The Central Government has approved the establishment of Startup India Fund of Funds 2.0 with a total corpus of Rs 10,000 crore to mobilise venture capital for India’s startup ecosystem, the Department for Promotion of Industry and Internal Trade notified in the Gazette of India on April 13, 2026, with the scheme coming into force immediately and commitments to Alternative Investment Funds spread over the 16th and 17th Finance Commission cycles.
The scheme, formally named Startup India FoF 2.0, is an expanded and restructured successor to the Fund of Funds for Startups launched in 2016 under the original Startup India Action Plan. While the broad structure of contributing to the corpus of SEBI-registered Alternative Investment Funds for investment in equity and equity-linked instruments of government-recognised startups remains the same, the 2.0 version introduces a significantly more targeted segmented approach, operational flexibilities tailored to capital-intensive sectors, and a strengthened governance architecture.
The four-segment framework
The defining structural innovation in FoF 2.0 is a four-segment approach that directs capital to distinct categories of startups rather than treating the ecosystem as a single undifferentiated pool. Segment 1 covers AIFs supporting deep tech startups — those engaged in developing novel solutions to complex problems that involve longer research and development cycles and higher costs. Segment 2 covers smaller AIFs and micro venture capital funds focused on early growth stage startups that are in the initial phases of developing a technology, product, or service. Segment 3 covers AIFs supporting technology-driven innovative manufacturing startups from champion sectors under the Make in India initiative. Segment 4 covers sector and stage agnostic AIFs that support startups across all categories without a specific focus constraint.
The segmentation reflects a deliberate policy judgement that India’s startup ecosystem has matured beyond the point where a single undifferentiated fund of funds structure is optimal. Deep tech and manufacturing startups have fundamentally different capital requirements, investment timelines, and risk profiles compared to software and services startups — they require larger initial capital, have longer gestation periods before revenue, and are less attractive to private venture capital on purely commercial grounds. By carving out dedicated segments with tailored operational flexibilities, the government is explicitly directing public capital toward the categories where market failure is most pronounced.
Operational flexibilities
The scheme introduces several structural improvements over FoF 1.0. AIFs with larger corpuses will be supported to increase capital availability for deep tech and manufacturing segments. Longer duration AIFs will be supported to match the extended research and development timelines of deep tech startups. The scheme will contribute a higher proportion of corpus for deep tech and manufacturing segments where private capital is limited. The investment multiplier — the minimum amount an AIF must invest in startups as a multiple of the amount committed under the scheme — will be moderated to encourage a larger number of AIFs to participate.
Up to 5% of returns generated by the scheme will be earmarked for ecosystem development activities including awareness programmes, workshops, capacity building, mentorship, plug-and-play shared facilities, and regulatory support — a provision that recognises that capital alone is insufficient to build a startup ecosystem and that institutional infrastructure around founders matters as much as funding.
Implementation and governance
The Small Industries Development Bank of India, which was the implementing agency for FoF 1.0, will continue in that role for FoF 2.0, with one or more additional domestic implementing agencies to be selected to build capacity across institutions. AIFs will submit proposals to implementing agencies, which will conduct due diligence before a Venture Capital Investment Committee constituted by DPIIT — including industry representatives, subject matter experts, and implementing agency representatives — considers proposals for recommendation. Only AIFs managed by experienced professionals with proven track records will be considered.
Governance will be overseen by an Empowered Committee chaired by the Secretary of DPIIT, with representatives from relevant ministries and departments, the National Startup Advisory Council, and special invitees from the startup ecosystem. The committee will have powers to amend the scheme notification and operational guidelines within the broad parameters approved by the Cabinet.
Returns from the scheme, net of the 5% ecosystem development allocation, will be deposited back to the Consolidated Fund of India — ensuring that public capital deployed through FoF 2.0 is treated as a revolving investment rather than a grant, with successful exits recycling capital back to the government for future deployment.
The Rs 10,000 crore corpus represents a significant expansion from the Rs 10,000 crore that was announced under FoF 1.0, which had deployed approximately Rs 7,500 crore by the end of FY25 across over 100 AIFs that in turn invested in more than 1,000 startups. FoF 2.0’s expanded scope, segmented approach, and longer time horizon spanning two Finance Commission cycles signal that the government intends the scheme to be a permanent structural feature of India’s venture capital landscape rather than a time-limited intervention.
Disclaimer: This article is based on the official Gazette of India notification dated April 13, 2026 issued by the Ministry of Commerce and Industry. Business Unturn is not responsible for any investment decisions made based on this article.