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India's ₹10,000-crore startup fund asks states to co-invest
Commerce ministry directs states to stop parallel funds and co-invest through FoF 2.0, targeting deep tech and tier-2/3 cities.
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The commerce ministry has told states and union territories to stop building separate startup funding vehicles and instead put money into the newly approved ₹10,000-crore Startup India Fund of Funds 2.0. Two people aware of the development said the goal is to concentrate public capital under a single national framework while pushing venture funding into smaller cities and capital-intensive sectors like deep technology and advanced manufacturing.
Over 15 states currently run their own startup funds. The ministry wants them to align incubators with FoF 2.0 priority sectors, build investment-ready startup pipelines, and encourage public sector undertakings and industry bodies to co-sponsor sector-specific alternative investment funds. The shift follows the Union cabinet's February approval of FoF 2.0, the successor to the 2016 original.
The revamped scheme introduces four investment segments: deep tech, manufacturing, micro venture capital, and agnostic funds. That replaces the sector-agnostic structure of the first fund. The government's contribution to AIFs rises from 25% to 40%. Investment tenure for deep-tech and manufacturing funds extends from 12 years to 18 years. Implementation moves from a SIDBI-only model to a multi-agency framework, with additional agencies expected to be onboarded.
An empowered committee chaired by the DPIIT secretary will oversee the new framework. The scheme also earmarks 5% of investment returns for ecosystem development through a consolidated Fund of India structure and places greater emphasis on strengthening startup ecosystems in tier-II and tier-III cities via an umbrella co-investment platform.