EPFO & LIC To Invest In Start-ups

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The Employees’ Provident Fund Organization (EPFO) & Life Insurance Corporation (LIC) have decided to invest strategically in upcoming start-ups. The aim is to fund more start-ups, as the number of funded start-ups increases, the chances of successful start-ups increase and hence the EPFO & LIC can provide higher returns for their members who have entrusted their savings to these 2 organizations.

The idea was welcomed by financial experts & members alike because as it stands, only about 10% of the 1.1 lakh+ start-ups in India currently have adequate funding. India ranks 3rd worldwide in the number of unicorn start-ups after USA & China. Unicorns are start-ups that are now worth more than $1 billion. The idea is if more start-ups are guaranteed funding, there will be more unicorns & successful start-ups resulting in better returns and thus higher interest rates on EPF & LIC savings. While the success ratio of start-ups is pretty low, even the few successful start-ups can make up for the losses & return profits from the investments made by EPFO & LIC.

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EPFO & LIC have a combined total of more than Rs. 51 crores in assets under management. If even a small part of these assets is invested as venture capital, the results would be higher returns & a much required push to Indian enterprises. Asset diversification to optimize the risk-reward trade-off is sound strategy. There is some caution to be taken in this process, given that venture fund investment is risky and startups carry a high probability of failure. Experienced venture funds & capitalists with a good track record of investment can ensure the funds are invested & pulled-out at the right time along with smart selection of start-ups to invest in.

The investment platform will be set up by Small Industries Development Bank of India (SIDBI), a bank that has been nurturing a start-up fund since 1999. The idea is to set up a technology platform through which there can be match-making and the field can be expanded. SIDBI has invested in companies like BillDesk which went on to become a unicorn. Successful IPOs of start-ups like Zomato will also encourage more investment at the start-up level and regular working-class citizens can also enjoy a fair share of profit from success of start-ups. Currently, India has only about 6 – 7 thousand angel investors compared to lakhs of angel investors in China & India. This investment plan from EPFO & LIC will help start-ups achieve early stage funding,

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