Daybreak - Only 30% invested from a Rs 10,000 cr startup fund. Yet India obsesses over a new fund

Episode Date: January 11, 2026

India's Fund of Funds for Startups 1.0 is winding down this March—but it's falling short of its goals. Of the ₹10,000 crore mandate, only ₹6,500 crore has been disbursed, and just ₹3,200 crore has actually reached startups. Meanwhile, FFS 2.0 remains stuck in limbo with no guidelines released yet. Despite catalyzing India's startup boom—from 3,000 startups in 2016 to over 200,000 today—the program faces criticism over cheap terms for fund managers, delays, and transparency issues. As the government prepares FFS 2.0, fixing these operational inefficiencies will be crucial.Tune in.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Ramon Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get alert, as soon as we release our first video. episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Three months from now on March 31st, India's fund of funds for startups or FFS should be hitting two very important milestones. First, let me quickly tell you what a fund of funds exactly is. It's basically an investor for investors. Instead of putting money directly into

startups, it invests in venture capital funds. Those funds then invest in startups instead. It's essentially a way for the government to supercharge the entire ecosystem without picking individual companies. India's first FFS was launched a decade ago in 2016. Now let's go back to the milestones. See first, the 10-year window for FFS 1.0, and its 10,000 crore-rupd-pd-mandit will officially close. Second, FFS 2.0, its successor, should receive the initial part of its 2000-crow funding for distribution. But there's a slight hitch in these plans.

It's increasingly becoming unlikely that either milestone will fully be met at the end of March. Let's get into why that's happening. See, out of the 10,000-trore-ru-pore mandate for FS1.0, only 6,800 crore has been handed over to Siddi, the Small Industries Development Bank of India for distribution. And from that, only 6,500 crore has actually reached alternative investment funds so far. And what's the situation with FFS 2.0?

Well, it's still just a headline. Still waiting to become reality. A Sidby spokesperson told my colleague Atakan, Suprat Anupam, that no guidelines regarding FFSW. FFS 2.0 have been released yet. See, FFS 1.0 has played an undeniable role in accelerating India's startup ecosystem. In 2016, we had only about 3,000 startups. Today, over these 10 years, we've grown to over 200,000.

Even the number of unicorns has jumped from 9 to over 100. Now, FFS's success largely lies in what we call its multiplier rate. effect. For every rupee FFS commits to alternate investment funds, those funds must invest at least five to ten times that amount into startups. And these startups specifically have to be the ones recognized by the Department for Promotion of Industry and Internal Trade or DPI. And the result of this process is this. Sid B has committed 12,000 cro to investment funds, which in turn has created a cumulative commitment of more than nine, 90,000 crores across 150 funds.

The Sidby spokesperson tells us that these funds have invested in more than 1,200 startups, including 22 unicorns. So when you do the math, that's about $7.5 from private investors for every one rupee from FFS. But here's where the catch comes in. The Sidby spokesperson tells us that of the 90,000 plus crore commitment, only 24,000 crore has actually been deployed into startups. And if you use that same 7.5 to 1 ratio, only about 3,200 crore of FFS capital has reed start-up so far. And that's not all there is to this.

FFS 1.0 also suffered from lower than expected job creation, long delays and fund dispersal, and a lack of transparency in the execution process, all of which must be understood before running blindly into FFS 2.0. Welcome to Daybreak, a business podcast from. again. I'm your host Rachel Wilkes and every day of the week, my co-host, Nicka Sharma and I will bring you one new story that is worth understanding and worth your time. Today is Monday, the 12th of January. Back in 2016, India's startup landscape was struggling. We just had a few thousand startups, hardly any domestic limited partners and most of the capital was flowing in from foreign funds and leases. Cut to 2025 and the ecosystem here is thriving. India has produced

Unicons like Curefit, the Fitness Tech Company, Zetwork, the B2B marketplace, and delivery, the logistics company. By the way, they were all funded through FFS 1.0 as well. In fact, FFS funding acts as a sort of validation. It signals to other investors that a fund is worth backing. Now, Suprat spoke with eight fund managers and three founders across AcreTech, Deep Tech and payments. All of them received FFS 1.0 money and all of them.

called it a game changer. Nitin Sharma, who is a partner at Antler, an early-stage firm, rated Sidby 9 out of 10 among all the investors his firm works with. But the praise often comes hand-in-hand with some sharp criticism. An investment manager from an alternative investment fund told the Ken upfront that Sidby is, and I'm quoting here, really cheap. His fund raised FFS money back in 2018. Back then, Sidby pushed for a management fee of 1.6% and a hurdle rate of 16%.

