The second edition of the Fund of Funds Scheme (FFS 2.0) for start-ups announced in the Budget FY26 will also support private-sector funds that provide secondary capital to enable exits by early-stage and first-round investors in these emerging companies.
The main focus of FFS 2.0 will be on assisting start-ups working on cutting edge technologies, but it will also seek to address exit challenges and liquidity gaps for these ventures, a senior official said.
The guidelines FFS 2.0, will be finalised soon. In the latest Budget, finance minister Nirmala Sitharaman a new FFS with a corpus of Rs 10,000 crore, and an outlay of Rs 2,000 crore has been made for 2025-26. This followed a similar scheme, which was launched in 2016.
According to reports, many early-stage investors struggle with timely exits, and this in turn impacts the ability of startups to secure continued funding. One main reason listed for difficulty in exits is the lack of adequate funding.
Sometimes external economic factors, market slowdowns, and global financial conditions also come in the way of exits by early investors at fair valuations.
“By supporting secondary Alternate Investment Funds (AIF), FFS 2.0 aims to provide much-needed liquidity to investors, ensuring that funding cycles remain uninterrupted and startups continue to receive financial backing at critical growth stages,” the official added.
Under FFS, the scheme does not directly invest in startups. It provides capital to SEBI-registered AIFs who in turn invest money in growing Indian start-ups through equity and equity-linked instruments.
The first edition of FFS has been run by Small Industries Development Bank of India (SIDBI) and the second version too will be run by it, the official said. AIFs under the scheme have catalysed investments in 1,197 startups as on 31st January 2025. Direct employment of about 2 lakh has been generated by startups while the number of startups recognised by the Department for Promotion of Industry and Internal Trade (DPIIT) stands at more than 1.6 lakh.
The FFS 2.0 core agenda will be to support startups working in cutting edge technologies and creating new intellectual property. “It will address growing demand for patient capital in sectors that require long gestation periods, such as deep technology, Artificial Intelligence, space-tech, and advanced manufacturing,” the official said.
These industries hold immense potential for global competitiveness, IP creation, and technological self-reliance but often face funding constraints due to prolonged Research and Development cycles and capital-intensive development, he added.
Apart from FFS 2.0, the government has also said that it will explore a Deep Tech Fund of Funds. This funds will follow the announcement of Deep Tech Startup Policy that has been in the works for the past more than a year.
FSS is run under the Startup India initiative of 2016. Other schemes that are part of the initiative include Startup India Seed Fund Scheme (SISFS) and Credit Guarantee Scheme for Startups (CGSS) support startups at various stages of their business cycle.