The Union Cabinet, led by Prime Minister Narendra Modi, recently approved the establishment of the Startup India Fund of Funds 2.0, backed by a substantial corpus of Rs. 10,000 crore. This new initiative builds upon the success of its predecessor, Fund of Funds for Startups 1.0, launched in 2016. The original fund aimed to tackle funding shortages within India’s dynamic startup ecosystem and stimulate the domestic venture capital market. With this second iteration, the government is adopting a more structured and forward-thinking approach, specifically targeting support for cutting-edge startups in deep tech, advanced manufacturing, and those in their crucial early growth phases.
Empowering Startups: The Rs. 10,000 Crore Fund of Funds 2.0
The creation of Startup India FoF 2.0 means that a significant Rs. 10,000 crore fund is now available to encourage private investors across the country to inject capital into promising startups. This mechanism mirrors a common venture capital model where the government indirectly supports startups by providing funds to domestic investors.
Through this approach, the venture capital market gains access to vital capital, enabling it to back startups with high-growth potential or those introducing disruptive innovations. The initial phase of this scheme, launched in 2016, successfully allocated funds to 145 Alternative Investment Funds (AIFs). These AIFs, in turn, invested more than Rs. 25,500 crore into over 1,370 Indian startups spanning diverse sectors such as agriculture, artificial intelligence (AI), robotics, automotive, clean tech, consumer goods, and e-commerce.
With Startup India FoF 2.0, the government is honing its strategy, focusing on specific areas. The initiative is designed to bolster deep tech and technologically driven manufacturing startups, prioritizing advancements in high-tech fields that often require long development cycles. Additionally, early-growth stage founders, who frequently face challenges in securing funding and adequate support, will receive enhanced priority under this updated scheme.
Furthermore, the Union Cabinet is expanding its focus beyond major metropolitan areas, actively encouraging venture capitalists to invest in startups located in India’s smaller cities and rural regions. The government has also pinpointed high-risk capital gaps in sectors crucial for achieving national self-reliance and fostering economic development, ensuring that startups operating in these vital areas receive preferential support.