India has authorized a ₹100 billion ($1.1 billion) government venture fund, expanding its state-backed investment footprint just as private capital pulls back. The new fund-of-funds structure targets deep tech, AI, and advanced manufacturing—precisely the sectors requiring longer time horizons and heavier upfront investment. Its timing is notable: private startup funding in India fell 17% to $10.5 billion in 2025, marking a second consecutive year of contraction. The government is effectively stepping forward as private investors retreat, attempting to anchor strategic innovation fields that are unlikely to attract near-term commercial capital.
The initiative follows India’s earlier 2016 fund-of-funds program, which deployed through 145 private venture managers and helped shape the country’s early-stage ecosystem. This latest expansion comes alongside new regulatory moves, including a 20-year window for startup classification and a higher ₹3 billion revenue threshold—both designed to align policy with the realities of deep tech development cycles. Meanwhile, deal volume has dropped sharply, down 39% to 1,518 transactions, indicating a market where capital is available but increasingly selective. The approval also lands days ahead of the India AI Summit, where OpenAI, Anthropic, Google, Meta, and others are expected to participate. The sequencing is intentional: India wants to signal that it is prepared to co-invest in strategic technologies rather than wait for global players to dictate the pace.
For investors, the capital injection reshapes the near-term landscape. The government has indicated it will channel funds into smaller domestic VCs and regional managers, creating co-investment entry points that were previously limited. The focus on deep tech means LPs should anticipate longer deployment cycles and delayed liquidity, even as state backing helps stabilize valuations in capital-intensive sectors. But government participation does not soften selectivity—if anything, the scarcity of private deals suggests a higher bar for differentiation. Attention now turns to how quickly the fund deploys capital and the criteria used to choose participating managers. These signals will determine whether the program accelerates credible innovation or simply broadens the pool of subsidized capital. For investors weighing India exposure, the opportunity is real but tied closely to execution quality and policy follow-through.
