India’s Startup Ecosystem Gets a Boost: ₹10,000 Cr Fund of Funds Announced in Budget 2025

India’s Thriving Startup Ecosystem

India has rapidly emerged as one of the world’s largest startup hubs, driven by innovation, policy support, and increased investment opportunities. With over 100,000 startups and a growing number of unicorns, the country’s entrepreneurial landscape continues to evolve. However, despite this growth, early-stage funding remains a significant challenge. To bridge this gap, the Indian government, in the Union Budget 2025-26, has announced  ₹10,000 crore Fund of Funds (FoF) aimed at strengthening the startup ecosystem.

What is a Fund of Funds (FoF)?

A Fund of Funds (FoF) is an investment model where a primary fund allocates capital to multiple Alternative Investment Funds (AIFs) instead of directly investing in startups. These AIFs, in turn, provide funding to early-stage and high-growth startups across various sectors. This indirect approach helps mitigate risks, ensures professional fund management, and encourages private-sector investment.

Why is This Initiative Crucial for India’s Startup Ecosystem?

Despite the remarkable growth of Indian startups, several challenges persist, particularly in securing early-stage funding. Many promising ventures struggle to attract investment due to perceived risks, lack of collateral, and an uncertain revenue model. The newly announced ₹10,000 Cr FoF seeks to address these concerns through:

1. Strengthening the Startup Investment Pipeline

Government-backed funds often act as a catalyst for attracting private investors. The first FoF launched by the government successfully mobilized around ₹91,000 crore in commitments. The new fund aims to replicate this success, expanding the investment pool available to emerging startups.

2. Encouraging Sectoral Growth & Innovation

The fund is expected to target high-potential sectors such as deep tech, artificial intelligence, fintech, and sustainability, aligning with India’s ambition to become a global leader in next-generation industries. This will not only drive technological advancements but also foster job creation and economic growth.

3. Promoting Inclusive Entrepreneurship

Alongside the FoF, the government has introduced a dedicated initiative to support 5 lakh women entrepreneurs from Scheduled Castes (SC) and Scheduled Tribes (ST). This will create more opportunities for underrepresented groups and contribute to a more diverse startup ecosystem.

Challenges and Considerations

While the FoF is a promising initiative, its success depends on effective implementation. Some challenges include:

• Efficient Allocation: Ensuring that funds are distributed to AIFs with a strong track record of supporting startups.
• Monitoring & Transparency: Maintaining accountability in fund utilization to prevent inefficiencies.
• Scalability of Impact: Ensuring that startups receiving investment can scale successfully and contribute to the broader economy.

Conclusion

The announcement of a ₹10,000 crore Fund of Funds is a significant step in reinforcing India’s startup ecosystem. By addressing funding gaps, encouraging innovation, and fostering inclusivity, this initiative has the potential to drive sustainable growth in the entrepreneurial landscape. However, its impact will largely depend on how effectively the funds are managed and distributed. If executed well, this move could propel India’s startups toward becoming global leaders in technology and innovation.

The information shared in this blog has been compiled from various publicly available sources and is presented here for better understanding and analysis.