Now, let me explain those terms before we move on. The management fee is an annual charge that covers the fund's operational costs. The hurdle rate is the minimum return a fund must achieve before the manager can share in the profits. So basically, as the manager put it, Sidby was behaving more like a commercial investor than a public development bank. And this becomes even clearer because the manager told us that private investors were actually readily agreeing to 2% fees and 10 to 12% hurdle rates, which was significantly less than what Sidby was asking for. Now, this experience left a bad taste in this manager's mouth. He ended up withdrawing his application for FFS funding for another of his funds. His partners and other investors weren't interested in accepting Sidby's terms either.

Now, since then, Sid B has standardized hurdle rates at 10 to 12%. Management fees, on the other hand, remain tiered. Large funds with experience managers get 1.5%. Smaller funds, like those under 500 crore, with first-time managers or women-led funds or those focused on sustainable development, can get up to 2%. But the problems go beyond just fees. There are also delays to contend with. Fund managers wait years between the time of approval to actual disburseal of the money.

Anil Joshi, the managing partner at Unicorn India Ventures, an early-stage VC firm, said that initially very few funds could raise FFS money. So, uptake was pretty slow. But then it picked up, and soon Sidbi had committed almost all of FFS 1.0. The Sidby spokesperson said in response to the allegation of delays that funds are released after the first or final closing of the fund, and only based on available capital. But that still doesn't cover all the problems. There's also an issue with transparency. Sidbi doesn't publish any external performance assessment metrics. And also, funding allocations rarely follow set standards either.

Joshi's Unicorn India Ventures was one of the early recipients of FFS funding. As a hundred Kroar rupees fund, it was technically eligible for 25% FFS funding, but secured just 10%, which was later revised to 15%. Now, four of the eight VCs again spoke to said that they had similar concerns. Recently, Sidbi seems to be favouring seasoned managers over first-timers, despite claiming to support newcomers. One manager who closed a thousand-crow fund in 2024 said that after three or four committee meetings, his funding still hadn't come through. The only reason he could think of was that it was going to be their first fund. Multiple VCs told the Ken that all of this undermines FFS's effectiveness.

Stay tuned. With FFS 2.0, clarity matters more than ever. The startup ecosystem isn't in its infancy anymore, which is exactly why multiple fund managers believe FFS 2.0 should be sector-specific. Nitin Sharma from Antler, who we mentioned earlier, believes that we need to catch the AI bus before it leaves. He's of the opinion that FFS 2.0 should focus vertically and specifically on AI and deep tech. Why these sectors in particular? Well, because they require huge capital expenditure and 5 to 10 year development cycles.

That usually scares private investors. If FFS 2.0 were to focus on these sectors, it would provide. the push that they need. Antler itself has invested in deep tech startups like InSpecity, which is an in-space logistics company, Green Arrow, which is an aerospace propulsion company, an armory, which makes counter-dron systems. Now, Sharma believes that there's also a case for racing FFS's share in total fund size, from 10 to 20% or up to at least 30%.

Three other managers also thought that this was a good plan. They emphasize that bigger stakes mean faster closes and quicker development. Then there's a somewhat complicated issue of job creation. FFS 1.0 was supposed to create 1.8 million jobs. Almost 10 years later, only 200,000 have actually materialized. Now, that's according to Sidby's own website, which means it's definitely a problem that FFS 2.0 has to address. But progress has stalled for nearly a year.

year. Since finance minister Nirmala Sita Raman announced FFS 2.0 in the 2025 to 26 budget, there's only been radio silence. The Sidbi spokesperson told us that the exact rollout timeline isn't known to them yet. Still, FFS under Sidbi is doing relatively well, especially in comparison to its alternatives. Joshi said that the entire process was professionally handled. He said that multiple evaluation rounds took six months from application to disbursement. Overall, his experience was pretty good. Now, this stands out, especially when other government-backed funds aren't setting the bar all that high. One fund manager mentioned the self-reliant India Fund as an example.

It's managed through SBI Ventures, whose legal advisor is Khehathan and Co. But Ketan and Coe also advises multiple startups and other alternate investment funds. The manager wonders if that is a conflict of interest. Now, again, we have to acknowledge the scale of FFS's foundational success. Most of its problems come from bureaucracy. So all it needs to do is crack operational efficiency. How does it go from being a good investor to a fast, transparent and risk-free one? That's exactly the burden FFS 2.0 will have to take on.

Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription offers daily long-form feature stories, newsletters and a whole bunch of premium podcasts. To subscribe, head to the Ken.com and click on the red subscribe button on the top of the Ken website. Today's episode was hosted and produced by my colleague Rachel Varghis and edited by Rajiv Sien. Thank you.