Guidelines for Startup India FoF 2.0 out: Why they matter
What's the story
The Department for Promotion of Industry and Internal Trade (DPIIT) has unveiled the operational guidelines for the ₹10,000 crore Startup India Fund of Funds 2.0 (FoF 2.0). The scheme aims to boost capital flow into India's start-up ecosystem by investing in SEBI-registered Category I and II Alternative Investment Funds (AIFs). These funds will then invest in DPIIT-recognized start-ups, ensuring disciplined capital allocation and also wider access to funding across sectors.
Implementation agency
Implementation agencies and their roles
The Small Industries Development Bank of India (SIDBI) will be the first implementation agency for FoF 2.0. It will implement the scheme via a structured AIF selection and monitoring process. DPIIT also plans to onboard another implementation agency later, to expand reach and enhance sectoral expertise. This two-pronged approach is aimed at addressing gaps in the ecosystem by ensuring wider access to funding across sectors, stages, and geographies.
Fund categories
Eligibility criteria for AIFs under FoF 2.0
The guidelines for FoF 2.0 have divided eligible AIFs into four categories: funds supporting deep-tech start-ups, smaller AIFs backing early-growth stage start-ups, funds focused on tech-driven and innovative manufacturing start-ups, and sector- or stage-agnostic startup funds. Each category has its own set of parameters like corpus thresholds, government contribution limits, tenure and minimum private capital mobilization ratios to ensure disciplined capital allocation in India's start-up ecosystem.
Investment requirements
Minimum investment multipliers
FoF 2.0 mandates minimum investment multipliers for different AIF categories. Deep-tech AIFs must invest 1.5 times the amount committed under the scheme, smaller early-stage funds twice that amount, manufacturing-focused funds at least 1.75 times, and sector-agnostic funds at least 2.5 times their commitment. This ensures that the scheme's contributions are effectively utilized to stimulate growth in India's start-up ecosystem across various sectors and stages of development.
Selection procedure
AIF selection process under FoF 2.0
The selection of AIFs under FoF 2.0 will be a two-stage process. The implementation agency will invite proposals and conduct due diligence, after which the Venture Capital Investment Committee (VCIC) will screen and recommend proposals. Final sanction will be granted by a sub-committee of the implementation agency's board. The VCIC comprises industry, academia, and innovation ecosystem leaders like Vallabh Bhansali, Ashok Jhunjhunwala, Renu Swarup among others.
Ecosystem expansion
Monitoring provisions and safeguards against fund misuse
The guidelines for FoF 2.0 stress on supporting start-ups beyond metro regions to widen and deepen the ecosystem. The implementation agency will ensure safeguards against misuse of funds, including due diligence by AIFs on beneficiary start-ups and disclosure of other government support received. Monitoring provisions include annual utilization reports covering the AIF investments, companies funded, and net asset value of investments with DPIIT, reviewing the scheme at least every six months.