India’s Startup India Fund of Funds (FoF) program is expanding its focus beyond its initial mandate. The Department for Promotion of Industry and Internal Trade (DPIIT) has notified Startup India FoF 2.0 with a ₹10,000 Cr corpus, effective April 13. According to Inc42 Media, the scheme now covers deeptech, micro VCs for early-stage startups, and tech-driven manufacturing. Prime Minister Narendra Modi approved the second edition in February, with disbursals to alternative investment funds (AIFs) planned across the 16th and 17th finance commission cycles.
Expanded Segments and Capital Allocation Framework
Startup India FoF 2.0 maintains the core “funds-of-funds” structure while expanding the types of startups eligible for funding. Rather than investing directly in startups, the scheme channels public capital into SEBI-registered AIFs, which then deploy capital into startups.
According to Inc42 Media, the expanded segments include:
• AIFs supporting deeptech startups developing novel solutions that address complex problems with longer R&D cycles and higher costs.
• Micro VCs supporting early-stage startups in the early phases of developing their solutions.
• AIFs supporting tech-driven manufacturing startups.
• AIFs supporting sector and stage-agnostic startups.
These categories address different stages and risk profiles. The deeptech segment targets R&D timelines and cost structures that may be difficult to match with shorter-duration funding models. The inclusion of tech-driven manufacturing suggests an intent to support startups where product development and commercialization depend on industrial processes. The sector and stage-agnostic category broadens the range of technology areas eligible for evaluation by AIFs.
Implementation Structure and Governance
The scheme operates through a structured governance model. The Small Industries Development Bank of India (SIDBI) will act as the implementing agency, with DPIIT also selecting an additional implementation agency.
According to Inc42 Media, the process includes:
• Proposal and due diligence: Implementing agencies will seek proposals from AIFs and conduct due diligence.
• VCIC review: A DPIIT-constituted Venture Capital Investment Committee (VCIC), including industry representation and subject matter experts, will evaluate investment proposals. The notification states that “VCIC will consider AIFs managed by experienced professionals with proven track records for funding under the Scheme.”
• Tranche-based investments: After selection, AIFs will evaluate startups for investments in tranches.
• Mentoring requirements: AIFs are required to mentor and nurture startups before reducing their stakes.
• Complementary funding: AIFs may raise funds from other investors besides the FoF to meet their target corpus, suggesting the scheme is intended to complement rather than replace private capital.
Timeline and Historical Context
Startup India FoF 1.0 was launched in 2016 under the Startup India action plan with an initial corpus of ₹10,000 Cr. The primary goal was to catalyze private investment into Indian startups.
In a written reply before the Rajya Sabha in February, Minister of State for Commerce Jitin Prasada reported that AIFs supported under the scheme have invested ₹25,548 Cr in 1,371 startups across 29 states and union territories. These supported startups have generated over 2 lakh jobs. The source does not provide a breakdown by sector, technology type, or stage.
Implementation Considerations
FoF 2.0’s expansion toward deeptech and tech-driven manufacturing indicates a policy focus on addressing technology development constraints, particularly longer R&D cycles and higher costs. However, Inc42 Media does not provide performance metrics for the new segments or results from the April 13 launch.
Several implementation details could influence whether the technology focus translates into investment behavior:
• AIF selection criteria: The VCIC’s focus on AIFs with proven track records could favor teams with prior experience in deeptech or manufacturing commercialization cycles.
• Tranche-based structure: Investments in tranches could align with staged technology milestones, though the notification does not specify milestone types.
• Mentoring and support: AIF mentoring requirements could support complex technology projects, though the source does not define what “mentor and nurture” includes in practice.
• Leverage of private capital: The permission for AIFs to raise additional funds could expand available capital for technology startups, though the source does not quantify expected additional capital.
Source
Source: Inc42 Media