The Indian government has unveiled the operational framework for the ₹10,000-crore Startup India Fund of Funds 2.0 (FoF 2.0), aimed at streamlining capital deployment to the nation’s startup ecosystem. The guidelines, released on Saturday, detail the fund’s governance and investment approach, marking a significant step in enhancing early-stage startup financing across sectors and regions.

Under the new framework, FoF 2.0 will channel investments exclusively through SEBI-registered Category I and II alternative investment funds (AIFs). These AIFs are tasked with investing in startups recognized by the Department for Promotion of Industry and Internal Trade (DPIIT). This model is designed to ensure disciplined allocation of capital, attract private sector investments, and broaden funding access beyond traditional hubs and industries.

The Small Industries Development Bank of India (Sidbi) will serve as the initial implementation agency responsible for executing the scheme. Sidbi will oversee a structured selection and monitoring process for the participating AIFs, ensuring oversight and accountability. The DPIIT also plans to bring on additional implementing agencies to expand the program’s reach, deepen sectoral expertise, and build institutional capacity.

A notable provision within the guidelines mandates that all capital returns and redeemable amounts from the fund be returned to the Consolidated Fund of India, with the exception of up to 5% of returns, which will be earmarked for capacity building within the startup ecosystem.

To encourage strategic investment focus, AIFs supporting deep technology startups will be required to invest at least 1.5 times the amount committed by FoF 2.0 into such ventures. Similarly, funds targeting early-growth startups must invest double the committed amount in their portfolio companies. Caps on fund contributions to individual AIFs are also specified: a maximum of ₹500 crore or 40% of the AIF’s corpus for deeptech-focused funds, and ₹200 crore or 30% of corpus for technology-driven and manufacturing startup funds.

The FoF 2.0 received cabinet approval in February as a follow-up to the initial Startup India Fund of Funds initiative. Its primary goals include mobilising additional venture capital and strengthening support for startups operating in deeptech, tech-driven manufacturing, and early-growth stages.

A two-tier selection mechanism has been prescribed for AIFs seeking investment from FoF 2.0. After an initial screening and due diligence conducted by the implementing agency, proposals will undergo assessment by a Venture Capital Investment Committee. This committee will evaluate potential AIF partners based on their management track record, fund governance capabilities, and investment strategies.

Through the involvement of Sidbi and the emphasis on AIF-led deployment focused on innovation-intensive sectors, the government aims to catalyse disciplined and efficient capital flows that reinforce India’s position as a growing hub for technology-driven entrepreneurship.