Dear finance minister, where’s the $1.6 billion you promised Indian startups?

It has been four months since India’s finance minister Arun Jaitley announced in his maiden budget speech an INR 10,000 crore (US$1.6 billion) fund for tech startups. Those were heady days right after the new government had come to power on the back of overwhelming support for Narendra Modi in the election. Business sentiment had perked up after being in the dumps under the divided leadership of the previous regime.

Days before Jaitley’s announcement in the budget speech, IT and telecom minister Ravi Shankar Prasad had met software industry bodies iSPIRT and Nasscom in Bangalore. He told them everything they wanted to hear and went back to Delhi with a laundry list of suggestions to give entrepreneurship a shot in the arm. The $1.6 billion fund topped the list.

A number of organizations have eagerly come forward since then to help the government manage the fund and invest the money. But the Ministry of Micro, Small, and Medium Enterprises, which is supposed to implement the budget proposal, has yet to come out with a plan of action.

Traditional government investment in small industries is very different from the startup venture capital scene, characterized by risky calls and a high failure rate. Government bodies are ill-suited both structurally and psychologically to play this game – not to mention being prone to political backlash when risky bets go bust.

But that doesn’t mean the fund is impractical. The startup ecosystem in the country today is vibrant with a number of international as well as local venture capital firms with proven track records of investment at every stage of a startup’s life cycle. So, all that the government has to do is partner with competent and willing VCs to help promising startups access the much-needed capital locked up in the finance ministry’s startup chest.

Need to walk the walk

Dave McClure, founder of 500 Startups, a leading VC from the San Francisco Bay Area, says that India needs more Micro VCs investing in thousands of startups, in order to increase the probability of finding tomorrow’s global tech innovators. This thesis fits well with the idea of a funding partnership between the government and VCs.

There is even a well-documented Israeli model for the government to copy or adapt. Way back in 1993, the Israeli government came up with the Yozma initiative, which basically doubled VC investments into startups with matching funds from the government. Today a series of Yozma funds forms the backbone of venture capital in Israel.

So the issue isn’t about not knowing how to deploy the government’s startup fund; it’s about a shift in government attitude to be able to partner with the venture capital industry.

It’s also about walking the walk, not just talking the talk. Narendra Modi has made all the right noises since coming to power, but patience is wearing thin among those who are waiting to see concrete action.

“Modi has said a lot of wonderful things, but so far nothing has happened, other than a lot of public relations,” legendary investor Jim Rogers, who co-founded the Quantum Fund with George Soros in the 1960s, said in a recent interview.

India’s finance minister Arun Jaitley

One more $1.6 billion tech fund?

During a panel discussion at the recent Nasscom Product Conclave in Bangalore, Mahesh Murthy, co-founder of Seedfund, said he had few expectations from the government. He only wished the government would get out of the way of entrepreneurs. Murthy’s maid, for example, was told she needed to obtain 19 clearances from different government agencies before she could launch the startup of her dreams – an online service for domestic help.