Startup India Fund of Funds 2.0 Notified

The Central Government has notified the Startup India Fund of Funds 2.0 with a total corpus of ₹10,000 crore, aimed at mobilising venture capital for the country’s startup ecosystem. The fund seeks to enhance access to venture capital across stages and sectors, while providing a strong impetus to innovation-driven manufacturing and the development of long-gestation technologies.

Originally launched in 2016 under the Startup India Action Plan, the first edition facilitated investments of ₹25,500 crore across more than 1,370 startups through 145 Alternative Investment Funds (AIFs). The scheme contributes to the corpus of SEBI-registered AIFs, which in turn invest in equity and equity-linked instruments of recognised startups. These investments are deployed in tranches over a defined period, with supported AIFs also playing a key role in mentoring and nurturing their portfolio companies prior to exit or divestment.

The second edition expands the scope of the scheme to include AIF segments focused on deep tech, technology-driven innovative manufacturing, early growth-stage startups, as well as sector- and stage-agnostic investments. The revised framework also introduces greater operational flexibility, including support for AIFs with larger corpus sizes and longer fund durations.

Further, an Empowered Committee (EC) with inter-ministerial representation will be constituted to provide strategic guidance and oversight. The framework also envisages the appointment of more than one Implementation Agency (IA) to build institutional capacity for managing such schemes. Additionally, 5% of the returns will be earmarked for ecosystem development initiatives, including sensitisation programmes, workshops, capacity building, plug-and-play shared infrastructure, mentorship, and regulatory support. The Department for Promotion of Industry and Internal Trade (DPIIT) will issue detailed operational guidelines to give effect to the expanded scope of the scheme.

The scheme received Cabinet approval in mid-February this year. While the Startup India Fund of Funds (FoF 1.0) played a catalytic role in mobilising capital for the startup ecosystem, several concerns were noted in its implementation. These included relatively slow and uneven capital deployment, evidenced by gaps between commitments and actual disbursements as well as delays attributable to its indirect investment structure through AIFs rather than direct funding.[1] Accessibility challenges persisted, particularly for early-stage and non-metro startups, with funding concentrated in leading hubs and select regions. [2]Stakeholders also pointed to procedural inefficiencies and limited reach, alongside a continued skew in funding towards later-stage ventures and certain sectors, leaving early-stage and deep-tech segments relatively underserved. [3]Collectively, these challenges highlighted issues around timely disbursement, equitable access, and sectoral balance, which appear to have informed the expanded scope and design of FoF 2.0.

[1] https://www.impriindia.com/insights/fund-of-funds-initiative-india

[2] https://www.pib.gov.in/Pressreleaseshare.aspx?PRID=1895964

[3] https://timesofindia.indiatimes.com/city/hyderabad/thin-ecosystem-low-visibility-keep-telangana-startups-away-from-big-funding/articleshow/123004452