Who’s Getting the Money? A Look at Indian AIFs Benefitting from Funds of Funds 2.0

Since its inception in 2016, the Funds of Funds for Startups (FoF) initiative has aimed to strengthen India’s venture capital ecosystem by addressing the capital gaps in early and growth-stage startups. With Funds of Funds 2.0 now picking up pace, it becomes crucial to examine the real beneficiaries of this initiative—India’s Alternative Investment Funds (AIFs).

Rather than providing capital directly to startups, the government, through SIDBI (Small Industries Development Bank of India), invests in AIFs, which in turn invest in startups. This layered model ensures risk diversification and encourages private sector participation. But which AIFs are actually receiving these funds, and what does this mean for the broader Indian startup ecosystem?

Over 120 AIFs Backed Under the Scheme

As of July 2024, SIDBI has committed over ₹9,500 crore of the ₹10,000 crore corpus to more than 120 AIFs across the country. These include both established venture capital funds and emerging players focusing on specific sectors or regions. The support provided ranges from early-stage seed capital funds to mid- and late-stage growth investors.

Among the notable AIFs that have received funding are:

• Blume Ventures – Known for its early-stage tech investments.

• Fireside Ventures – A consumer brand-focused fund backing D2C startups.

• India Quotient – Investing in consumer tech and B2C startups.

• YourNest Venture Capital – Focused on deep tech and IP-led startups.

• 3one4 Capital, IvyCap Ventures, Pi Ventures, Ventureast, and many others.

These funds have played a critical role in nurturing India’s now-prominent startups, including companies like Dunzo, Lenskart, CureFit, and boAt, among others.

Geographic and Sectoral Diversity

What sets Funds of Funds 2.0 apart is its commitment to spreading venture capital beyond the traditional startup hubs of Bengaluru, Mumbai, and Delhi-NCR. SIDBI has consciously backed AIFs that have a track record of investing in Tier II and Tier III cities, encouraging broader regional participation in the startup boom.

Some funds have specific sectoral mandates—climate tech, deep tech, agri-tech, and health tech are among the focus areas. For instance, Pi Ventures, which received FoF backing, invests in artificial intelligence and machine learning-driven startups, while Omnivore, another beneficiary, focuses on agritech and rural innovation.

Criteria for AIF Selection

Not every AIF can qualify for SIDBI’s investment. The selection process is guided by specific criteria laid out by SIDBI and DPIIT. These include:

• SEBI registration as a Category I or II AIF.

• Demonstrated track record in managing funds.

• Commitment to investing a certain percentage in Indian startups.

• Preference is often given to first-time fund managers and funds investing in underserved geographies or sectors.

Once selected, SIDBI usually commits a portion of the total fund corpus—often between 15% to 20%—with the expectation that the AIF will raise the rest from private and institutional investors.

Impact on the Startup Ecosystem

As of mid-2024, more than 1,200 startups have received indirect funding support through the AIFs backed by the Funds of Funds scheme. These startups span diverse sectors such as fintech, edtech, climate tech, D2C, and SaaS, with a growing number emerging from smaller cities.

The indirect funding route has also led to greater accountability and rigorous due diligence, as AIFs bring industry experience and investment expertise to the table. Moreover, with government-backed capital de-risking early investments, private investors are more willing to participate in these funds, leading to higher capital inflow into the Indian startup ecosystem.

What’s Next?

According to SIDBI’s recent updates, the final tranche of the ₹10,000 crore corpus is expected to be committed by the end of FY2025. There is growing speculation about a possible extension or an additional corpus for a third phase of the fund, given the positive response and impact seen so far.

Industry experts have also called for a more transparent public disclosure of AIF-wise fund disbursement and startup-level tracking to measure the exact impact. Many also believe there is room to further support micro-VCs and regional funds that are working closely with grassroots entrepreneurs.

Funds of Funds 2.0 is quietly but significantly reshaping how venture capital flows in India. By identifying and backing the right AIFs, the government is playing the role of an institutional anchor investor—de-risking capital, unlocking private sector interest, and enabling a more inclusive startup landscape.

The real winners, however, will be the startups that can leverage these funds for growth—especially those outside the traditional metro-based ecosystem. As India’s innovation economy matures, the strategic deployment of public funds through private hands will continue to define the success of initiatives like FoF 2.0.