Franklin Templeton India crisis: Startups feel the jitters

Another chief executive of a Bengaluru-based startup said that generally the board of directors approve of liquid funds where the money can be parked. And if it is for the long term, then companies park in year-long fixed deposits.

Startups raise millions of dollars from investors through multiple rounds and not all of that is put into operations. They keep the extra money parked in fixed deposits and debt mutual funds. They keep drawing from the funds as per their requirements.

The choice of fund is decided by the board of directors. In case of early stage startups, the decisions are usually taken by the investors or the accelerators that they would be part of.

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"We had done some research and our initial estimates had suggested that there would be liquidity issues in the market and debt funds were not the safest place to park the money in such an environment. Most of my portfolio companies have already withdrawn from such investments,"
said a top executive at a venture capital fund which invests in early stage startups.

Given the situation, fixed deposits will now find favour among these startups. But it is more of a sentiment than facts since there are multiple other debt funds in the market which have not faced closure.

With the economy grinding to a halt because of the pandemic and the ensuing lockdown, there has been surplus liquidity in the market. But banks are reluctant to give credit to smaller entities and instead are parking their money with the central bank at much lower interest rates. Given the lack of liquidity in the market, Franklin Templeton decided to shut down few of its mutual funds mainly to protect its investors.