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IIMS Journal of Management Science
Year : 2019, Volume : 10, Issue : 3
First page : ( 128) Last page : ( 140)
Print ISSN : 0976-030X. Online ISSN : 0976-173X.
Article DOI : 10.5958/0976-173X.2019.00010.1

Evolution of Fund Selection, Sanctioning and Monitoring Process under the Fund of Funds Operations

Mustafa Mohammad

I.A.S, is currently working as Chairman & Managing Director of Small Industries Development Bank of India (SIDBI), Mumbai, Maharashtra, India. He can be reached at md.mustafa.research@outlook.com

JEL Classification Code: G11, G24, M13

Online published on 15 January, 2020.

Abstract

Venture capital or private equity investing is a fledging global industry. This article wishes to delve into aspects of fund underwriting, sanctioning and monitoring taking the example of the fund of funds (FFS) under the Small Industries Development Bank of India. The FFS was designed as a sector-agnostic fund, created with the specific purpose of extending support to the fledging start-up ecosystem in India. The primary goal of this fund was to support 10, 000 start-ups over 12 years and create 18 lakh additional jobs. SIDBI was entrusted with the responsibility of managing this FFS in June 2016, and subsequently the FFS has undergone significant changes in its fund management operations. This article relies on interviews with key management personnel of the FFS, desktop research and analysis of the pertinent reports and circulars issued by Ministry of Commerce and Industry, Department of Industrial Policy and Promotion as well as other SIDBI internal documents, along with comprehensive data analysis to explore the evolution of the fund management process. The article finds that there are significant improvements in timelines for approval and sanction amounts over time, with a notable shift from reactive monitoring of funds disbursed to a proactive one. The article can serve to be a key learning for other sovereign funds and LPs with regard to objectivity in decision-making, transparency as well fund performance monitoring.

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Keywords

Venture capital, fund of funds, limited partner, fund selection, monitoring.

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