In a major boost to India’s startup ecosystem, the Union Cabinet has approved Startup India Fund of Funds (FoF) 2.0 with a corpus of Rs 10,000 crore, sharpening the government’s focus on deep-tech and next-generation manufacturing ventures. The Cabinet also cleared a Rs 1 lakh-crore Urban Challenge Fund aimed at catalysing Rs 4 lakh-crore in city investments over five years.
The new Fund of Funds will target deep-tech, innovative manufacturing and other high-risk, high-impact sectors where private capital remains cautious. The objective is to bridge funding gaps in areas critical to self-reliance, technological capability and long-term economic competitiveness.
The scheme builds on the first Startup India Fund of Funds launched in 2016, whose Rs 10,000-crore corpus has already been fully deployed. Managed by the Small Industries Development Bank of India (SIDBI), the fund does not invest directly in startups. Instead, it channels capital into SEBI-registered alternative investment funds (AIFs), which then invest in startups through equity and related instruments.
As of December 31, 2025, AIFs supported under the earlier scheme had invested Rs 25,547 crore across 1,371 startups in 29 states and Union Territories, indicating a strong multiplier effect on government capital.
With FoF 2.0, policymakers are expected to prioritise sunrise sectors such as artificial intelligence, semiconductors, advanced materials, clean energy technologies and defence-linked innovation, aligning with broader industrial and strategic goals.
Alongside the startup funding boost, the Cabinet approved the Urban Challenge Fund (UCF) with total central assistance of Rs 1 lakh-crore. The programme is designed to leverage nearly Rs 4 lakh-crore in investments across Indian cities over five years through a market-linked framework.
Under the structure:
The Centre will provide 25 percent of project costs.
At least 50 percent must be mobilised from market sources.
The remaining 25 percent will be contributed by states, Union Territories, urban local bodies or other sources.
This marks a shift from traditional grant-based urban funding to a reform-driven, outcome-oriented financing model.
To enable smaller cities to access market borrowings, the Cabinet also approved a Rs 5,000-crore Credit Repayment Guarantee Scheme. It will provide a central guarantee of up to Rs 7 crore or 70 percent of the loan amount (whichever is lower) for first-time loans, and up to Rs 7 crore or 50 percent for subsequent loans. Projects must be at least Rs 20 crore initially and Rs 28 crore thereafter.
The Urban Challenge Fund will run from FY2025-26 to FY2030-31, extendable up to FY2033-34, and aligns with Budget 2025-26 priorities such as positioning cities as growth hubs, creative redevelopment and improved water and sanitation systems.
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