India Approves $1.2B Startup Fund

- This new fund is a follow-up to the initial Fund of Funds for Startups (FFS 1.0) launched in 2016. The first phase also had a corpus of Rs 10,000 crore and committed the entire amount to 145 Alternative Investment Funds. - The first Fund of Funds successfully leveraged the initial government corpus to generate further investment, with the supported funds investing over Rs 25,500 crore in more than 1,370 startups. - Unlike a direct investment vehicle, the Fund of Funds operates by committing capital to SEBI-registered Alternative Investment Funds (AIFs), which then make the direct investments into startups. - A key objective of the new fund is to expand support beyond major metropolitan hubs and encourage the growth of innovation ecosystems in tier-II and tier-III cities. - The approval of this fund comes at a time when private funding for Indian startups has seen a downturn, with a 17% drop to $10.5 billion in 2025 and a nearly 39% fall in the number of funding rounds. - The Department for Promotion of Industry and Internal Trade (DPIIT) is the central government body responsible for the overall Startup India initiative. Since its launch in 2016, the number of DPIIT-recognized startups has grown from under 500 to more than 200,000. - This second fund will have a more targeted approach, prioritizing early-growth stage startups to address funding gaps that often lead to early-stage failures, a period often referred to as the "valley of death" in venture financing. - The Small Industries Development Bank of India (SIDBI) was the managing body for the first Fund of Funds and is expected to continue playing a crucial role.