Business APAC
April 15, 2025
Suppose you’re an Indian startup working in cutting-edge areas like artificial intelligence, machine building, or other new-age technologies. In that case, there’s significant news: The government plans to channel a large slice of its latest Rs 10,000 Cr startup fund specifically toward ventures like yours.
This funding comes via the second ‘Fund of Funds Scheme’ (FFS) for startups, a follow-up to a similar ₹10,000 crore initiative launched back in 2016. This new Rs 10,000 Cr startup fund, announced in the Union Budget, clearly shows the government’s intent to inject capital into strategically vital and future-shaping industries.
An official connected to the Commerce and Industry Ministry put it plainly: “We are going to dedicate a lot of this Rs 10,000 Cr startup fund of funds largely for the new age tech, AI, and machine building.” This highlights a deliberate policy to encourage growth in these specific high-potential fields.
So, how does this money reach the startups? It’s not direct government handouts. The system is expected to work much like the first FFS. The Small Industries Development Bank of India (SIDBI), the financial institution focused on smaller enterprises, managed the first fund and is expected to run this one too.
Funding the Future: The Mechanism and the Mission
SIDBI acts as a sort of capital wholesaler–it allocates funds to various SEBI-registered investment firms known as Alternative Investment Funds (AIFs). These professional AIFs then use their expertise to scout, evaluate, and invest this capital directly into promising Indian startups, typically through equity or equity-linked deals.
Why the laser focus on these particular tech sectors? This targeted funding is part of the government’s bigger push under the ‘Startup India’ initiative (launched January 16, 2016, which has already recognized over 150,000 startups across 55+ industries). The thinking is that fields like AI, machine building, deep tech, robotics, and biotech often need more ‘patient capital’ – funding that can support longer research and development cycles before profits materialize.
There’s also talk, notably from Commerce Minister Piyush Goyal recently, about using a good portion of this Rs 10,000 Cr startup fund specifically for seed-stage funding, helping smaller, innovative deep-tech players get off the ground when accessing traditional capital is toughest.
The Plan in a Nutshell: 5 Key Points
- The Money: A fresh Rs 10,000 Cr startup fund (the second ‘Fund of Funds’ or FFS) is being set up to back startups.
- Priority Areas: A major focus will be on startups in Artificial Intelligence (AI), machine building, new-age tech, and potentially deep tech fields.
- How Funds Flow: Expect SIDBI to manage the overall fund, giving capital to professional investment firms (AIFs), which then invest directly in startups.
- The Goal: To spur innovation in key future industries, provide needed ‘patient capital’, support early-stage/seed funding, and strengthen the Startup India ecosystem.
- Been Here Before?Yes, this is round two. The first ₹10,000 crore FFS started in 2016 and reportedly helped trigger much larger investments via the AIFs it supported.
Will This ₹10,000 Crore Bet on Tech Startups Pay Off?
So, the government putting this Rs 10,000 Cr startup fund toward AI and other cutting-edge tech startups sends a strong message – they’re serious about backing these future industries. But you have to wonder how it’ll all play out in reality.
For this Rs 10,000 Cr startup fund to make a difference, it needs to get into the hands of the right startups efficiently – the ones with truly fresh ideas, especially those deep-tech companies that need funding to stick with it for the long haul.
That journey, through SIDBI and the investment firms they choose (the AIFs), isn’t always straightforward. There’s always the risk of getting bogged down in red tape or hoping the investment managers picked know their stuff in these super-specialized fields and aren’t just backing cool ideas that might not fly as actual businesses.
Look, there’s huge potential here to boost India’s tech future, but the real proof will be seeing if this investment helps create solid, game-changing companies down the road.
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