What Happened
- The Union Cabinet approved the Startup India Fund of Funds 2.0 with a Rs 10,000 crore corpus to mobilise venture capital and support deep-tech entities.
- Key focus areas include deep tech startups, early-growth stage startups through smaller funds, tech-driven innovative manufacturing startups, and sector/stage agnostic startups.
- The fund aims to address the funding gap for innovation-led entrepreneurship that requires patient, long-term capital.
- Under the first phase, Rs 10,000 crore was committed to 145 AIFs, catalysing Rs 25,500 crore in investments across 1,370+ startups spanning AI, robotics, clean tech, fintech, healthcare, manufacturing, biotech, and space tech.
- The scheme seeks to expand the startup ecosystem beyond metro cities to tier-2 and tier-3 cities.
Static Topic Bridges
Venture Capital Ecosystem in India
Venture capital (VC) is a form of private equity financing provided to early-stage, high-growth companies. India's VC ecosystem has grown rapidly -- from approximately $4 billion in annual VC investment (2015) to approximately $25 billion (2021 peak), before moderating to approximately $10-12 billion in 2024-25. However, structural gaps persist: over 80% of VC funding is concentrated in Bengaluru, Mumbai, and Delhi-NCR; deep tech receives only 8-10% of total funding; and early-stage (seed and pre-Series A) remains underfunded relative to later stages.
- India ranks 3rd globally in startup ecosystem size (after US and China)
- VC investment peak: $25 billion (2021); moderated to $10-12 billion (2024-25)
- Geographic concentration: Bengaluru (35%), Mumbai/Delhi-NCR (40%), rest of India (25%)
- Sectoral concentration: fintech, e-commerce, SaaS dominate; deep tech, agritech, climate tech underfunded
- Key government VC initiatives: Startup India FoF, iDEX (defence), BIRAC (biotech), SISFS (social impact)
- Angel investor networks: Indian Angel Network, Mumbai Angels, ah! Ventures
Connection to this news: FoF 2.0's design -- channelling funds through smaller AIFs and targeting regional expansion -- directly addresses the geographic and sectoral concentration problems in India's VC ecosystem.
India's Industrial Policy and Manufacturing Push
India's industrial policy has evolved from import substitution (pre-1991) to liberalisation (1991) to targeted incentive-based manufacturing support (2020 onwards). The Production-Linked Incentive (PLI) scheme, launched in 2020 across 14 sectors with a total outlay of Rs 1.97 lakh crore, provides output-based incentives to boost domestic manufacturing. The Make in India initiative (2014) aimed to increase manufacturing's share of GDP from approximately 15-17% to 25%. The National Policy on Electronics (NPE 2019) and Semiconductor Mission (Rs 76,000 crore) further target high-tech manufacturing.
- PLI scheme: 14 sectors including mobile phones, pharma, auto components, textiles, solar PV, semiconductors
- Make in India: launched September 2014; target 25% manufacturing GDP share (currently approximately 17%)
- India Semiconductor Mission: Rs 76,000 crore; approved fabs by Tata Electronics (with PSMC), CG Power
- National Deep Tech Startup Policy (NDTSP): under development by DPIIT, expected 2026
- Defence production: target Rs 1.75 lakh crore by 2025; 68% indigenisation in defence procurement
Connection to this news: The FoF 2.0's focus on "tech-driven innovative manufacturing" aligns with India's broader industrial policy objective of moving up the value chain from assembly to design-led manufacturing, filling the gap between PLI-supported large manufacturers and innovative manufacturing startups.
SIDBI's Role in Development Finance
The Small Industries Development Bank of India (SIDBI), established under the SIDBI Act, 1989, is the principal development financial institution for the promotion, financing, and development of MSMEs. SIDBI operates as the fund manager for the Startup India Fund of Funds, channelling government investment into the AIF ecosystem. Beyond the FoF, SIDBI runs the Fund of Funds for Subordinate Debt (FFSD), the Credit Guarantee Scheme for Micro and Small Enterprises (CGTMSE), and the SMILE scheme for micro and small enterprises.
- SIDBI established: April 2, 1990 (under SIDBI Act, 1989); carved out of IDBI
- Headquarters: Lucknow; Chairman and Managing Director appointed by the Government of India
- SIDBI's Fund of Funds role: invests in AIFs that meet SEBI regulations; no direct startup investment
- CGTMSE: covers credit guarantees up to Rs 5 crore for MSMEs without collateral
- SIDBI ASPIRE Fund: Rs 310 crore for promoting innovation and rural industry incubators
- SIDBI Venture Capital Limited (SVCL): a subsidiary for direct equity investments in MSMEs
Connection to this news: SIDBI's proven track record as FoF 1.0 manager -- successfully committing the full Rs 10,000 crore to 145 AIFs and catalysing Rs 25,500 crore in actual investments -- provides institutional credibility for the scaled-up FoF 2.0 programme.
Key Facts & Data
- FoF 2.0 corpus: Rs 10,000 crore; FoF 1.0: Rs 10,000 crore (total: Rs 20,000 crore)
- FoF 1.0 multiplier: Rs 10,000 crore government investment generated Rs 25,500 crore in startup investments (2.55x)
- Startups funded under FoF 1.0: over 1,370 across 145 AIFs
- India's total DPIIT-recognised startups: over 1.30 lakh
- VC funding in India (2024-25): approximately $10-12 billion
- Deep tech share of VC funding: approximately 8-10%
- Geographic concentration: 75% of VC funding in top 3 cities