Karnataka government eyes rich PSU profits to raise money for startups using venture capital funds

The Karnataka government is eyeing profits earned by public sector undertakings (PSU) to raise money for early-stage startups through two state-backed venture capital (VC) funds.

The government has allowed rich PSUs - those with a net profit exceeding Rs 100 crore - to invest in or subscribe to the fifth edition of the Karnataka Information Technology Venture Capital Fund (KITVEN) and the Beyond Bengaluru Cluster Seed Fund.

While KITVEN-5 is targeting a corpus of Rs 100 crore, the Beyond Bengaluru fund will have Rs 75 crore. The government estimates that the two funds can support 15-18 startups, creating 1,000-1,500 direct and indirect jobs.

The KITVEN-5 has already received investment commitments from the Karnataka Innovation and Technology Society (Rs 25 crore), Karnataka State Industrial & Infrastructure Development Corporation Ltd and the Karnataka State Finance Corporation (Rs 5 crore each). KITS has also committed Rs 20 crore to the Beyond Bengaluru fund.

The government wants to raise the remaining Rs 120 crore from other investors, including state PSUs.

Currently, profit-making PSUs are allowed to use their surplus funds on inter-corporate deposits, government bonds, fixed/term deposits with banks and government-backed mutual funds.

“Enabling state-owned PSUs to expand their financial reach to government-approved VC funds...will not only diversify risk and returns, but also provide more impetus and proliferate the growing needs of risk capital to startups,” the government said in a policy document seen by DH.

“...the commitment received from state PSUs will not be drawn down upfront and will be drawn over a period of 3-4 years based on investment opportunities,” the document states.

The government has identified seven PSUs with a net profit of Rs 100 crore: Hatti Gold Mines Company Ltd, Karnataka Renewable Energy Development Ltd, Karnataka Soaps & Detergents Ltd, Karnataka State Beverages Corporation Ltd, Mysore Sales International Ltd, Karnataka Power Transmission Corporation Ltd and Karnataka State Minerals Corporation Ltd.

Launched in 2000, KITVEN has invested Rs 189.75 crore in 55 startups across sectors. KITVEN-1, KITVEN-2 and the Karnataka Semiconductor Venture Capital Fund have exited 34 startups with a value of Rs 109.28 crore against an investment of Rs 73.22 crore by subscribers, the document says.

KITVEN-3, for the biotechnology sector, has investments worth Rs 76.68 crore in seven startups. KITVEN-4, in the AVGC sector, is still making investments.

According to the government, KITVEN has contributed to the creation of 5,500 jobs.