Entrepreneurs would soon be able to set up their start-up firms with financial help from the state government in the form of venture capital funds.
On the sidelines of a seminar titled Capital Access to MSME organised by Confederation of Indian Industry (CII), officials of the industry department said initially an agency, comprising experts in assets management, would be appointed as a step in that direction.
Venture capital funds provide initial capital required for a start-up. Then, once the firm starts earning profits, the stakeholders sell off their equities. MSME stands for micro, small and medium enterprises.
“The state government is looking to finance start-up firms and other entrepreneurs. The state will be the lesser stakeholder. Its stake will be 25 per cent and is focusing on participation of private parties towards the formation of the fund. The funding will be in the form of equities,” said Shailesh Thakur, the directorate of industries director.
Any person wishing to set up a firm would be eligible for the venture capital fund. However, no decision has been taken on the disbursal of the funds as yet.
The idea of venture capital fund was first floated in January this year. Naveen Verma, principal secretary, industries, had told The Telegraph in January: “We have had talks with Sebi (Securities and Exchange Board of India) and the RBI regarding the same. The state is planning to create the fund to help investors.”
The venture capital is a kind of financial capital provided to a private limited company that is starting up, that means it is in its early stage and has high potential. The venture capital fund makes money by buying the equity of the companies it invests in. The financial institutions, before buying the equity of any start-up company, first studies the firm in detail and a valuation is done before investing.
“The management of the fund would remain in the hands of the to-be-appointed assets management company. The company would form a trust and the state government’s share (25 per cent) would be a part of it. The company would be paid for their services. After that the assets managers would approach private players towards the creation of the fund. Points decided by the government will be floated to industry bodies and their suggestions will be taken. We would decide whether the fund would be sector-specific or generic in nature,” Thakur said.
“There is the Bihar State Financial Corporation (BSFC) but it is defunct. It has got no funds to finance new industries,” an industrialist said.
The state intends to create some “angel investors” to fund the start-up industries. An angel investor is an affluent investor or individual who provides capital for a new industry being set up for monetary returns. “It is a new concept for Bihar but the state government can always give a try,” a department official said.