The Department for Promotion of Industry and Internal Trade (DPIIT) has released operating guidelines for the ₹10,000 crore Startup India Fund of Funds (FoF) 2.0.
The government body has outlined how it plans to utilise capital for startups through venture capital firms. The broader plan is to strengthen India’s startup ecosystem by improving access to funding, particularly for early-stage and innovation-driven companies.
The new framework builds on the earlier Fund of Funds model and is designed to address funding gaps across sectors. This includes deep technology, artificial intelligence and emerging digital infrastructure.
The framework will accelerate capital deployment while ensuring oversight and accountability in fund allocation.
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Focus on Early-Stage, DeepTech and Strategic Sectors
Under the updated guidelines, FoF 2.0 will prioritise investments in early-stage startups and sectors considered critical for India’s long-term growth. These include deep tech, artificial intelligence, machine learning, semiconductor design, and other innovation-led industries.
Unlike direct funding, the government here continues to invest through Alternative Investment Funds (AIFs), which, in turn, allocate capital to startups. This indirect structure leverages private-sector expertise to identify high-potential assets while reducing investment risk.
The framework further focuses on diversification. This means that funds backed under FoF 2.0 must be invested across different stages and geographies. This will ensure that startups beyond major hubs such as Bengaluru and Delhi-NCR gain equal access to capital.
DPIIT has also outlined some performance-linked criteria for fund managers. This is done to improve capital efficiency and ensure that public funds deliver measurable outcomes in innovation, job creation and scale.
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Focus on Impact, Governance and Deployment
The framework vouches for stricter monitoring mechanisms to track fund utilisation and performance. Selected AIFs will adhere to defined reporting standards, ensuring transparency in the deployment of funds.
Under the defined framework, Small Industries Development Bank of India (SIDBI), which manages the FoF, continues to act as the operational arm. It will be responsible for evaluating funding proposals, allocating capital, and monitoring performance in accordance with the new guidelines.
FoF 2.0 is set to address persistent funding challenges faced by startups, particularly in early and growth stages, where private capital remains limited or risk-averse. By anchoring investments, the government aims to target private funding and improve overall liquidity in the ecosystem.
The initiative closely aligns with India’s broader push to become a global innovation hub. Given the increased focus on the latest technologies and domestic capabilities, the fund will support startups working in areas linked to digital public infrastructure, manufacturing and next-generation technologies.
Industry experts said that “timely integration” will be key to success. While the first FoF helped catalyse venture capital activity, delays in fund allocation were a concern. The new guidelines seek to address these issues by streamlining processes and setting clearer timelines.
