Introduction 

To bolster its early-stage startup ecosystem, Karnataka is getting ready to take  advantage of the substantial revenues produced by state-run public sector enterprises  (PSUs). The state administration has declared a new funding plan that will encourage  prosperous PSUs to invest directly in government-backed venture capital funds in an  effort to promote innovation and entrepreneurship outside of major IT clusters. 

This project is centered on two important funds: the Beyond Bengaluru Cluster Seed  Fund and the Karnataka Information Technology Venture Capital Fund (KITVEN-5). The  Beyond Bengaluru fund wants to raise ₹75 crore, while KITVEN-5 has set a goal of ₹100  crore. With the potential to create 1,000–1,500 direct and indirect jobs in the state,  authorities anticipate that these pools of cash will be able to sustain 15–18 companies. 

PSU Capital to Power Early-Stage Innovation 

Profit-making PSUs were previously only permitted to invest their excess profits in  comparatively secure securities like government bonds, bank deposits, inter-corporate  deposits, or government-managed mutual funds. These organizations can now invest  directly in state-approved venture capital funds thanks to the most recent legislative  change, which the government hopes will provide a more dynamic growth pathway for  startup finance.

According to the policy paper that Deccan Herald was able to obtain, the change not  only broadens the risk-return profile for state-owned businesses but also revitalizes the  supply of risk capital for innovative projects. Crucially, depending on investment traction and fund requirements, the money promised by PSUs will be delivered  progressively over a period of three to four years instead of all at once. It is anticipated  that this staggered drawdown strategy will ease PSU liquidity pressure while  guaranteeing ongoing startup support. 

Funding Structure and Stakeholder Participation KITS, the Karnataka Innovation and Technology Society, has already committed ₹25  crore to KITVEN-5, while the Karnataka State Industrial & Infrastructure Development  Corporation Ltd (KSIIDC) and Karnataka State Finance Corporation (KSFC) have each  committed ₹5 crore. In addition, KITS has committed an extra ₹20 crore to the Beyond  Bengaluru fund. These contributions collectively serve as the project’s foundation, and  the government is currently looking to raise the remaining ₹120 crore from state PSUs  and other qualified investors. 

Seven PSUs with declared net earnings over ₹100 crore have been identified as possible  donors. Hatti Gold Mines, Mysore Sales International Ltd., Karnataka Power  Transmission Corporation Ltd., Karnataka State Beverages Corporation Ltd., Karnataka  Renewable Energy Development Ltd., Karnataka Soaps & Detergents Ltd., and  Karnataka State Minerals Corporation Ltd. are few of them. Their involvement is seen as  essential to raising the last portion of funds needed for the dual-fund project. 

Legacy of KITVEN and Impact on the Startup Ecosystem KITVEN was one of Karnataka’s first institutional startup finance vehicles when it was  founded in 2000. It has made around ₹189.75 crore in investments over the years in 55  companies in industries like semiconductors, biotechnology, information technology, and animation-gaming-comics (AVGC). According to official records, 34 firms were  successfully exited by KITVEN-1, KITVEN-2, and the Karnataka Semiconductor VC Fund,  which returned ₹109.28 crore against an original investment of ₹73.22 crore, indicating 

strong performance and the creation of value for interested parties. While KITVEN-4, which is devoted to AVGC, is still in its active investment phase,  KITVEN-3 is still investing ₹76.68 crore in seven biotechnology-focused businesses.  Together, these funds have helped create about 5,500 jobs, making KITVEN a key pillar  of Karnataka’s innovation-driven economy. 

Conclusion 

In essence, Karnataka’s move to channel PSU profits into venture capital funds marks a  strategic push to strengthen the state’s startup ecosystem. By empowering early-stage  companies with structured funding, the government aims to unlock innovation,  generate employment, and ensure that public wealth fuels future growth If carried out  successfully, this project might place Karnataka as an even stronger hub for emerging  technologies and entrepreneurial success.