races in the country that suffer from extreme social, educational, and economic backwardness arising out of the age-old practise of untouchability, and certain others on account of lack of infrastructure facilities and geographical isolation, and who need special consideration for safeguarding their interests and for their accelerated socio-economic development. ASIIM helps entrepreneurs belonging to economically weaker sections of society by providing abundant funding and incubation facilities. This scheme will encourage SC students to pursue innovation and entrepreneurship and also give a further boost to the Stand Up India programme of the government.


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