India has just made a beginning with a crucial step towards solving its deep tech problem with the announcement of a Deep Tech Fund of Funds (FoF), in the Union Budget 2025. This important announcement will help us work on the issue of innovation, which hitherto was largely restricted to business and commercial models and not so much to technology.
Our startup ecosystem has been witnessing its growth phase over the years. Within this however, the needs and requirements of deep tech startups working in cutting-edge fields like artificial intelligence, blockchain, semiconductors, space technology, and biotechnology that require sustained investment and long-term support has been often missed. The Union Budget 2025 while recognising this need launched a move that could transform the landscape for emerging technology-driven enterprises.
In comparison to any other startup, deep tech ventures must undergo extended research and development cycles, high capital requirements, and follow a more complex path to commercialisation. And unlike to the Indian startup ecosystem, deep tech has remained underserved due to the complexities of long gestation periods and inherent risks involved. With a Rs 10,000 crore kitty, the Fund of Funds is meant to supporting venture capital and private equity funds investing in deep tech startups.
Unlike a direct investment model, a Fund of Funds provides capital to Alternate Investment Funds (AIFs), which then invest in high-potential startups. A model of this nature offers risk diversity and ensures that the funds are managed by professional investors with an understanding of domain needs. We have seen from the past that effectiveness of this model has been successfully demonstrated when India’s earlier Rs 10,000 crore Fund of Funds for Startups helped AIFs secure commitments worth Rs 91,000 crore result in offering support efforts toward innovation and entrepreneurship.
Access to patient capital is the need of the hour as it allows deep tech companies the time and flexibility required to develop groundbreaking technologies. The encouragement it offers research and development is also fuel for India’s economic growth. A Fund of Funds comes with strong governmental backing and becomes a point of influence for private investors who may be interested in funding deep tech businesses and expands market opportunities for AI-driven commerce, fintech, and industrial automation startups.
Its promise notwithstanding, the Fund of Funds also has its set of challenges. Be it stringent eligibility criteria that could limit access for some innovative ventures or bureaucratic hurdles in fund disbursement which may also pose delays. Companies may even have to trade off equity stakes, impacting long-term autonomy. But these are not challenges that our deep tech startups are not capable of weathering.
If we look at companies operating in the Omni-channel commerce space, such as those enhancing retail brands’ online presence, store orders, and online-to-offline consumer journeys, aligning with the latest budget initiatives can provide significant advantages. Starting with working with AIFs, monitoring fund allocation criteria, and leveraging research fellowship schemes, startups can position themselves to effectively derive benefits from the fund.
To conclude, the Deep Tech Fund of Funds forms part of a larger and much-needed exercise towards fostering India’s next wave of technological advancements. Even as challenges continue to exist, this initiative has the required potential to drive a thriving ecosystem where deep tech startups can be well-funded to bring transformative innovations to the market. The efficient execution and faster disbursement of fund will be key to ensuring that it truly empowers the next generation of Indian deep tech enterprises.