The Small Industries Development Bank of India (SIDBI) has revised the capital drawdown rules for venture capital funds backed by its startup fund programme, allowing fund managers greater flexibility to call committed capital and accelerate investments into startups, according to a document reviewed by The Economic Times and people familiar with the matter. The changes are intended to reduce delays in deploying capital and improve the pace of investments in India's startup ecosystem.
Under the revised framework, SIDBI has replaced its earlier fixed drawdown formula with a graded system that permits venture capital funds to draw larger amounts of committed capital at different stages of deployment. Industry participants said the move removes operational bottlenecks that had slowed capital deployment under the previous structure, although it also places greater pressure on fund managers to invest the capital within defined timelines.
People aware of the development said the revised mechanism is expected to help venture capital firms access committed capital more quickly, enabling them to respond faster to investment opportunities. Investors told The Economic Times that while the increased flexibility is welcome, faster drawdowns could require funds to identify and close investments at a quicker pace than before.
The changes come as the government seeks to improve the efficiency of capital deployment through the Startup India Fund of Funds 2.0, a ₹10,000 crore initiative announced by the Department for Promotion of Industry and Internal Trade (DPIIT). The programme is implemented by SIDBI and channels government commitments into Securities and Exchange Board of India (SEBI)-registered Alternative Investment Funds, which in turn invest in startups.
According to SIDBI, the Fund of Funds programme has committed more than ₹12,363 crore across 160 alternative investment funds, with cumulative drawdowns of ₹6,727 crore as of late 2025. The scheme is designed to catalyse private investment rather than invest directly in startups.
The revised drawdown framework is expected to support the government's broader objective of improving capital flows to startups amid a gradual recovery in venture funding activity. Market participants said the operational changes could shorten the time between fund commitments and startup investments, particularly for early-stage companies.
Filed by
Startup Unplugged
