On Monday, the government introduced a new Rs 10,000 crore Fund of Funds (FoF) version 2.0. This initiative aims to sustain investment flows into startups, building on the previous Fund of Funds Scheme (FFS 1.0) with a broader reach. The program will allocate funds to SEBI-registered alternative investment funds (AIFs) that focus on equity and related investments in government-recognized startups. Maintaining the same Rs 10,000 crore allocation and AIF-based framework, the updated scheme adopts a targeted approach to investments. It prioritizes four key segments: deep technology funds, micro venture capital supporting early-stage companies, funds emphasizing manufacturing in line with the ‘Make in India’ initiative, and funds without specific sector restrictions. Commitments will be made to SEBI-registered AIFs during the 16th and 17th Finance Commission periods. The Small Industries Development Bank of India (SIDBI) will serve as the main agency for implementation, assisted by another local organization. FoF 2.0 permits bigger fund scales, extended durations, and possibly increased government funding for sectors requiring substantial capital. Additionally, it establishes a comprehensive co-investment structure, enabling ministries and institutional investors to contribute alongside the government. Up to 5% of returns will be allocated for ecosystem enhancement, such as mentoring, facilities, and skill development. A new Empowered Committee, in addition to the Venture Capital Investment Committee (VCIC), will monitor outcomes. The original FFS 1.0, with its Rs 10,000 crore pool, attracted over Rs 90,000 crore in total, aided more than 80 funds, and helped create over 20 unicorns, while broadening capital availability outside major cities. Data from SIDBI indicates that over Rs 3,533 crore has supported more than 220 deep technology startups, reflecting increased emphasis on advanced innovation. Separately, Rs 3,547 crore has backed 184 startups led or co-led by women. Investments totaling Rs 2,145 crore have reached 185 startups in smaller cities, indicating ecosystem expansion beyond urban centers. Collectively, these supported startups have created more than 200,000 jobs. FoF 2.0 is expected to similarly strengthen the venture capital landscape and boost India’s economy via entrepreneurial activities.
