Fund of Funds for Startups: How India Used Government Capital to Unlock Private Investment
A ₹10,000 Crore Experiment That Changed the Way Startups Are Funded in India
India's startup ecosystem has undergone a remarkable transformation over the past decade. One of the important policy interventions behind this transformation has been the Fund of Funds for Startups (FFS), established by the Government of India under the Startup India initiative and managed by the Small Industries Development Bank of India (SIDBI) on behalf of the Department for Promotion of Industry and Internal Trade (DPIIT).
The fundamental idea behind FFS was simple but powerful: the Government would not invest directly in individual startups. Instead, it would invest in professional venture capital funds and AIFs, which would then invest in startups.
This created a multiplier effect for public capital.
The ₹10,000 Crore Model
The Government announced a ₹10,000 crore corpus for the Fund of Funds for Startups in 2016. The structure was deliberately designed as a fund-of-funds rather than a direct startup investment programme.
The capital flow works broadly as follows:
Government of India / DPIIT
↓
SIDBI – Fund of Funds
↓
SEBI-registered AIFs / Venture Capital Funds
↓
Startups
The Government therefore leverages the investment expertise, networks and due-diligence capabilities of professional fund managers rather than attempting to select individual startups itself. Startup India describes the FFS as a mechanism through which SIDBI provides capital to VC funds/AIFs, which then invest in startups. (Startup India)
The Numbers Tell the Story
The programme has grown substantially beyond its initial stages.
According to the latest figures published through the Government's Startup India ecosystem reporting, as of June 2025, SIDBI had committed ₹11,958 crore to 155 AIFs under FFS.
Of this:
₹7,286.29 crore had been released by DPIIT to SIDBI.
₹6,221 crore had been disbursed by SIDBI to AIFs.
These AIFs had catalysed investments of approximately ₹23,679 crore into 1,282 startups. (Startup India)
This is the critical feature of the model: government capital acts as catalytic capital rather than being the sole source of funding.
The objective is therefore not simply to spend ₹10,000 crore. It is to use public capital to attract significantly larger pools of private and institutional capital into India's startup ecosystem.
Why Does a Fund of Funds Matter?
A conventional government funding programme could invest directly into startups.
The FFS model takes a different approach.
Instead of asking:
“Which startup should the Government invest in?”
the model asks:
“Which professional investment funds should receive catalytic capital so that they can identify and invest in promising startups?”
This creates several advantages.
1. Professional Investment Management
AIFs and venture capital funds bring investment professionals, sector expertise, due diligence capabilities and networks to the process.
2. Capital Multiplication
Government capital can be combined with private capital raised by the underlying funds.
3. Portfolio Diversification
Rather than concentrating public money in a limited number of startups, the FoF model provides indirect exposure to a diversified portfolio through multiple funds and companies.
4. Development of the Venture Capital Industry
The model also helps strengthen the institutional venture capital ecosystem by providing capital to fund managers.
5. Government as a Catalyst
The Government does not need to become the principal decision-maker for every startup investment. Its role becomes that of a catalyst and ecosystem builder.
From Startup Funding to Economic Development
The significance of FFS goes beyond the ₹23,679 crore invested in startups.
The broader objective is to create an ecosystem in which startups can access:
Equity capital
Professional investors
Mentoring
Strategic networks
Follow-on funding
Market access
Institutional governance
Successful startups can subsequently raise additional rounds from domestic and international investors, creating a larger economic impact from the initial government intervention.
In this sense, the real product of a Fund of Funds is not merely capital—it is an investment ecosystem.
India's Fund-of-Funds Approach Is Now Evolving
The Government has now taken the concept further.
In April 2026, the Government notified the Startup India Fund of Funds 2.0, again with a ₹10,000 crore corpus. The new scheme is intended to mobilise venture capital for startups while placing greater emphasis on areas such as deep technology, smaller venture capital funds, innovative manufacturing and sector/stage-agnostic startups. (Startup India)
The new scheme specifically recognises that certain sectors require different forms of capital.
For example, deep-tech companies may require:
Longer R&D cycles
Larger amounts of capital
Longer investment horizons
Greater tolerance for technological risk
The 2.0 framework therefore provides for a more segmented approach, including support for deep-tech AIFs, smaller AIFs supporting early-growth companies and AIFs investing in technology-driven manufacturing. (Startup India)
The Bigger Lesson for States
Perhaps the most important lesson from India's FFS experience is that a government or development institution does not necessarily need to invest directly in every enterprise to create economic impact.
A properly designed Fund of Funds can become a capital multiplier.
This model has already attracted interest at the state level. SIDBI's reporting has highlighted initiatives such as the ₹100 crore Maharashtra Fund of Funds, intended to support Maharashtra-based startups. (SIDBI). The model can potentially be adapted to a state's own economic priorities.
For example, a state-focused FoF could establish investment themes around: Deep Tech | Manufacturing | Healthcare | Climate Tech | Logistics | Tourism | Agriculture | Digital Services | MSMEs
The state can then leverage professional fund managers to identify and invest in businesses within these strategic areas.
| AIF Category | Commitments (₹ cr) | Funds Raised (₹ cr) | Investments Made (₹ cr) | Key Focus Areas |
|---|
| Category I AIFs | 1,05,249 | 58,772 | 50,530 | Infrastructure, SME, Social Impact, VC Funds |
|---|
| Category II AIFs | 12,74,300 | 4,44,122 | 4,12,628 | Private Equity, Real Estate, Debt Funds |
|---|
| Category III AIFs | 3,14,713 | 1,99,829 | 2,13,207 | Hedge Funds, Complex Trading Strategies |
|---|
| Grand Total | 16,94,262 | 7,02,723 | 6,76,365 | Diversified Alternative Investments |
|---|
Sources: Government of India / Startup India, SIDBI and DPIIT. Figures above are based on the latest official figures available in the cited government sources.
