Fund of Funds 20 Transforming Deep Tech Investments in AI Quantum and Aerospace

The Indian government’s recent approval of Fund of Funds 2.0 with a ₹10,000 crore corpus marks a significant milestone for deep tech startups. Announced by Commerce Minister Piyush Goyal during the Startup India 10th anniversary in April 2025, this fund aims to provide patient capital to sectors like AI, Machine Learning, Quantum, Defence, and Aerospace. This initiative addresses the long-standing challenge of funding deep tech ventures that require extended research and development cycles, which traditional venture capital often overlooks.

Why Patient Capital Matters for Deep Tech

Deep tech startups face unique challenges compared to consumer-focused ventures. Technologies in AI, quantum computing, and aerospace demand years of research, prototyping, and testing before reaching commercial viability. This long runway often discourages private investors who seek quicker returns.

The Fund of Funds 2.0 explicitly accepts these long R&D cycles, offering patient capital that aligns with the strategic needs of these sectors. By doing so, it helps bridge the funding gap that has historically slowed India’s progress in advanced technologies.

Focus Sectors and Strategic Importance

The ₹10,000 crore deep tech fund targets five critical sectors:

• Artificial Intelligence and Machine Learning: These technologies are transforming industries from healthcare to finance. The fund supports startups developing AI algorithms, data analytics platforms, and automation tools.

• Quantum Technologies: Quantum computing and communication promise breakthroughs in security and computational power. Funding here supports research labs and startups working on quantum hardware and software.

• Defence Technologies: Indigenous defence innovation is vital for national security. The fund backs startups developing advanced sensors, robotics, and cybersecurity solutions.

• Aerospace: Complementing the government-backed IN-SPACe ₹5 billion fund for the space sector, this fund supports startups working on satellite technology, propulsion systems, and aerospace materials.

  
  

This targeted approach ensures that investments align with India’s strategic priorities and global technology trends.

Government-Backed Credibility and Risk Reduction

One of the biggest hurdles for deep tech startups is attracting co-investors willing to share the risk. The government’s involvement in Fund of Funds 2.0 provides a strong credibility boost. This backing helps de-risk investments for private venture capitalists, encouraging them to participate alongside the fund.

By reducing perceived risks, the fund creates a more attractive ecosystem for investors who might otherwise avoid deep tech due to uncertainty and long timelines.

Addressing Venture Capital Short-Termism

Traditional venture capital often focuses on quick exits and rapid growth, which does not suit deep tech startups. These companies require a long runway to develop complex technologies and validate their products.

The Fund of Funds 2.0 explicitly counters this short-termism by mandating patient capital. This means investors can expect to support startups through multiple development phases without pressure for immediate returns. This approach aligns with the strategic nature of AI, quantum, and aerospace technologies, which are critical for India’s future competitiveness.

Complementing Existing Initiatives

The fund complements other government initiatives like the IN-SPACe ₹5 billion fund dedicated to the space sector. While IN-SPACe focuses specifically on space startups, Fund of Funds 2.0 covers a broader range of deep tech sectors, including AI and quantum.

Together, these funds create a comprehensive support system for India’s deep tech ecosystem, encouraging innovation across multiple high-impact areas.

Impact on Deep Tech Entrepreneurs and Investors

For deep tech entrepreneurs, the ₹10,000 crore deep tech fund offers a much-needed source of capital that understands the unique demands of their technologies. It provides:

• Access to patient capital that supports long development cycles

• Increased visibility and credibility with government backing

• Opportunities to attract co-investors willing to share risks

  
  

Investors benefit from a government-backed vehicle that reduces risk and opens access to promising startups in strategic sectors. This fund encourages a shift in investment mindset towards long-term value creation in deep tech.

Examples of Potential Beneficiaries

• A startup developing AI-powered diagnostic tools for healthcare could use this fund to scale R&D and clinical trials.

• Quantum computing firms working on secure communication protocols can access patient capital to refine their hardware.

• Aerospace startups designing next-generation propulsion systems can leverage the fund to accelerate prototype development.

  
  

These examples illustrate how the fund supports innovation that requires time and resources beyond typical VC horizons.

Government Venture Capital India and Search Trends

The announcement has generated significant interest, reflected in search trends such as:

• Fund of Funds 2.0 India (12,100 searches)

• ₹10000 crore deep tech fund (14,800 searches)

• AI quantum aerospace funding (9,900 searches)

• Government venture capital India (8,100 searches)

  
  

These numbers highlight the growing awareness and demand for structured funding in deep tech sectors.

What This Means for the Future of Indian Deep Tech

The launch of Fund of Funds 2.0 signals a new era for Indian deep tech startups. It recognizes the need for patient capital and government support to nurture technologies that will define the future. By addressing funding gaps and risk concerns, the fund helps build a stronger ecosystem for innovation in AI, quantum, defence, and aerospace.

Entrepreneurs and investors should view this as an opportunity to engage with a fund designed to support long-term technology development. It encourages a shift from short-term gains to strategic growth, which is essential for India’s global competitiveness in deep tech.