The Indian government has approved a new state-backed <a href="https://delimiter.online/blog/ai-manufacturing-procurement/” title=”venture capital”>venture capital fund worth 92 billion rupees, approximately $1.1 billion. The fund-of-funds will be managed by the Small Industries Development Bank of India (SIDBI) and will invest in domestic startups focused on deep technology and manufacturing sectors. The approval was granted by the Union Cabinet, chaired by Prime Minister Narendra Modi.
This financial initiative is designed to provide a significant capital infusion into India’s innovation ecosystem. The capital will be deployed indirectly, through selected private venture capital and alternative investment funds. These funds will then identify and invest in promising early-stage companies.
Strategic Focus on Key Sectors
The government has specified that the fund will prioritize startups working in deep-tech domains. This includes areas such as artificial intelligence, machine learning, semiconductors, space technology, and green energy solutions. A parallel emphasis will be placed on startups in the manufacturing sector, aligning with national initiatives to boost domestic industrial capabilities.
This approach allows the government to leverage the expertise of private fund managers while directing capital toward strategically important areas of the economy. The goal is to foster innovation that has a high potential for intellectual property creation and long-term economic impact.
Background and Policy Context
The newly approved fund represents a continuation and scaling of India’s existing Fund of Funds for Startups (FFS) scheme. That scheme was established in 2016 with a corpus of 100 billion rupees. Officials stated that the newly approved 92 billion rupees is an extension of that initial commitment, bringing the total commitment under the FFS to 192 billion rupees.
To date, the FFS has committed over 80 billion rupees to various alternative investment funds. Government data indicates this has spurred a total investment of more than 700 billion rupees into over 1,000 startups. The extension of the fund is seen as a critical step to maintain momentum in the startup funding environment.
Addressing the Funding Gap
The move comes amid a broader global slowdown in venture capital investment. Indian startups, particularly those in capital-intensive fields like hardware and deep-tech, often face challenges in securing early-stage funding. Government-backed funds aim to de-risk such investments for private players, encouraging more capital to flow into these nascent but critical sectors.
By providing patient capital, the fund aims to support startups through their research and development phases, which are typically longer and more expensive for deep-tech ventures compared to software-based businesses. This can help bridge the so-called “valley of death” between innovation and commercialization.
Expected Implementation and Impact
The Small Industries Development Bank of India will be responsible for the operational management and due diligence processes for selecting private fund partners. The allocation of capital is expected to follow a structured timeline, with calls for proposals from fund managers likely to be announced in the coming months.
Industry analysts expect the fund to catalyze further private investment over the next five to seven years. The focus on manufacturing is also anticipated to support job creation and enhance India’s position in global supply chains. The next steps involve SIDBI finalizing the operational guidelines and beginning the process of onboarding partner funds to start deploying capital into the startup ecosystem.
Source: Various Government Releases
