Cabinet approves fund for startups to mobilise venture capital, support deep-tech entities

Government Launches Major Venture Capital Initiative to Support India's Startup Ecosystem

In a significant move to strengthen India's innovation landscape, the Union Cabinet has approved the establishment of Startup India Fund of Funds 2.0, a comprehensive venture capital program with a corpus of ₹10,000 crore. This initiative represents a major commitment to accelerating the growth of India's startup ecosystem by mobilizing long-term domestic capital and reducing dependence on foreign investment. The fund is designed to address critical funding gaps in high-risk, high-potential sectors that are essential for India's technological advancement and economic self-reliance.

The new fund builds upon the success of the earlier Fund of Funds for Startups, which was launched in 2016 as part of the broader Startup India initiative. Over the past decade, this program has successfully nurtured India's startup base, which has grown from fewer than 500 startups to more than 200,000 recognized entities today. The original fund committed its entire ₹10,000 crore corpus to 145 alternative investment funds, which collectively invested more than ₹25,500 crore into over 1,370 startups across diverse sectors including agriculture, artificial intelligence, robotics, automotive, cleantech, fintech, healthcare, and space technology.

Targeted Support for Deep-Tech and Manufacturing Ventures

The Startup India Fund of Funds 2.0 adopts a segmented funding approach with a strong emphasis on deep-tech and tech-driven innovative manufacturing startups. These sectors typically require patient, long-term capital investment that private venture capitalists may be hesitant to provide due to the extended development timelines and higher risk profiles. By focusing on these challenging areas, the scheme aims to address what government officials describe as high-risk capital gaps that are crucial for India's technological progress and industrial competitiveness. The fund will also extend support to early-growth stage founders to reduce failure rates caused by inadequate funding during critical development phases.

By supporting startups that build globally competitive technologies, products, and solutions, the Fund will contribute to strengthening India's economic resilience, boosting manufacturing capabilities, generating high-quality jobs, and positioning India as a global innovation hub.

One of the key strategic objectives of this initiative is to democratize startup funding beyond major metropolitan centers like Bengaluru and Delhi. The government aims to encourage venture capital investment across all regions of the country, ensuring that innovative ideas and entrepreneurial talent in tier-two and tier-three cities have equal access to growth capital. This geographic diversification approach recognizes that innovation potential exists throughout India and that limiting investment to established startup hubs may result in missed opportunities.

Strengthening India's Domestic Venture Capital Ecosystem

A critical focus of the Startup India Fund of Funds 2.0 is strengthening India's domestic venture capital base, particularly smaller funds that have traditionally struggled to compete with larger, well-established investment firms. By channeling government capital through private investment firms, the fund of funds model enables the government to support startups indirectly while leveraging the expertise and market knowledge of professional venture capitalists. This structure helps build a more resilient and diverse venture capital industry that can sustain long-term growth in the startup ecosystem.

The timing of this approval is particularly significant given recent policy changes aimed at easing pressure on deep-tech companies. The government has doubled the classification period for such firms from 10 years to 20 years and raised the revenue threshold for startup-specific tax and regulatory benefits from ₹1 billion to ₹3 billion. These complementary reforms create a more supportive environment for long-gestation technology ventures that may take years to reach substantial revenue levels but represent significant potential for innovation and economic impact.

The cabinet's decision reflects India's strategic vision for achieving developed nation status by 2047, with innovation and entrepreneurship positioned as key drivers of this transformation. By mobilizing substantial venture capital toward sectors critical for self-reliance and economic growth, the government is demonstrating its commitment to converting India's demographic advantages and technical talent into globally competitive technological capabilities. The initiative acknowledges that government support through indirect capital deployment is more efficient than direct funding models, as it harnesses the expertise and accountability mechanisms of professional fund managers.

In conclusion, the approval of Startup India Fund of Funds 2.0 represents a pivotal moment for India's entrepreneurial ecosystem. With its ₹10,000 crore corpus focused on deep-tech, innovative manufacturing, and early-stage ventures, the fund is positioned to play a transformative role in shaping India's economic trajectory. By strengthening domestic venture capital infrastructure, expanding funding access beyond major cities, and providing patient capital for high-risk sectors, this initiative demonstrates the government's commitment to fostering innovation-led growth and establishing India as a global innovation hub.