Amitabh Kant Calls For A Deeptech-Focussed Fund Of Funds For Startups

Amid a growing investor interest in generative artificial intelligence (GenAI) in India, former NITI Aayog CEO Amitabh Kant has called for a deeptech-focussed fund of funds (FoF) for startups. 

Speaking at the Startup Policy Forum’s ‘Startup Baithak’, the G20 sherpa highlighted that there is a need for patient capital for startups operating in the sector to fuel further innovation. 

“We are on the brink of a transformative era and we must capitalise on this. There will be vast possibilities in artificial intelligence, machine learning, electric vehicles, battery storage, quantum computing, robotics, drones, among other such sectors,” he said during the event.  

Kant also highlighted that the Centre has taken some pivotal measures to promote startups in emerging sectors in recent years. The launch of the INR 10K Cr AIMission, INR 76K Cr semiconductor mission, National Quantum Mission, among others, are some examples of the initiatives to promote cutting-edge growth, he said. 

Last year, it was also reported that the commerce and industry ministry was mulling the launch of a deeptech startup policy to provide long-term funds to companies operating in the sector. Under this, the Centre could potentially introduce the policy under an umbrella framework that will serve as a template for startups in the deeptech sector.

In the interim budget last year, finance minister Nirmala Sitharaman also announced the launch of INR 1 Lakh Cr fund to fuel the research and development initiatives for entities operational in areas like spacetech, AI, deeptech, and semiconductors.

Besides, Kant also called for revival of the Fund of Funds For Startups (FFS) as the corpus of the existing scheme is about to come to an end. The central government launched the scheme in 2016, committing INR 10,500 Cr for alternative investment funds (AIFs). 

According to the Economic Survey 2023-24, the Centre committed more than INR 10,500 Cr for AIFs under the FFS scheme by the end of the fiscal year 2023-24 (FY24).

Kant said that the fund has provided INR 11,688 Cr to 151 AIFs, which managed to create a capital pool of 81K Cr, and revolutionised early-stage funding in India. 

“Moving forward, we need two fund of funds to promote the startup ecosystem – one would be the revival of the FFS and the second will be a fund dedicated to the deeptech sector. I feel we need the fund of funds earmarked for deeptech startups which require a huge amount of patient capital. This could allow for breakthrough innovations in AI, battery storage, green hydrogen, which require a large sum of patient capital,” he said. 

Recounting startup funding trends of the past year, Kant pointed out that the Indian startup ecosystem saw a fresh capital influx of about $12 Bn. According to Inc42’s ‘Annual Funding Report 2024’, homegrown startups cumulatively netted more than $12 Bn in fresh funding during the year via about 1,000 deals, up over 20% from the $10 Bn raised in 2023.

However, Kant rued that most of the investors in the Indian startup ecosystem are foreign-based private equity and venture capital funds. 

“There is a need for increased domestic sources of capital. In 2024, 75-80% of the total funding came from international sources. There is a huge need for Indian insurance funds, pension funds, family offices to put money into the Indian startup ecosystem. I believe these entities must take up the role of angel investors to back seed stage startups,” Kant said.

Inc42 data shows that an increasing number of domestic funds are participating in the startup ecosystem now. Homegrown investors AngelList India, Stride Ventures, Alteria Capital, and DevC were the four most active startup investors in 2024. 

Kant emphasised the rapid strides taken by the Indian startup ecosystem over the past decade but also criticised instances of corporate governance lapses in recent times. Citing the examples of BYJU’S and Zillingo, he reiterated the need for self regulation for startups. 

“When the startup ecosystem was established, the thought was to not have any excessive regulatory constraints… However, this has led to mismanagement and financial discrepancy. My view has been that startups must adopt a self-regulation framework, must have accountability. Such practice would build trust. While founders are busy innovating, they must also focus on auditing, finance and financial management. These are critical issues,” he added.