Department of Promotion of Industry and Internal Trade (DPIIT) has issued operational guidelines for ₹10,000 crore Startup India Fund of Funds 2.0, which lays down a framework for deploying capital to strengthen India’s startup funding ecosystem.
According to the statement of the Ministry of Trade and Industry on Saturday, the corpus will be bound during the 16th and 17th cycle of the Finance Commission.
The program will not invest directly in startups. Instead, it will invest in Sebi-registered Category I and Category II Alternative Investment Funds, which in turn will deploy money in DPIIT-recognized startups through equity, equity-linked and debt instruments.
The move is expected to ensure disciplined capital allocation, pooling of private investment and wider access to finance across sectors, phases and geographies.
Small Industries Development Bank of India (SIDBI) will start the implementation of the scheme as the initial implementing agency. DPIIT also ensured the selection of an additional domestic implementing agency at a later stage to expand reach and capacity.
Read also | Mirae Asset to lead Krafton, Naver in 6000 cr bet. to Indian tech startups
Four segments of funds
The guidelines divide eligible AIFs into four segments – funds supporting deep technology startups, smaller AIFs supporting early-stage growth startups, funds focused on technology-driven and innovative manufacturing startups, and funds for startups regardless of sector or stage.
For deep technology funds, the government contribution can be up to 40% of the AIF corpus with a maximum limit ₹500 crore, with a maximum tenure of 18 years. Smaller early stage funds with a corpus of up to ₹400 million crowns can receive up to 30% support ₹100 million and a maturity of up to 10 years. Funds focused on production can receive up to 30% support with a maximum limit ₹200 crore while sector agnostic funds can receive up to 25% subject to a cap ₹180 million crowns.
The scheme requires minimum investment multipliers. Deep-tech AIFs must invest 1.5 times the amount allocated under the scheme, smaller seed-stage funds twice the allocated amount, manufacturing-focused funds 1.75 times and sector-focused funds 2.5 times.
Read also | The US-Iran war is opening up a rare sweet spot for Indian space startups
The total contribution from various central and state fund schemes in any selected AIF will be limited to 50% of the corpus of the fund, although the Venture Capital Investment Committee (VCIC) may prescribe a lower limit based on market assessment.
Two-stage screening
The AIF selection will take place in two phases. The Implementing Agency will invite proposals and conduct due diligence, after which the Venture Capital Investment Committee will review and recommend the proposals. The final sanction will be given by a subcommittee of the council of the implementing agency.
A DPIIT press release said the VCIC includes prominent leaders from industry, academia and the innovation ecosystem such as Vallabh Bhansali, Ashok Jhunjhunwala, Renu Swarup, Chintan Vaishnav and Rajesh Gopinathan, along with representatives from the implementing agency.
The guidelines state that due consideration should be given to supporting startups outside metropolitan regions to expand and deepen the ecosystem. The implementing agency will also ensure safeguards against misuse of funds, including due diligence by the AIF on initial beneficiaries and disclosure of other government support received.
Monitoring architecture
The monitoring provisions include annual utilization reports covering the AIF’s investments, funded companies and the net asset value of the investments. DPIIT will review the scheme at least half-yearly.
An Empowered Committee, chaired by the DPIIT Secretary, will oversee implementation and performance, while third-party evaluations are to be conducted every five years from commissioning.
Read also | One year, 12 startups: India AI Mission faces first real test
The scheme also allows for joint investments or additional corpus contributions by ministries, departments and institutional investors for specific sectors. Up to 5% of the proceeds can be used for ecosystem development initiatives such as sensitization programmes, workshops, capacity building, shared plug-and-play facilities, mentoring and regulatory support.
Distributions from the scheme, net of such permitted use, shall be deposited back into the Consolidated Fund of India. Any temporarily unused funds held by the implementing agency shall bear interest at the prevailing RBI repo rate, which shall be credited back to the corpus.
