Glossary
Fund of Funds
A fund that invests capital into other VC funds instead of directly into startups.
By Amit Tyagi, Fitoor Capital · AletheiaAI Glossary
Definition
A Fund of Funds (FoF) is an investment vehicle that pools capital from LPs and deploys it by acquiring stakes in other venture capital, private equity, or hedge funds. Rather than selecting individual company investments, FoF managers curate a portfolio of underlying funds, typically taking 2-5% carry on top of the fund manager's own carry.
The FoF model serves institutional investors—pension funds, university endowments, insurance companies—who lack the expertise or bandwidth to evaluate hundreds of startups. Instead, they gain exposure to a diversified set of funds and fund managers, spreading risk across multiple investment theses and geographies. FoF managers typically invest $5-50 million per fund, sitting at the Series A to Series C stage of the underlying fund lifecycle.
In India, FoF structures have grown as global LPs seek exposure to the Indian startup ecosystem without building direct deal sourcing capabilities. The model also helps smaller Indian fund managers—who may lack global brand recognition—access LP capital by being included in an FoF's portfolio.
India Context
India's FoF landscape remains nascent compared to the US or Europe. The Securities and Exchange Board of India (SEBI) regulates FoFs under Category II Alternative Investment Funds (AIFs), requiring minimum ticket sizes of ₹1 crore ($120k USD) and robust governance frameworks. State-backed funds like the India Aspiration Fund (raised by SIDBI) operate as quasi-FoF structures, investing in smaller regional VC funds across tier-2 and tier-3 cities.
Global FoFs—Sequoia Heritage, Bessemer Venture Partners' emerging fund, and family offices from Singapore, the Middle East, and the US—have increasingly allocated capital to Indian VC funds since 2018. These structures have helped Indian fund managers like Accel and Elevation raise larger funds by providing proof of LP confidence. However, FoF penetration in India remains below 10% of total VC inflows, compared to 25-30% in mature markets, largely because many Indian LPs (family offices, HNIs) still prefer direct fund participation or co-investment rights rather than delegating to a fund manager.
Example
Sequoia Heritage, Sequoia Capital's fund of funds vehicle, has invested in multiple Indian VC funds including Better Capital and Endiya Partners. By doing so, Sequoia LPs gain exposure to India's early-stage ecosystem through a curated set of emerging managers without direct deal work. Similarly, Elevation Capital (formerly known as SEA fund) acted as a quasi-FoF in its early years, raising capital from global LPs and deploying into Indian startups and smaller fund structures across Southeast Asia.
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