India doubles down on state-backed venture capital, approving $1.1B fund

Source: TechCrunch

Overview

India has cleared a $1.1 billion state‑backed venture capital program that will channel government money into startups through private investors, doubling down on its effort to finance high‑risk areas such as artificial intelligence, advanced manufacturing and other sectors broadly referred to by the industry as deep tech.

Background

The ₹100 billion fund was first outlined in the January 2025 budget speech by India’s finance minister. After more than a year of deliberation, it won cabinet approval this week, allowing the government to move ahead with deployment. A previous iteration of the program, launched in 2016, committed ₹100 billion to 145 private funds that have invested more than ₹255 billion (about $2.8 billion) in over 1,370 startups, according to official data released on Saturday.

Program Structure

The initiative is structured as a fund of funds, a common venture‑capital model in which governments back startups indirectly by committing capital to private investment firms. Compared with the 2016 counterpart, the new fund takes a more targeted approach, focusing on:

• Deep‑tech and manufacturing startups that typically require longer time horizons and larger amounts of capital.
• Early‑stage founders.
• Expansion beyond major cities.
• Strengthening India’s domestic venture‑capital industry, particularly smaller funds.

Government Announcement

At the announcement on Saturday, IT minister Ashwini Vaishnaw highlighted the scale of India’s startup expansion. A presentation slide showed that the number of startups grew from fewer than 500 in 2016 to more than 200,000 today, with 49,000 startups registered in 2025 alone—the highest annual total on record.

Vaishnaw emphasized that the new venture‑capital program would remain flexible, noting that “extensive consultations have taken place with all stakeholders.”

Recent Policy Changes

The cabinet approval follows recent changes to India’s startup rules aimed at easing pressure on deep‑tech companies:

• The period for which such firms are classified as startups has been doubled to 20 years.
• The revenue threshold for startup‑specific tax, grant, and regulatory benefits has been raised to ₹3 billion (about $33 million), up from ₹1 billion.

Upcoming India AI Impact Summit

The approval comes just ahead of the government‑backed India AI Impact Summit, where global AI companies—including OpenAI, Anthropic, Google, Meta, Microsoft, and Nvidia—are set to participate alongside Indian corporates such as Reliance Industries and Tata Group. India, the world’s most populous country and one of its largest internet markets with more than a billion online users, has become an increasingly attractive arena for global tech companies looking to expand their user base.

Funding Landscape

Private capital has become harder to secure. India’s startup ecosystem raised $10.5 billion in 2025, down just over 17 % from a year earlier, even as investors grew more selective and sharply reduced the number of deals. The number of funding rounds fell nearly 39 % to 1,518 transactions, according to data from Tracxn.