The corpus will be committed across the 16th and 17th Finance Commission cycles, as per a statement released by the Ministry of Commerce & Industry on Saturday.

The scheme will not invest directly in startups. Instead, it will invest in Sebi-registered Category I and Category II Alternative Investment Funds (AIFs), which will in turn deploy money into DPIIT-recognised startups through equity, equity-linked instruments and debt instruments.

The move is expected to ensure disciplined capital allocation, crowding-in of private investments, and wider access to funding across sectors, stages, and geographies.

The Small Industries Development Bank of India (SIDBI) will begin implementation of the scheme as the initial implementation Agency. DPIIT has also provided for selection of another domestic implementation agency at a later stage to expand reach and capacity.

Four fund segments

The guidelines classify eligible AIFs into four segments - funds supporting deep-tech startups, smaller AIFs backing early-growth stage startups, funds focused on tech-driven and innovative manufacturing startups, and sector- or stage-agnostic startup funds.

For deep-tech funds, government contribution can go up to 40% of the AIF corpus, capped at ₹500 crore, with a maximum tenure of 18 years. Smaller early-stage funds with corpus up to ₹400 crore can receive up to 30% support capped at ₹100 crore and tenure of up to 10 years. Manufacturing-focused funds can receive up to 30% support capped at ₹200 crore, while sector-agnostic funds can receive up to 25% capped at ₹180 crore.

The scheme mandates minimum investment multipliers. Deep-tech AIFs must invest 1.5 times the amount committed under the scheme, smaller early-stage funds twice the committed amount, manufacturing-focused funds 1.75 times, and sector-agnostic funds 2.5 times.

The total contribution from various central and state government fund-of-funds schemes in any selected AIF will be capped at 50% of the fund's corpus, though the Venture Capital Investment Committee (VCIC) may prescribe a lower limit based on market assessment.

Two-stage screening

Selection of AIFs will follow a two-stage process. The implementation agency will invite proposals and conduct due diligence, after which the Venture Capital Investment Committee will screen and recommend proposals. Final sanction will be granted by a sub-committee of the implementation agency's board.

The DPIIT press release said the VCIC includes distinguished leaders from industry, academia and the innovation ecosystem such as Vallabh Bhansali, Ashok Jhunjhunwala, Renu Swarup, Chintan Vaishnav and Rajesh Gopinathan, along with representatives of the implementation agency.

The guidelines state that due consideration should be given to supporting startups beyond metro regions to widen and deepen the ecosystem. The implementationagency will also ensure safeguards against misuse of funds, including due diligence by AIFs on beneficiary startups and disclosure of other government support received.

Monitoring architecture

Monitoring provisions include annual utilization reports covering AIF investments, companies funded, and net asset value of investments. DPIIT will review the scheme at least every half year.

An Empowered Committee chaired by the DPIIT Secretary will oversee implementation and performance, while third-party evaluations are to be conducted every five years from operationalization.

The scheme also enables co-investments or additional corpus contributions by ministries, departments and institutional investors for specific sectors. Up to 5% of returns may be used for ecosystem development initiatives such as sensitization programmes, workshops, capacity building, plug-and-play shared facilities, mentorship and regulatory support.

Distributions from the scheme, net of such permitted utilisation, will be deposited back into the Consolidated Fund of India. Any temporarily unutilised funds held by the implementation agency must earn interest at the prevailing RBI repo rate, which will be credited back to the corpus.