In New Delhi, ambition often arrives with a budget line. This month, it arrived with another $1.1 billion.
The Union cabinet has approved a new state-backed “fund of funds” to propel Indian startups in artificial intelligence, advanced manufacturing and other deep-tech sectors. It is the sequel to a 2016 experiment under Startup India, when the government committed roughly ₹10,000 crore to be invested not directly in companies but through private venture funds. The steward of that effort was the Small Industries Development Bank of India — SIDBI — cast in the role of catalytic investor rather than bureaucratic allocator.
A decade later, the question is not whether the experiment worked. It is whether it worked in the right way — and whether repeating it, at roughly the same scale, signals ambition or caution.
On its own terms, the 2016 Fund of Funds for Startups (FFS) can claim measurable success. SIDBI’s commitments have backed more than 140 venture funds, mobilizing over ₹25,000 crore into roughly 1,300 startups. Twenty-two have crossed the billion-dollar valuation threshold. Deep-tech ventures have attracted thousands of crores. Women-led and Tier-2 and Tier-3 city startups have received targeted capital. Hundreds of thousands of jobs have been created.
The architecture was clever. Instead of writing checks to founders from a ministry desk, the state anchored private alternative investment funds, requiring them to raise additional capital alongside public money. In theory, this preserved market discipline. One rupee from Delhi was meant to attract several from Mumbai, Singapore or Silicon Valley. By that metric, the multiplier worked.
India today calls itself the world’s third-largest startup ecosystem. It boasts more than 200,000 registered startups, up from a few hundred a decade ago. Cheap data, digital public infrastructure and a vast domestic market did much of the heavy lifting. But when global venture flows slowed — as they did sharply in 2025 — anchor capital from the state provided ballast.
If the story ended there, the new $1.1 billion tranche would be uncontroversial. But the story did not end there. For every unicorn celebrated in a government press release, thousands of startups have never seen a rupee of FFS-linked capital. Only a sliver — perhaps 1 to 2 percent — of recognized startups have accessed the program. Disbursement from venture funds to actual companies has often lagged commitments. Management fees have remained modest. Approval cycles have stretched.
The average investment per startup works out to roughly ₹18 crore, about $2 million. That sounds substantial until one remembers that serious deep-tech ventures often require $10 million to $20 million before they are viable at scale. Spread thinly across an expanding ecosystem, capital can become symbolic rather than catalytic.
More troubling is the question no dashboard fully answers: how many of these firms endure?
Globally, most startups fail within five years. India is no exception. Independent research suggests FFS-backed firms fare somewhat better than the average, but comprehensive survival data are scarce. The government points to unicorn counts and job creation; economists look for sustained revenue growth, exports and patents. Valuation is not the same as durability.
And durability, not valuation, is what determines whether a nation builds capability or merely hosts speculation. The first FFS was launched in a moment of optimism. India was digitizing at speed. Global capital was abundant. The bet was that modest public anchoring could unlock private audacity. But venture capital is not just a pool of money. It is a culture of risk.
Government money, even when routed through private managers, carries a gravitational pull toward caution. Compliance culture seeps into investment committees. Safe bets begin to look prudent. Funds gravitate toward platforms with quick revenue models rather than laboratories with long gestation cycles. The ecosystem learns to optimize for valuation events instead of technological breakthroughs. That is not corruption. It is instinct.
When the state becomes the most reliable limited partner, risk recalibrates. The evidence is visible in sectoral concentration. Software platforms, fintech and consumer apps have flourished. Hardware, semiconductor tooling, industrial robotics and climate science remain undercapitalized relative to their strategic importance. These are slower, harder and less glamorous. They demand patience that neither markets nor ministries consistently provide.
The new fund promises to focus on deep tech. That is welcome. But unless its structure meaningfully changes — faster cycles, larger ticket sizes, genuine autonomy for fund managers — it risks replicating the virtues and limitations of its predecessor.
India is not launching this second fund in a vacuum. The global technological order is fragmenting. Artificial intelligence is redrawing economic hierarchies. Supply chains are being reshored. Nations are deciding, quietly but decisively, whether they will design the future or merely consume it.
India’s demographic dividend — its young, restless population — will not remain a dividend indefinitely. Without high-value industries, it becomes a burden.
The country faces a binary choice: to be a market of a billion users or a maker of frontier technologies.
In that context, the scale of ambition matters. If India’s economy has nearly doubled since 2016, why is its venture corpus roughly the same size? If the goal is technological sovereignty, why are pension funds and insurance pools still tentative participants in domestic venture capital? If survival matters more than unicorn status, why is longitudinal data not central to evaluation?
These are not accounting questions. They are civilizational ones. A transformative approach would look different. It may decentralize decision-making, empowering regional funds with real autonomy rather than routing everything through Delhi. It would unlock domestic institutional capital with clear regulatory pathways and tax incentives. It would publish transparent performance metrics — revenue growth, export intensity, patent output — not just valuation milestones.
Most importantly, it would accept that failure is intrinsic to innovation. Bankruptcy reform, stigma reduction and second-chance entrepreneurship matter as much as budget allocations. A venture ecosystem cannot be engineered solely through announcements; it must be allowed to experiment, err and iterate.
The government’s role, at its best, is to create conditions — not to choreograph outcomes. The first decade of India’s fund-of-funds experiment was neither a fiasco nor a revolution. It multiplied capital, widened participation and stabilized an ecosystem in volatile times. It also revealed the limits of state-anchored venture capital in catalyzing deep scientific risk.
The new $1.1 billion commitment is therefore a test — not of generosity, but of imagination. Will India treat venture capital as a subsidy program measured by unicorn counts? Or will it treat it as a strategic instrument aimed at building laboratories, supply chains and intellectual property that endure beyond market cycles?
In venture investing, returns follow a power law: a few companies define an era. In public policy, the equivalent is capability. Either a nation can design and export the technologies that shape its century, or it cannot.
India’s gamble is not merely financial. It is about whether the state will act as midwife to genius — or remain its meticulous accountant.
(Satish Jha is an early stage investor, chairs The Jha Capital Management and is a Boston based global analyst on economy, technology, governance and entrepreneurship)
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