Sidbi's SME fund draws Rs 350 crore from banks

The Rs 500 crore SME growth fund of Sidbi Venture Capital has received written commitments from various banks to the tune of Rs 350 crore. It will raise the balance Rs 150 crore in the next one month.

"Banks are really keen on small and medium enterprises," said Ajay Kumar Kapur, CEO, Sidbi Venture Capital Ltd. The funds were originally meant to be raised over two years. The fund will announce its first set of investment plans early next year.

"Based on the enthusiasm from the banks, we have decided to scale up the project," said Kapur. The fund has a targeted corpus of Rs 500 crore with a life of 8 years.

The SME growth fund is a "broad based fund" and will include sectors like IT, life sciences, pharma, healthcare, food processing, infrastructure and retailing, said Kapur.

"We are looking at proposals with customer validation, that the SME's business idea is really working," said Kapur.

The venture should have a viable business plan which offers above average profitability leading to attractive return on investment.

The initiative is sponsored by Sidbi jointly with major public sector banks like Punjab National Bank. The SME growth fund distinguishes itself as the largest VC fund dedicated to the SME.

The fund is registered with Securities and Exchange Board of India (SEBI) as a Venture Capital Fund and has been structured as a unit scheme to make primarily equity or equity-related investments in the growth oriented businesses having significant business activity in India. The fund seeks to achieve attractive risk-adjusted returns for its contributors through long-term capital appreciation.

The fund's focus is to invest in unlisted entities in the small and medium enterprises in manufacturing as well as services sector as also businesses providing infrastructure or other support to SMEs. It may also invest very selectively in listed entities, to take advantage of attractive opportunities in growing companies.

The fund will typically invest in companies at early stage as well as in second round financing for those with a track record of proven technology or business model and opportunities for growth and earnings. "Even established companies will be considered," added Kapur.

The mode of investment will include providing financial assistance primarily by way of equity or equity-linked capital investment.

The fund, being of limited life, will seek to invest in ventures offering a strategy for clear exit within a reasonable time period. The exit could be by way of IPO, offer for sale, merger and acquisition or sale to a strategic or a financial investor.