The potential for public funds to mitigate risks in the field of deep technologies is enough to attract private capital in India, but this is only partially possible. The state can assume technological risks, but it is far less effective at eliminating two risks that concern fund managers: the time factor and the exit opportunity.
If policy does not resolve these issues, India will receive a significant amount of capital, but without sufficient confidence in its viability. Nevertheless, there is a real momentum: investments in AI and deep technologies in India reached $2.1 billion across 289 deals in 2025, and the share of deep technologies in the total volume of venture and private investments grew from 4% in 2016 to approximately 15%.
Figures for 2026 look even more encouraging as of early August: Indian deep technology companies attracted $2.22 billion in 179 rounds, compared to $861 million in 287 rounds during the same period last year. However, a closer look shows that while funding increased by about 2.6 times, the number of rounds decreased by almost 40%. The average deal size grew from about $3 million to over $12 million, representing a fourfold jump. Private capital is becoming more comfortable with companies whose risks have already been minimized, but it is unwilling to participate in the risk mitigation process itself. Money is concentrating around established winners in AI and hardware, and new rounds are being made less frequently. This gap is what public funds should fill.
The state's toolkit has significantly expanded. The Research, Development, and Innovation (RDI) Scheme provides for a fund of 1 lakh crore rupees over 6 years, while the Union budget allocated 20,000 crore rupees for the 2025–26 fiscal year. Operating in parallel is the Startup India 2.0 Fund of Funds. SIDBI is authorized to channel 10,000 crore rupees through registered SEBI AIFs, with the government participating alongside private investors who form the majority of the fund. The first version of this mechanism worked as a multiplier in 145 AIFs, which collectively invested over 25,500 crore rupees in more than 1,370 startups, corresponding to a leverage ratio of about 2.5x.
Now, the mathematical calculation is important. With uniform distribution, the RDI corpus amounts to about 16,700 crore rupees annually, equivalent to approximately $1.7 billion. This sum is very close to the total annual volume of deep technology venture funding in India. The state has ceased to be a minor anchor; it has become an almost equal capital provider, and this scale could either attract or repel private money, depending on which risk is absorbed.
Technological risk relates to product functionality, and it is well handled by grants and lab-to-market financing (debt/equity), which is the direct focus of the RDI development. Time risk is the mismatch between 8–12 year development cycles and the 10-year lifespan of funds, and here the help of patient fund-of-funds capital offers only partial support. Exit risk is the weakest link.
The IVCA Bharat Deeptech Report 2026 notes that gaps remain in growth-stage funding and exit opportunities. Tracxn records 104 acquisitions and 46 IPOs in the sector amid 1,821 funded companies. This means roughly one exit for every twelve funded startups over a decade. However, no limited partner (LP) will commit to a fund with such odds, regardless of the first-loss cushion provided by the government.
The most powerful risk reducer is not the fund itself, but the buyer. A procurement commitment of 200 crore rupees from the defense, space, or railway sector would benefit a Series B round more than a grant of 200 crore rupees, as it confirms revenue rather than science. Preliminary market commitments, contract-based government procurement based on results, and accelerated procurement in the style of IDEX could transform the government from a financier into the primary buyer. This is what private capital values.
India's corporate sector is also ready for co-investment. The share of the private industry in total R&D expenditure has surpassed the government's, reaching 51.8% in 2023–24, while GERD growth was 0.84% of GDP. Nevertheless, competitors such as the US (3.45%), China (2.58%), and South Korea (4.94%) invest significantly more. Some state funds through corporate venture arms and strategic buyers could create exit buyers that the ecosystem lacks.
Skeptics raise valid concerns. State capital of this magnitude could lead to inflated valuations. It might stimulate policy-driven startups chasing funding rather than markets. It could also crowd out the private investors it aims to attract. The Yozma program in Israel partially succeeded due to rapid government exit. India's design, through second-tier managers and participation limits, hints in this direction, but it has not yet been tested.
Thus, the answer is a qualified yes. Public funds can make private capital more comfortable, but only if the state thinks like the first client and early exit buyer, rather than just a generous limited partner.
