New Delhi, Feb. 1 -- The Indian government plans to set up a new fund of funds with a corpus of Rs 10,000 crore ($1.15 billion) to invest in private equity and venture capital funds to boost the country's startup ecosystem, Finance Minister Nirmala Sitharaman said in her budget speech on Saturday.

"A new Fund of Funds, with expanded scope and a fresh contribution of another Rs 10,000 crore will be set up," she said while presenting the budget for 2025-26 in parliament. She didn't elaborate on expanding the fund's scope.

The government had launched the first such fund of funds in 2016. The maiden fund also had a corpus of Rs 10,000 crore and is managed by government-owned Small Industries Development Bank of India (SIDBI).

As of September 2024, the first fund of funds had committed a capital of about Rs 11,148 crore as a limited partner in 144 PE and VC funds. These PE-VC funds, in turn, committed Rs 20,000 crore to more than Rs 1,100 startups, according to SIDBI's website.

The government had launched the scheme under its Startup India Action Plan to support development of innovation-driven enterprises. Under the scheme, SIDBI provides alternative investment funds (AIFs) registered with the Securities and Exchange Board of India capital in the range of 20-25% of their total fund size.

Apart from a new fund of funds, Sitharaman said the government will explore the possibility of a deep-tech fund of funds to support the private sector. It aimed to implement private-sector-driven research, development and innovation, allocating about Rs 20,000 crore for the same. "A deep-tech fund of funds will also be explored to catalyze the next-generation startups as a part of this initiative," she said.

Anirudh A. Damani, managing partner at Artha Venture Fund, said the plan for a Rs 20,000 crore investment in deeptech ventures is a step in the right direction.

"Given the capital-intensive and long-gestation nature of deeptech ventures, we hope this fund is structured as a Fund of Funds (FoF), allowing experienced deep tech-focused fund managers to deploy capital effectively," he said.

He also said that the deeptech initiative could catalyze Rs 1.0-1.5 trillion in new investments into sectors such as space-tech to AI and advanced manufacturing.

Published by HT Digital Content Services with permission from VC Circle.