Economy & BudgetImportant2026-02-14

Cabinet Approves Startup India FoF 2.0

In News

What Happened

On February 14, 2026, the Union Cabinet approved the Startup India Fund of Funds (FoF) 2.0 with a total corpus of ₹10,000 crore. Managed by the Small Industries Development Bank of India (SIDBI), the fund is designed to mobilize venture capital into the Indian startup ecosystem. It shifts to a targeted approach, specifically prioritizing deep tech, innovative manufacturing, and early-growth stage startups.

Why It Matters

This initiative is crucial for addressing the severe funding gaps in high-risk, capital-intensive sectors like deep tech and advanced manufacturing. By leveraging a fund-of-funds model to catalyze private venture capital, it aims to reduce India's reliance on foreign capital for strategic technologies and bolster domestic innovation.

Background

History & Context

The original Fund of Funds for Startups (FFS) was established in June 2016 under the Startup India Action Plan with an initial ₹10,000 crore corpus. Supervised by the Department for Promotion of Industry and Internal Trade (DPIIT) and managed by SIDBI, the FFS successfully mobilized significant domestic venture capital via Alternative Investment Funds (AIFs). As the ecosystem matured, policymakers recognized that while SaaS and e-commerce were well-funded, R&D-heavy sectors remained starved of capital, necessitating the focused mandate of FoF 2.0.

What Changed

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Sector Focus: BEFORE, FFS 1.0 was largely sector-agnostic, supporting startups across various consumer and enterprise domains. NOW, FoF 2.0 adopts a targeted approach, deliberately channeling capital into deep tech and tech-driven innovative manufacturing.
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Stage Prioritization: BEFORE, funds were broadly distributed across early-stage seed and Series A rounds. NOW, there is a specialized emphasis on early-growth stage startups that typically face critical "valley of death" funding gaps.
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Allocation Strategy: BEFORE, capital allocation to AIFs lacked strict sectoral carve-outs. NOW, the segmented approach ensures dedicated tranches of venture capital are reserved for high-risk, strategically important technologies.

Prelims Angle

NCERT Connection

This concept connects to 'Industrial Development' in the Class 11 NCERT Indian Economic Development textbook. It provides a contemporary application of how the government uses developmental financial institutions (like SIDBI) to intervene and correct market failures—specifically the lack of risk capital—by backing Alternative Investment Funds (AIFs).

Practice Questions

Q1

Correct Statement(s)

Which of the following statements regarding the Startup India Fund of Funds (FoF) is/are correct? 1. The fund operates by directly investing equity capital into early-stage startups via DPIIT. 2. The second iteration (FoF 2.0) has shifted focus to specifically prioritize deep tech and tech-driven innovative manufacturing startups.

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