The Government of India has introduced a major update to the country’s startup ecosystem. The Department for Promotion of Industry and Internal Trade (DPIIT) has released a new startup recognition framework along with the operational guidelines for the ₹10,000 crore Startup India Fund of Funds 2.0 (FoF 2.0).
The new rules are designed to support innovation, improve access to funding, and encourage more research-based startups in India. They also replace the startup recognition framework that was introduced in 2019. Along with easier eligibility rules, the government has increased the financial limits for startups and introduced a separate category for deep tech companies.
At the same time, the new Fund of Funds 2.0 aims to solve funding challenges faced by startups, especially those working in advanced technologies and early-stage businesses.
New Startup Rules Bring Bigger Benefits
One of the biggest changes in the new DPIIT notification is that more types of organisations can now be recognised as startups. Earlier, only private limited companies, LLPs, and registered partnership firms were eligible. Now, Multi-State Cooperative Societies and State or Union Territory-registered cooperative societies can also apply for startup recognition.
The government has also increased the turnover limit for recognised startups from ₹100 crore to ₹200 crore. However, the maximum age of a recognised startup will continue to be 10 years from the date of incorporation.
Another major change is the introduction of a separate category called “Deep Tech Startups.” These startups work on advanced scientific or engineering solutions that require heavy research and development, new intellectual property, long development periods, and high technical risk.
Deep tech startups will receive recognition for up to 20 years instead of 10 years. Their turnover limit has also been increased to ₹300 crore. However, startups will not get this status automatically. DPIIT will review each application based on its technology, innovation, and supporting documents before granting deep tech recognition.
The updated rules also clearly state how startups can use their funds. Investments must only be used for business operations, research, innovation, expansion, and scaling. Startups cannot invest in luxury items, speculative assets, or non-core residential real estate during their entire recognition period.
The notification also explains that startups seeking tax benefits under Section 80-IAC must still get separate approval from the Inter-Ministerial Board. It also removes all references to the Angel Tax, which was abolished from April 1, 2025.
How the ₹10,000 Crore Fund of Funds 2.0 Will Help
The Startup India Fund of Funds 2.0 comes with a fresh corpus of ₹10,000 crore. Like the earlier scheme, the government will not invest directly in startups. Instead, the money will be invested through SEBI-registered Category I and Category II Alternative Investment Funds (AIFs). These funds will then invest in DPIIT-recognised startups.
The Small Industries Development Bank of India (SIDBI) will continue to act as the main implementation agency. Another domestic agency will also be added to help manage the scheme. The operating expenses of these agencies have been capped at 0.50% per year.
The government has divided the fund into four priority categories to ensure money reaches different types of startups.
The first category focuses on deep tech startups. Under this segment, the government can contribute up to 40% of an AIF’s corpus, with a maximum limit of ₹500 crore. These funds can operate for up to 18 years to match the longer development time needed by deep tech companies.
The second category supports early-growth startups through Micro Venture Capital funds with a corpus of up to ₹400 crore. The government can invest up to 30% of the fund, with a maximum contribution of ₹100 crore. At least 50% of these investments must go to seed and early-stage startups.
The third category supports technology-driven manufacturing startups that align with the Make in India initiative. The fourth category allows investments across different sectors and startup stages, giving fund managers greater flexibility.
The selection process includes two stages. First, the implementation agency will review applications. After that, a Venture Capital Investment Committee (VCIC) made up of experienced industry experts will evaluate them. The final approval will be given by the implementation agency based on the committee’s recommendations, while an Empowered Committee led by the DPIIT Secretary will oversee the overall scheme.
Why India Introduced These Changes
The new policies come at a time when India’s startup ecosystem is growing rapidly but also facing funding challenges. India now has more than 2.25 lakh DPIIT-recognised startups and 122 unicorns, making it the world’s third-largest startup ecosystem.
However, startup funding slowed during 2025. Overall funding fell to around $10.5 billion, which was about 17% lower than the previous year. The biggest concern was a sharp 30% drop in seed-stage funding. Angel investments also declined after changes in regulations for Angel Funds.
At the same time, many Indian startups reached a new stage of growth. During 2025, 18 venture-backed startups launched their Initial Public Offerings (IPOs) and raised more than ₹41,000 crore. This showed that investors are now focusing more on profitable businesses with strong corporate governance.
The government has also learned from the first Startup India Fund of Funds launched in 2016. The earlier fund supported 161 Alternative Investment Funds, which invested nearly ₹27,000 crore in more than 1,400 startups. However, deep tech startups often needed longer investment periods than traditional venture capital funds could provide.
With longer funding timelines, better governance, and dedicated support for research-driven businesses, the ₹10,000 crore Startup India Fund of Funds 2.0 is expected to strengthen India’s startup ecosystem and help the next generation of innovative companies grow both in India and globally.