SYLLABUS

GS-2: Government Policies and Interventions for Development in various sectors and Issues arising out of their Design and Implementation.

GS-3: Conservation, environmental pollution and degradation, environmental impact assessment.

Context: Recently, the Union Cabinet approved Startup India Fund of Funds 2.0 (FoF 2.0) with a corpus of ₹10,000 crore to mobilise venture capital for India’s rapidly expanding startup ecosystem.

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• The scheme has been launched under the Startup India initiative (2016) to address early-stage financing gaps and build on the first phase of the Fund of Funds for Startups (FFS).  
• It aims at accelerating the “next phase” of India’s startup journey by deepening domestic capital, strengthening the venture capital (VC) ecosystem and backing innovation‑led entrepreneurship.
  • VC is a form of private equity financing provided by investors to startups and early-stage companies with high growth potential, in exchange for equity.
• Aligned with the national vision of Viksit Bharat @ 2047, the Fund represents the Government’s continued commitment to empowering entrepreneurs, fostering innovation, and unlocking the full potential of India’s startup ecosystem.

Key Features of the Scheme

• Corpus and Structure: ₹10,000 crore government-backed corpus deployed through Alternative Investment Funds (AIFs) rather than direct startup funding, ensuring professional capital allocation.
  • AIFs are SEBI-regulated investment vehicle in India that pools capital from sophisticated, high-net-worth individuals or institutions to invest in non-traditional assets like private equity, hedge funds, venture capital, and real estate.  
• Sectoral Prioritisation: Strong focus on deep technology, frontier innovation, and tech-driven manufacturing, where long gestation and high-risk limit private investment.
• Lifecycle Support: Emphasis on early-growth and scaling-stage startups, addressing the funding gap between seed capital and commercial viability.
• Geographical Diversification: FoF 2.0 seeks to push capital beyond Tier‑1 metros, enabling innovation in Tier‑II/III cities and under‑served regions.
• Risk-capital Mobilisation: Designed to crowd-in domestic institutional capital and strengthen India’s venture capital base, particularly smaller and emerging funds.
• Governance Framework: An Empowered Committee will guide fund deployment, select AIFs, and ensure alignment with policy priorities and prudent risk management.

Building on Fund of Funds for Startups 1.0

• Launched in 2016, FFS 1.0 also had a ₹10,000 crore corpus; the entire amount has been committed to 145 AIFs.
• These AIFs have invested over ₹25,500 crore into more than 1,370 startups across sectors, including agriculture, AI, robotics, automotive, clean‑tech, consumer goods, e‑commerce, education, fintech, food & beverages, healthcare, manufacturing, space tech and biotech.
• FFS 1.0 is credited with nurturing first‑time founders, catalysing private capital and laying the institutional foundation of India’s VC ecosystem.
• While FFS 1.0 primarily plugged early funding gaps and built confidence, FoF 2.0 is explicitly tasked with “taking Indian innovation to the next level” by focusing on deep‑tech, advanced manufacturing and scaling‑up capital.

Significance of the Scheme

• Innovation-led Economic Growth: Supports development of globally competitive technologies, products, and platforms, strengthening India’s position in emerging industries.
• Manufacturing and Self-Reliance: Channelises capital toward advanced manufacturing and strategic technologies, complementing initiatives like Make in India and Atmanirbhar Bharat.
• Job Creation and Productivity: High-growth startups contribute to skilled employment, productivity gains, and new value chains in the digital and industrial economy.
• Domestic Capital Formation: Encourages institutional and private participation in venture financing, reducing reliance on volatile foreign capital flows.
• Balanced Regional Development: By extending funding beyond major cities, FoF 2.0 can democratise entrepreneurship and stimulate innovation in Tier-II and Tier-III regions.

About Startups

• Under the Startup India framework, a startup is typically a young, innovation‑driven entity meeting criteria related to age (less than 10 years old), turnover (now expanded up to ₹200 crore), and innovation or scalability potential.
• India’s startup ecosystem has witnessed an extraordinary transformation, growing from fewer than 500 startups to over 2 lakh Department for Promotion of Industry and Internal Trade (DPIIT)-recognised startups today.
  • Year 2025 marked the highest-ever annual startup registrations.
• The number of unicorns has grown from 4 in 2014 to nearly 125 active unicorns, with around half of the startups originating from Tier II and Tier III cities.
• Recently, the Department for Promotion of Industry and Internal Trade (DPIIT) has released the 5th edition of the States’ Startup Ecosystem Ranking.
  • Gujarat emerged as the top performer in Category A for the fifth consecutive year, while Arunachal Pradesh and Goa were adjudged best performers in Category B.
• Startups have emerged as major job creators, having generated an estimated 21 lakh jobs across the country.
• Presently, 31 of the 36 States/UTs have a dedicated Startup Policy.

SOURCES
PIB
The Hindu
DD News
IBEF ORG