Inside the investment strategy of the government’s new Fund of Funds

The government rolled out a Rs 10,000 crore Fund of Funds (FoF) 2.0 on Monday. The FoF 2.0 has been designed to continue the momentum of investments in startups, with an expanded scope over the Fund of Funds Scheme (FFS 1.0).

The scheme will contribute to the corpus of SEBI-registered alternative investment funds (AIFs) for investing in equity and equity-linked instruments of entities recognised as startups by the central government.

What is Funds of Funds 2.0?


While retaining the same Rs 10,000 crore corpus and AIF-led structure, the new scheme will follow a segmented investment strategy.

It explicitly targets four areas: deeptech funds, micro VCs backing early-stage startups, manufacturing-focused funds aligned with ‘Make in India’, and sector-agnostic funds.

The second iteration will deploy commitments to Sebi-registered Alternative Investment Funds (AIFs) over the 16th and 17th Finance Commission cycles.

The Small Industries Development Bank of India (SIDBI) will act as the primary implementation agency, with another domestic institution to be appointed to support execution.

FoF 2.0 will also allow larger fund sizes, longer tenures, and potentially higher government contribution in capital-intensive sectors.

Lastly, the scheme introduces an umbrella co-investment framework, allowing ministries and institutional investors to pool capital alongside the government. It also earmarks up to 5% of returns for ecosystem development, including mentorship, infrastructure and capacity building.

Alongside the Venture Capital Investment Committee (VCIC), a new Empowered Committee will oversee performance.

Why this matters now

Fund of Funds for Startups (FFS 1.0), a Rs 10,000 crore corpus helped mobilise over Rs 90,000 crore, supported over 80 funds, and contributed to the rise of more than 20 unicorns, while expanding access to capital beyond metro hubs.

According to the SIDBI website, over Rs 3,533 crore has been channelled into more than 220 deeptech startups, underlining a growing policy push toward high-technology innovation. Separately, Rs 3,547 crore has gone into 184 women-led or co-led startups.

The scheme has also made investments of Rs 2,145 crore in 185 startups based in tier II and tier III cities, signalling a widening of the startup ecosystem beyond metros. In terms of employment, FFS-backed startups have collectively generated over 2 lakh jobs so far.

FFS 2.0 will play a similar vital role in building a strong venture capital market and driving India’s economic growth through entrepreneurship.