RIICO, SIDBI to set up venture capital fund for IT projects

JAIPUR: In a bid to woo information technology entrepreneurs, Rajasthan State

Industrial Development & Investment Corporation (RIICO) in association with

Small Industries Development Bank of India (SIDBI) is setting up a venture

capital fund (VCF) for information technology (IT) and other knowledge based

projects. A formal announcement to this effect is likely to be made in the first

week May and a senior RIICO official has already been made CEO of the project.






"Rajasthan Venture Capital Fund" will be set up with an initial corpus
of Rs 16 crore with RIICO and SIDBI contributing a share of 50 per cent each to

the fund. The fund would target the small and medium enterprises (SMEs). Any

entrepreneur who plans to set up a new project or plans an expansion can get

'quasi equity' participation from the fund.






The plan to set up VCF is in line with the state government's information
technology policy 2000 in which it was mentioned that a policy initiative would

be taken to form VCF to encourage innovative IT and other software projects.

Various associations and trade bodies had also called for setting up VCF. The

trade bodies had opined that a VCF dedicated to the state based IT industry

would help in attracting entrepreneurs to set up new ventures and boost IT

industry in the state. "The need for VCF was felt because the units engaged

in software development have not been successful in attracting necessary support

from banks and financial institutions perhaps because of the lack of tangible

security ", a source in the state information technology department said.

Even the patronage of capital market has in the last few years diminished,

especially for initial public offerings from small companies. In this backdrop

setting up of VCF, he said, becomes crucial. He added that IT industry, being

technology specific is characterized by technocrats not having much experience

of independent corporate governance setting up new ventures. These ventures need

handholding and corporate governance support, which could be offered only by an

IT specific VCF, he added.






Even the success of the software industry in the US is largely to the easy
availability of venture funds. In the Indian context, where software industry is

growing at a healthy rate access to traditional sources of finance has largely

been confined to established companies. He said that there is a distinct need of

VCF that would invest exclusively in the venture capital units (VCUs) operating

in the IT industry. Such a VCF would act as a catalyst for development of the

industry in the state by making available the much-needed financial resources

and encourage entrepreneurial activity to create Infosys or Wipro of tomorrow.