Budget 2025: Shot in the arm for startups with Rs 10K cr new fund of Funds

The FM said that the initial FoF announced by the government with an investment of Rs 10,000 crore managed to catalyse commitments worth Rs 91,000 crore

Finance Minister Nirmala Sitharaman’s announcement of a new Fund of Funds (FoF) with an expanded scope of Rs 10,000 crore has brought cheer to the Indian startup sector, which has been navigating a funding winter for the past few years. 

 

The initial FoF, announced by the government in 2016 with an investment of Rs 10,000 crore managed to catalyse commitments worth Rs 91,000 crore, said the minister. She added that the centre will explore a Deeptech FoF to provide a stimulus to the next generation of startups incubated in the country. 

 

“The Alternate Investment Funds (AIFs) for startups have received commitments of more than Rs 91,000 crore. These are supported by the Fund of Funds set up with a Government contribution of Rs 10,000 crore. Now, a new Fund of Funds, with expanded scope and a fresh contribution of another Rs 10,000 crore will be set up,” said the FM in her speech while presenting the Budget.

 

 

Sanjeev Bikhchandani, founder InfoEdge and also investor in firm like Zomato in a post on X (formerly Twitter) welcomed the initiative.  “The first fund done a few years ago gave a huge fillip to the Indian Venture Capital (VC) industry. Dozens of Indian VC funds got set up providing risk capital to hundreds of startups,” said Bikhchandani. 

 

Early stage investors said that this announcement would give impetus for more domestic venture capitalist to increase their funding. 

 

“The Fund, which builds on the FFS scheme launched in 2016, will reduce reliance on foreign investments with essential capital up to the seed, growth stage. This would be in compliance with the Startup India action plan and will bring about a lot of domestic funding and innovation along with making India a global leader in deeptech and entrepreneurship,” said Padmaja Ruparel, Co-Founder, IAN Group.

  The first FoF was launched in 2016. The government provides these funds through SEBI (Securities Exchange Board of India) registered AIFs (Alternative Investment Funds). This has given an impetus to the Indian startup ecosystem over the last few years.

 

“A particularly exciting development is the exploration of a DeepTech Fund of Funds, aimed at accelerating advancements in critical technologies such as AI (artificial intelligence), quantum computing, and semiconductor research. This move aligns with India's vision to lead the global innovation curve, ensuring that homegrown startups can compete at an international scale,” said Prashanth Prakash, Partner, Accel; a VC firm. 

 

Startups said the creation of a new FoF will expand the scope of research and development (R&D) among new age firms in fast-growing sectors besides assistance in raising new rounds of funding. Many also believed that this will lead to more patient capital in the ecosystem.

 

“FoF will assist Startups to bridge the gap in the funding in an environment where VCs and private market investors have taken a temporary backseat,” said Anurag Jain, founder, KredX; a supply chain finance startup. 

 

Bhaskar Majumdar, managing partner, Unicorn India Ventures believes that the government realises the future innovation is the heart of economic growth as the global wars are fought around AI and Semiconductor.

 

“Given that deeptech is being seen as an area for growth at the national level, with a China +1 macro and creation of the PLI/DLI schemes of the government, this is a great step,” he added.

 

India’s tech sector clocked $11.3 billion in funding in 2024, a minor 4 per cent increase from $10.9 billion it raised in 2023. However, the number on the lower side when compared to $25.8 billion the sector raised in 2022, according to data from market intelligence platform Tracxn. 

 

The country is ranked fourth after the US, UK and China in terms of total funding to tech startups. At present, the country has over 1.4 lakh startups. India minted six new unicorns in 2024 alone. 

 

The AI focus in the Budget is also being cheered. There is a 48 per cent increase in the budgeted estimate for the IT ministry over the revised estimates for the last fiscal. The IndiaAI mission, which has a total outlay of Rs 10,372 crore over the next five years, has been allocated Rs 2000 crore this year. The government aims to establish 20 AI curation units at the central level for the AI datasets program and 80 AI labs across various higher education institutes across the country. 

 

Elements: Fund of Funds for startups

 

-- Fresh contribution of Rs 10,000 crore by Centre

 

-- Expected to reduce reliance on foreign capital

 

-- Startups will focus on R&D, impetus to emerging sectors

 

-- Centre to explore a dedicated deeptech fund

 

-- The FoF launched in 2016 has commitment of Rs 91,000cr

 

GCC National Framework

 

The FM also announced the creation of a national framework as guidance to States for promoting global capacity centres (GCCs) in emerging tier-II cities. This will be the first time that such a framework is being created.

 

“With 80 per cent of global firms yet to establish GCCs in India, this initiative unlocks tremendous potential for transforming India's attractiveness as the global GCC capital, while creating millions of skilled jobs across the country's emerging urban centers,” said Lalit Ahuja, CEO ANSR.

 

Ahuja added that ANSR has partnered with organizations such as KDEM, GIFT City and several state governments to amplify the GCC expansion to tier-II cities. States such as Karnataka, and UP have come up with their own policies.

 

Arindam Sen, Partner and GCC sector leader (TMT), EY India believes that the framework will provide guidance to states on enhancing talent availability, improving infrastructure, and fostering collaboration with the industry.

 

(with inputs from Aashish Aryan, Shivani Shinde)