Security check holds up VC fund for defence SMEs
A RS 1,200-crore venture capital fund being set up for small & medium enterprises (SMEs) in the defence sector has run into red tape. The fund, with advisors such as former RBI deputy governor Vepa Kamesam, Lt Gen VJ Sundaram, who is leading the flight vehicle design team for Prithvi, and Tata Strategic Electronics CEO Rahul Chowdhry, has been put on hold by the Foreign Investment Promotion Board (FIPB). Lack of clearance from the defence ministry and ‘potential conflict of interest’ related to the advisors of the company are cited to be the reasons behind the hold-up. This is the first venture fund of such size being set up to invest in Indian defence SMEs. The move comes at a time when MNCs are vying for multi-billion dollar defence deals, including a mega order for fighter aircraft. The fund is promoted by Rajesh Narayan who was earlier director and India head (specialist finance) at ANZ Investment Bank. The segments of investment identified by the fund include military aircraft, helicopters, radars, submarines, missiles, rocker launchers, simulators, tanks and torpedoes. Investment would be made in SMEs which are vendors for these products. Many SMEs supply components, technology and design for such products. The fund plans to raise $100 million (Rs 400) crore initially with subscriptions from foreign investors, with provisions to scale up investment by $200 million (Rs 800 crore). Christened India Rizing Fund, the VC fund has informed FIPB that it would look at other sectors at a later stage. Since issue of units to foreign investors by VC funds requires clearance by FIPB, the issue was taken up recently, but deferred for seeking views of the defence ministry.