RDI Fund Row: Deeptech Investors Seek More Transparency, Independent Oversight

SUMMARY

• India’s ₹1 Lakh Cr RDI Fund is facing scrutiny after 15 of the 22 companies funded in its first ₹2,192 Cr round were found to have links with members of the selection committee.
• Deeptech investors say the controversy could undermine trust in government-backed capital and reinforce existing networks unless allocation becomes more transparent and independent.
• Investors are calling for greater disclosure, independent oversight and clearer access for emerging fund managers, while the government maintains that its conflict-of-interest safeguards, including disclosure, recusal and supermajority approval, were followed.

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For India’s deeptech sector, the government’s deeptech-focused ₹1 Lakh Cr Research, Development and Innovation (RDI) fund was supposed to be a game changer. But ironically, instead of becoming a watershed moment for a patient-capital-starved sector, the fund’s first major allocation has raised several eyebrows over alleged links between its beneficiaries and members of its investment committee (IC).

The debate follows an Indian Express report that found 15 of the 22 companies that received ₹2,192 Cr in the first round had investment links with seven members of the 12-member IC. 

These 15 companies, including Tejas Networks, Ather Energy, Agnikul Cosmos, Dhruva Space and  BigEndian Semiconductors, accounted for more than ₹1,377 Cr, or roughly 62% of the amount approved in the round. The IC members have said that their interests were disclosed and that they recused themselves where required. The government has also maintained that there was no violation of the prescribed conflict-of-interest framework.

Inc42 reached out to the seven investors named in the report. Two of the investors declined to comment, highlighting that the claims of ‘conflict of interest’ have already been refuted by the government. The others are yet to respond. 

Meanwhile, we also spoke with several deeptech investors, fund managers and other ecosystem players on the issue. A common concern that ran amok was that the fund’s current architecture could end up favouring a select few well-established, deep-pocketed ventures, making it harder for new players to compete. 

The fund is designed as a two-tier structure, with the ₹1 Lakh Cr corpus housed in a special purpose fund under the Anusandhan National Research Foundation (ANRF), while implementation is routed through second-level fund managers such as the Technology Development Board (TDB), AIFs, DFIs, NBFCs and research organisations. 

Under the RDI framework, startups are eligible to receive funding if they qualify as Eligible Technology Entities (ETEs). These can be companies, partnerships or LLPs registered in India and engaged in developing RDI-intensive technologies at technology readiness level (TRL) 4 or above.

TDB’s eligibility criteria also require such entities to have their principal operations and registered global headquarters in India and be under the control of resident Indian citizens. The scheme is focused on sunrise and strategic areas including deeptech, AI, biotechnology, space, semiconductors, advanced manufacturing, energy and climate technologies.

The first round under scrutiny was governed by TDB’s 12-member IC comprising industry and technology professionals, with the TDB secretary Rajesh Pathak acting as a non-voting government representative, who evaluated applications from 124 private companies and cleared ₹2,192 Cr for 22 ventures. 

As per the government, the selection was merit-based, and conflicted members had “zero involvement” in the evaluation or sanction of the relevant proposals.

Nevertheless, the ‘conflict of interest’ disclosures have prompted investors to question whether prior disclosure and recusal alone are enough when industry participants are involved in allocating public capital.

The Network Effect

One emerging concern is that the government-backed fund could unintentionally favour established investors and companies that have strong relationships within the ecosystem.

A Bengaluru-based deeptech fund manager, speaking on condition of anonymity, alleged that the application process for the RDI fund was anything but transparent, with no formal announcement or callouts done for the ecosystem, leading many startups in his portfolio to miss out on the deadline to apply. 

This is especially important as the applications were processed on a first-come, first-served basis, making the first cohort concentrated within companies plugged well into the deeptech ecosystem. The second cohort of 13 companies reportedly had only one company with an IC-member link.

One founder, who has been building his startup in the robotics space for around a decade with TRL 9, said nobody in his circle of deeptech entrepreneurs knew that the application process had even started. He highlighted that the funds were critical for his future projects, which often take years to be commercially viable and need consistent backing to become successful. 

Similar concerns are being raised about the RDI’s FoF (fund of funds), which will disburse capital to eligible AIFs. Emerging managers are questioning whether they can compete on the strength of their investment thesis and track record alone when older funds have deeper pockets and stronger networks.

Multiple fund managers Inc42 spoke with also highlighted how their applications for the FoF were not considered for the first cohort due to their purported nascency. While the guidelines encouraged emerging fund managers to apply for the FoF, they were told internally that only experienced managers were being considered for the first cohort.

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