Sidbi has also enterd into a similiar agreement with Karnataka State Finance Corporation and Karnataka Small-Scale Industries Development Corporation (KSIDC) for floating a computer software specific fund in Karnataka. This fund is also in the process of being registered with Sebi. Similiar state specific funds in software sector and information technology with participation from Sidbi is currently being worked out in Orissa and Rajasthan, said sources. Sidbi is also interacting with variousstate governments, financial institutions, software industry associations and large software units for setting up dedicated software venture capital funds in other states which have a concentration of software units.

IL&FS's venture capital subsidiary will manage the software fund floated in Tamil Nadu, while KSIDC is in the process of shortlisting an asset management company to handling its Karnataka fund. IL&FS's venture capital arm already manages the SARA fund, which came as part of its takeover of Udayan Bose's Credit Capital Venture Fund last year.

The launch of software specific funds in Tamil Nadu and Karnataka is part of the new thrust that Sidbi is placing on the software industry. "In view of the high growth prospects of the software industry in India, there is a need to set up dedicated software venture capital funds for the SSI sector to satisfy the needs of this industry which has a different structure and asset base from most other businesses," said Sidbi sources.

The funds for thesoftware dedicated veture capital funds is sourced from Sidbi's existing allocation for venture capital funding, which has a corpus of Rs 60 crore. With allocation made to the two funds in Tami Nadu and Karnataka, the corpus is exhausted and will have to be refurbished by new allocation in the new fiscal.

The allocation is likely to be substantially higher this year because Sidbi feels that after the raising of the limit on SSI sector to Rs 3 crore, venture capital financing becomes more viable, especially in sectors like software. Other sectors where Sidbi is intending to launch dedicated venture capital funds are food processing, bio-technology and projects with high R&D component.

The government had notified the Rs 3 crore new investment ceiling for SSI sector in January. With this all projects where the cost of plant and equipment is within Rs 3 crore becomes eligible for being considered as an SSI. The earlier limit was Rs 60 lakhs.

According to sources, the advantage with sectors like software,which is more human capital intensive, is that a majority of the projects in these sector becomes eligible for Sidbi assitance.